When it comes to maintaining a strong financial plan and healthy financial behaviors, our brains can sometimes work against us. Behavioral biases, mental traps, and neural wirings can all get in the way of setting and meeting financial goals.
Consider recency bias, which is the tendency for people to look to recent events to make decisions about the future. Just because a stock has skyrocketed recently, that doesn’t mean its upward trajectory will last forever. In fact, jumping into the market during a rally could mean you end up buying when prices are high, right before investors bail and prices fall.
Another mental tendency to consider: ego depletion. It’s the idea that people can only exert their willpower for a limited time, and after that, it’s harder to practice self-control. If you have an important financial decision to make, it may make sense to wait until you are no longer feeling depleted.
Here’s a closer look into the ego depletion theory, what it could mean for your finances, and how to overcome it.
What Is Ego Depletion?
The concept of ego depletion hinges on the idea that our willpower reserves are finite, and when we exert self-control for too long, we use up those reserves. Once those are depleted, it is harder to exert self-control, and we’re more likely to make poor decisions.
The term was coined by American social psychologist Roy Baumeister in the late 1990s, though the idea of ego depletion has become popular in recent years. This may be in part because it makes sense intuitively. For example, the experience of eating a healthy breakfast and lunch only to get home from work and eat a bag of chips for dinner is pretty easy to relate to.
However, not everyone agrees with the concept of ego depletion. Some scientists report a lack of consistent data to support the idea. Instead, they have found that motivation is not finite. Rather, it can be subjective, and there are ways to increase it. That can be a good thing as you begin to set long-term financial goals.
Causes of Ego Depletion
There are a variety of factors that may play a role in ego depletion.
• Low blood sugar. If you haven’t eaten and your blood sugar has dropped, it may be more difficult to exert willpower.
• Emotional distress. Temptations may be harder to resist if you’re experiencing a state of mental anguish.
• Unfamiliar tasks. If you are doing something for the first time, you may need to exert more mental energy, which can lead to ego depletion.
• Lack of choice. If you are forced to do a task not of your choosing, you may be more likely to become depleted.
• Illusory fatigue. If you think that a task will be mentally tiring, you may experience ego depletion faster. In other words, ego depletion happens more often when you expect it to. If you think a task won’t tax you too much, you may be able to exert more self-control.
• Cognitive dissonance. Situations in which you do or say something that contradicts your beliefs can tire you out and diminish your self-control.
• Variable heart rate. Those who experience variable heart rate have been found to have less self-control.
The Effect of Ego Depletion on Your Finances
If tasks that require self-control weaken your willpower, you may be less likely to make good decisions when you experience ego fatigue. When it comes to your finances, for instance, you may be more likely to spend money on things that you can’t afford.
Ego depletion could also mean you’re less equipped to make important decisions, such as how to invest your money. For example, if the market is experiencing a downturn, you may find yourself more prone to panicking and potentially pulling out your money. But in doing so, you’ll lock in losses and potentially miss out on a subsequent upswing.
Ego depletion could also mean you miss important deadlines, such as deadlines for funding your 401(k) or IRAs, or tax deadlines.
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How to Overcome Ego Depletion
Luckily, there are ways to overcome ego depletion and improve your money mindset.
Get Enough Sleep
Lack of sleep makes self-control difficult. Sleep counteracts fatigue and helps reset your willpower reserves, so practice good sleep hygiene. Go to bed at a consistent time. Make sure your bedroom is quiet, relaxing, and dark. Avoid large meals, caffeine, and alcohol before bed.
Managing stress can help you address the causes of ego depletion as well as its effects. Consider strategies such as deep breathing, mindfulness exercises, eating healthy, and consistent exercise.
Clear financial objectives and the steps you need to reach them can help overcome ego depletion. Consider using SMART goals, or goals that are specific, measurable, achievable, relevant, and time-bound. With these in place, you’ll know what you need to do to accomplish your objectives, and you’ll also be less likely to make moves that stray from your plan.
Plan for the Long Term
Long-term financial plans take your goals, risk tolerance and time horizon into consideration. They are built to account for the natural cycles of volatility. With a long-term plan to refer to, you may be less likely to make rash decisions in the short term, such as panic selling when markets are down or buying when market prices are peaking and may be nearing a fall.
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Tools to Help Your Reach Your Goals
There are a variety of tools out there that can help you set and meet your goals and make financial freedom a reality. It’s worth shopping around to find the ones that work best for you and you’re more likely to stick with.
One to consider: a spending app, which can help you set up a budget, categorize and track spending, make bill payments on time, and track your credit score.
The idea of ego depletion centers around the idea that when we exert self-control for too long, we use up our willpower reserves and are more likely to make poor decisions. Learning the causes of ego depletion is a first step in helping you head off rash financial decisions that may work against you. If you recognize that your willpower is fading, take a breather. And when in doubt, refer back to your long-term financial goals and plan.
If you’re looking to build your long-term financial plan, a money tracker app can help. The SoFi Insights app connects all of your accounts in one convenient dashboard. From there, you can see all of your balances, spending breakdowns, and credit score monitoring. Plus, you can get other valuable financial insights.
Stay up to date on your finances by seeing exactly how your money comes and goes.
What is the cause of ego depletion?
Ego depletion can be caused by a number of factors, such as emotional distress, fatigue, low blood sugar, or unfamiliar tasks.
What is an example of ego depletion?
An example of ego depletion might be spending the day hard at work and then coming home, sitting on the couch, and turning on the television instead of pursuing other healthier activities, such as going to the gym.
How do you deal with ego depletion?
There are a number of strategies to combat ego depletion, such as getting enough rest, managing stress, and setting and sticking to long-term goals.
Photo credit: iStock/Delmaine Donson
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.