Switch explores the difference between the life changes we eagerly embrace and those we struggle with our entire lives. The book radically altered the way I plan, budget, eat, sleep, and work. Thanks to Switch, whenever I want to change any habit in my life, I now think of elephants.
Let me explain.
The Elephant in the Room
Chip and Dan outline an easy-to-follow system to create lasting, long-term habit changes. To make their point, they use the metaphor of a rider sitting atop an elephant on a path through a jungle.
The rider represents our rational or logical mind. The large, powerful elephant represents our emotional mind. And the path through the jungle represents our environment and surroundings.
The authors say that we most often approach habit change by leveraging only our logical mind, the “rider”. We outline the exact tips, tactics, and strategies we need to systematically execute our plan.
We see early success with this method because, in the beginning, the rider has enough control and strength to force the elephant to go wherever we desire. But the longer the rider tries to overpower the elephant, the more quickly she tires and burns out.
Trying to change a habit with only your logical mind quickly leads to exhaustion. You cannot succeed with willpower alone. (Does this sound familiar?)
The Heaths argue that we need to motivate the elephant. By motivating our emotional mind to change course, we don’t have to steer with as much force. This greatly increases the chances we can maintain momentum and achieve lasting results.
They also recommend shaping the path through the jungle to make the journey easier on both the rider and the elephant. This includes surrounding ourselves with positive, passionate people and removing any potential negative situations that weigh us down.
This simple metaphor has changed my life. As a result, I’m constantly exploring new ways to change my environment and motivate my emotional mind.
When it comes to personal finance, my wife Courtney and I apply this methodology to several areas. Let’s explore them.
Playing with Numbers
When Courtney and I first started our financial turnaround, we started the basics of tracking our spending, starting a budget, and creating a list of every debt we owe.
We laid everything out to the penny. We knew exactly how much interest we were adding to our debt each month. At one point, we could even tell you how much our average toilet paper spending changed on a month-to-month basis.
As you might guess, this level of accounting didn’t last for long. Neither of us is a CPA, and we didn’t have the willpower to continually force this type of accuracy. Even worse, one small error could lead to hours of effort as we tried to reconcile the missing pennies.
We decided to give rounding a try. We rounded all expenses and debts to nice whole numbers. We rounded down all income.
It was a simple change, but it had a profound effect on our process. Suddenly, tracking became fun. It was no longer a chore, but something we actually enjoyed! We could get a snapshot of how we were doing with quick mental math (as opposed to our complex spreadsheets).
The rounding had another positive side effect. By rounding our expenses up and income down, we built up a small buffer that grew throughout the month.
For example, if we budgeted $80 for our $76.50 electric bill each month, we’d have a little left over. Same result if we tracked our spending as $10 when lunch was only $7.98.
The extra dollars and cents accumulated more quickly than you might think! At the end of each month, we were left with a couple hundred dollars as a buffer.
Before we started rounding, if we budgeted incorrectly or had an extra expense pop up, we’d feel guilty. But this buffer allowed us to absorb a mistake or two and still be on target for our budget.
Most months we’d just leave any extra we had in our checking account and let it compound a little each month. We celebrated yet another small victory!
Defeating Debt
At some point in time, every person who digs his way out of debt has to decide what order he’s going to eliminate the debts in his life.
There are several popular methods to pay off debts, including:
Highest interest first. The logical or mathematical option is to pay off whichever debt has the highest interest rate. This ignores any emotional or psychological aspects, but results in the fastest theoretical path.
The debt snowball. Popularized by Dave Ramsey, this method suggests paying off your debts from smallest to largest. The idea is to find early success, celebrate the small wins, and build momentum.
The debt tsunami. This is the name Courtney and I created to label the own path we took. We prioritized our debts by how intense our emotions were about each debt.
Courtney and I started our financial turnaround with the debt snowball, but quickly realized that we cared much more deeply about some of our debts when compared to others.
For example, our debts to family members weighed heavily on us even though they carried no interest and no formal monthly payments.
We also felt much more empowered when we paid off gambling debts or credit cards that represented our most ridiculous spending choices. Making progress on these increased our pride and fueled our passion to the point where we felt unstoppable!
So we created a way to gauge our emotions on each debt and every few months would revisit our list. Each time we focused out energy on those debts we hated the most.
Rejecting Credit Cards
Courtney and I cut up and canceled our last credit card three years ago. Not a week goes by where I don’t talk to someone about this issue, so I’ve heard all the arguments in favor of credit cards:
“You’d have to be an idiot to pass up free money!”
“Well I guess that’s fine if you can’t handle a credit card properly.”
“You are damaging your credit score!”
“Have fun renting a car or booking flights…”
Some of these are valid downsides that come from living a life without credit cards. However, not all are true. For example, our credit score has gone up over the last three years. And I’ve rented several cars and booked multiple flights in several countries and currencies.
When it came to the valid downsides, Courtney and I weighed them against the benefits of eliminating credit cards altogether. For us, we were so passionate and focused on turning around our habits that we couldn’t imagine keeping credit cards in our lives. It didn’t feel right. We were emboldened every time we eliminated another one.
We also recognized a difference in our habits when we spent with debit cards over credit cards. With credit cards we thought, “Can we pay this off at the end of the month?” But with debit cards we asked ourselves, “Do we have the money in our account right now?”
This seems like a subtle shift, but it had a profound impact on our financial life. Overall, the pride and passion we felt for opting out of the credit card industry far overshadowed 1% cash back and a few airline miles.
Waiting to Invest
We also decided to focus on eliminating our debt before investing for college or retirement. This decision is a complex one for many people, but we wanted to keep our financial goals simple and focused.
By focusing our time, energy, and passion on eliminating debt, we were able to do so much faster than if we had tried to juggle multiple goals and priorities. We also believe that a debt-free lifestyle (and a debt-free business) will provide a flexible foundation for us to build a secure future.
Many people will point out if you have a low-interest debt (let’s say 2-4%) on a student loan or mortgage, you may be able to realistically achieve much better returns than that by investing for the future.
We understand how the math works, but for us it’s far more important to have the flexibility, momentum, and freedom that comes with a debt-free lifestyle.
We’re looking forward to having the mathematics of compound interest work for us in the future, but for now we’re leveraging the motivation of our emotional minds to maximize focus and passion as we finish off our debt.
The Best of Both Worlds
To create long-term, lasting habit change, Chip and Dan Heath taught me that we need both sides of our mind — logical and emotional — to work together.
In the personal finance world, it’s easy to focus on the next tip or tactic that you think will move you closer to your goals. But don’t forget the power that comes with motivating your emotional mind to come along for the ride.
The next time you go to change a habit, don’t forget about the elephant.
For discussion: In what areas of your finances do you choose emotion over logic? What tricks have you found to make your “rider” and “elephant” travel the same path?
After having a daughter, Adam Baker and his wife Courtney decided to sell all of their possessions, pay off their debts, and travel with their baby for a year. Adam shares details about their finances, belongings, and adventures in the hope of motivating and empowering others on similar journeys.
Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)
Yes! Sign up and get your free gift
There are 86 comments to "Logic and Emotion: Why Smart Money Management Isn’t Just About Math".
20's Finances says20 September 2011 at 04:32
I agree that you should budget to the point that it is still fun. Otherwise, you will get burnt out. While I take a different stance on credit cards than you, I certainly understand the benefits of not using credit cards.
For me it is gift giving. I don’t spend extravagant amounts of money in gifts, but I do often go over budget. It is a battle between being frugal and being generous.
Especially with my family, and close friends, I want to give gifts that I know they will use and be thankful for. These don’t always incur a large expense, but sometimes they do. Emotions definitely get me in this area.
Switch is an excellent read with its analogy of rider and elephant for any situation requiring change – personal finance, work related issues, community.
SB @ One Cent At A Time says20 September 2011 at 05:07
I view this article as brain and heart working towards financial betterment, rather than elephant and rider. When brain wants to set a path, heart should also be satisfied and willing or else, heart aches could change brain’s thinking in the journey.
I do satisfy my heart constantly by spending on entertainment, travel and good food. Our heart is like a little kid who gets satisfied only with love and material things.
We need to have balance in our life a balance between wise choices. some choices to save and some choices to spend.
Very nice article Adam but, good luck with your coaching program. Good that you started writing again on your blog.
This is a really interesting post, and I think I need to track down that book.
I am a hugely emotional person, perhaps I am really a passenger on a woolly mammoth or something. If I could find a way to greater control the emotional side, my life would be better in about a million different ways.
Tying to the success you found rounding vs tracking to every penny, I have found similar cirucmstances in other areas. I tend to be a perfectionist, and that can really burn a person out when you demand exact answers.
Just ordered it! Can’t wait to read it. Maybe my husband will send you a big thank you card with a donation included if the insights from the book make me better able to control my emotions… 🙂
I like the elephant metaphor because it’s this big lumbering thing that’s difficult to control. But I LOVE the mammoth metaphor even better because it brings to mind the idea that so much of that emotional baggage goes back a long long time, often from family issues that can go back generations, which I think more accurately reflects the challenge in overcoming them!
I paid off my student loans while I was still a student (I’m doing my PhD and the loans are from my undergrad). I live in Canada, so govt student loans (which is what I had) are interest-free while you are a student. I remember the guy at the bank telling me that it wasn’t a logical decision, but I just wanted them gone.
They said the same thing to me! Though in my case it was a student line of credit and I had already graduated. Everyone kept telling me not to be in a hurry to pay it off. After all, the interest rate and monthly payment were low — and I did have twelve years to pay it off, and I should keep it open in case I need it…
THANK YOU for an excellent post that was just what I needed to hear this morning. “Switch” is definitely going to the top of my need-to-read pile. While my debt is getting paid off and I track our money religiously, my elephant/mammoth really battles my rider on keeping to the budget (specifically over eating out vs. food from home). Still working to figure out how to get mind and heart on the same page with that.
My husband and I are like Laura — our big money drain is eating out vs. eating at home. No one in my family has a big house, and no one is a fantastic cook, so when we get together with my parents, or my brother and sisters and all of their kids, we always go out. It’s a major money drain. Baker, I’m going to try the envelope method once again for that. Maybe this time I can satisfy the hungry elephant.
We don’t use credit cards either, for the same reasons you don’t – it’s just easier not to. We don’t like being in debt to anyone, at all. Everything gets paid cash up front (besides the mortgage, no way around that for us yet).
We have heard so many heated arguments from people as to why we should use credit cards – usually because they can’t imagine or don’t know how to live without them. They love to try to convince us that we “need” them, but you know what? You don’t! No one does actually. You can do everything with a debit card – even get a cash advance.
Have you heard of people talking about “purchase security”? Apparently if you have a problem with something you bought, then the credit card company won’t charge you for it. If people “need” that feature, maybe they need to be more careful about what they buy! A sign of too much consumerism for sure.
Kaylen – “purchase security” may not have anything to do with being careful, but about being protected if a product is defective or the selling company doesn’t deliver properly. Your consumer protections are stronger having used a credit card than other payment methods. While I certainly understand that some people may still not wish to use credit cards, it is unfair to disparage the choice for those of us who use them responsibly, especially when there is a real advantage in this case.
Agreed! Some people can use a credit card responsibly and some people can’t. It’s up to everyone to decide which tools work best for them.
I use a credit card sometimes. It doesn’t mean consumerism is running rampant in my life or that I’m in denial. To me it’s a debit card with a few extra perks.
I have to agree with Kristen. We love that our Amex credit card extends the warranty on almost everything we buy by one year. It makes the decision to pay for “extra warranties” at point of sale simple… we don’t. We have had the card for 3 years, never had to use Amex’s extended warranty (knock on wood), but we feel better when we make large purchases that we are covered. (Like when we moved into our house, we put all our large appliances on our card.)
The other thing I wanted to mention was fraud protection. If someone steals your money from your debit card/checking account, it’s nearly impossible to recover, or so I’m told. Credit card companies are more vigilant because they eat the cost in fraud cases.
Again, I completely understand why people would NOT use credit cards; I just don’t get why anti-credit-card users would disparage those of us who have many valid reasons for using them.
You’re right that people who don’t use credit cards shouldn’t disparage those who do. But from my point of view, it’s the credit users that more often disparage the non-credit users with remarks like, “Well, if you can’t handle credit cards…” Maybe some of us non-credit users have reasons other than lack of self-control that have led us to be credit-free.
louisa @ TheReallyGoodLife says20 September 2011 at 10:20
I was going to make the same points as Amy about fraud prevention & the extra warranties but since she’s said it so well, I won’t repeat, just say +1 🙂
I have a single credit card which I only use for online purchases (which covers nearly all my big purchases & travel as well as trivial stuff) and pay off in full at the end of each month. I also asked for my credit limit to be kept low to minimise fraud issues/the impact of fraud even further.
I do recognise Adam’s point about saying “have we got this in our account right now?” and I won’t deny there isn’t the odd nasty-surprise month caused by the delay between using the credit card & actually paying it, but by and large, it’s not a problem and I feel safer using it online than a card linked to my current account.
@Marsha — I agree people have other reasons for avoiding credit cards. I don’t drink — that’s not because I think alcohol is evil or I have drinking problems, it’s just what works for me.
Usually on PF blogs and in the financial media the “avoid credit card” advice either comes from or is geared towards people who have credit card problems.
I say use them or don’t use them, that’s up to the individual, but be aware of the pitfalls and advantages either way.
I also like the fact that credit cards allow you to use “virtual” numbers, so that you don’t have to give a merchant the actual number. That way, if security is comprised on the site, the hackers wouldn’t be able to reuse your number.
Lauren {Adventures in Flip Flops} says10 September 2012 at 10:33
I don’t know about anyone else’s debit cards, but mine offers everything except the extended warranty protection. I’ve contested charges, recovered money that was fraudulently charged, etc. etc. My bank will refund every fraudulent purchase made with my debit card up to a few thousand dollars and the few times I had to contest a charge, they handled everything efficiently.
I’ve never heard of being able to get a cash advance with a debit card. Unless you’re talking about deliberately overdrafting a checking account, which I suppose technically could be a cash advance?
Kaylen, it’s not just about “purchase security”. You have MUCH better fraud protections with a credit card than a debit card. I never use a debit card for purchases, ever. That said everybody has to balance the risk of the relatively unlikely nightmare of someone getting ahold of your debit card information and emptying your account, vs their own ability to pay off the credit card in full every month.
I meant to add, (for those who don’t know) if you are going to use a debit card instead of a credit card, always always run it as a credit card (so you sign rather than enter a pin)- the money will still come out of your account immediately, but theoretically you get SOME of the fraud safeguards that you get with credit cards.
Personal Finance Source says20 September 2011 at 06:46
I like that you are doing what works for you. One thing I disagree with though is waiting to invest. I don’t think most people have the discipline to pay off all thier debts never taking on any more new debt. If these people wait to invest until they are debt free they may never get started saving for retirement. For me I believe I have the discipline but never know what the future brings. So I like to invest and pay off debt. But if it is working for you then I believe you should stick with it!
My approach is to try and *get* people passionate about the shift in focus and passion, and I think the sole focus helps that.
But if I honestly felt a particular person *couldn’t* achieve debt reduction even with focus, I’d strongly recommend they “pay themselves first” to counteract the slow reduction in debt. 🙂
I agree. It’s one thing to temporarily (as in, one or maybe two years) defer investing. But putting off all investing until every last dollar of debt is paid off, regardless of interest rate, is just going to hurt in the long run.
Agreed! Even though it may not make sense mathematically, I think it’s important to just get started investing or saving for an emergency fund. Even if it’s only $25 a week. Or $10 a week. Or $5 a week. Just getting into the habit of putting some money away for the future (long future = investing and short future = E-fund, in my opinion) is crucial.
Great post. I can totally relate to the “debt tsunami” idea. I have wondered how to characterize that means of prioritizing and you have given it a name!
I have a few different debts I am paying off and the one that is most emotionally driving me right now is a fixed loan that represents mistakes of the past that I want gone as soon as possible. It is not the one with highest interest but is my highest priority right now and the fixed payments are really hurting my cash flow and budgeting flexibility.
By taking on extra jobs, I will pay it off by June 2012 instead of August 2013–the original loan term. When it is gone, I will go at the remaining credit card debt and I will be in charge of the payment amounts and frequency. Whatever gives you the most motivation to pay off debt, go with it!!
I like the post, and certainly logic will only get you so far! I am also anxious about paying off my student loan – low interest or not, it’s still debt I owe to someone else!! The mortgage too, although that’s too big to tackle right now while we are still in school.
I did have an issue with one thing you said:
“We also recognized a difference in our habits when we spent with debit cards over credit cards. With credit cards we thought, “Can we pay this off at the end of the month?” But with debit cards we asked ourselves, “Do we have the money in our account right now?””
Well, by no means do you have to wait until the end of the month to pay off a credit card! You can pay for it that same day, just like a debit card – only one extra step to transfer the money. I NEVER buy something on a CC that I don’t “have the money in our account right now” for!
But really it’s about “what works for you” so if YOU don’t like credit cards, don’t use them.
With my credit card spending, I ask myself:
“Do I have the money in my account right now?”
That’s the mindset of people who manage them properly. Change that mindset and they no longer have any power over you.
I’ve been volunteering for Debtors Anonymous lately and really do recommend that as a place for people who need an in-person meeting for additional accountability (added bonus is that it’s free). They also have telephone and internet meetings.
Spouse & I just got discharged from bankruptcy. With our (deservedly) awful credit score, we were concerned since rental car agencies all told us that if we used a debit card, they’d run our credit and implied that they would decide *not* to rent us a car given our low credit score.
So now we have a secured credit card that we use only for car rentals (if you’re wondering, no not for vacations-those, we drive our own car or visit relatives! We are self employed and rent cars for work-related conferences, non-profit board meetings, etc that are far enough away that flying makes more $ & time sense than driving).
If anyone has a non-credit card way for folks with truly bad credit to rent a car, let me know!
I think Enterprise rents to debit cards. They put a $200 hold on your card. Other companies may as well, just check on Hotwire that you want to pay with a debit card.
Many rental car company have a policy, you just have to ask.
Most will put a hold on your card – and for most it’s between $200-$400 until you return it.
Some allow you to pay with cash, if you provide identification and/or purchase a certain level of insurance. We’ve applied both of this instances when renting a car in the past.
I’ve also been able to rent cars with prepaid Visa gift cards; though these come with a service fee, as long as they see the balance is high enough to cover the car AND any damages that might be incurred/”hold” amount, they often will accept that.
all the rentals in our area (including enterprise) only reluctantly accept debits…but also want a copy of a utility bill, a recent bank statement, and will put a hold on twice the total cost of the rental until the car is returned then it takes a week for the hold on the extra cash to be released after the initial cost is deducted.
however, as long as there is Amtrak (sans TSA), I’ll do without a CC.
I really enjoyed this post. Right now I’m reading Willpower by Roy Baumeister, I might have to add Switch to my reading list.
I totally agree that personal finance is not just numbers and math, because money means so much and means different things to different people. Emotion is clearly wrapped up in just about every financial decision we make.
We are a debit card family, I similarly spent differently when I used credit regardless of the fact that I paid it off in full each month, didn’t incur interest payments and raked in the frequent flyer miles. Bottom line, I spent way more when I used credit.
We do have a credit card which we use for travel b/c I have run into issues with holds and the like when booking hotels or rental cars. We do also use credit when making an extra large purchase (like a computer or tv) or to take advantage of certain rewards. But, no way would I go back to using a cc for day to day expenses, for us it just doesn’t work and the up side of rewards just doesn’t balance out the down side of spending more than we should.
This is a wonderful article. I too have my inner demon (Elephant) that I deal with everyday. My weaknesses are clothing and dining out. I recently decided to shop at thrifts store first before going into expensive department stores. This decision alone has allowed me to save $100-$200 a month while satisfying my elephant.
However, I do have to disagree on eliminating credit cards. Credit cards works best for me because:
1. I do not think of my credit cards as credit line which I need to be paid back at the end of the month. I think of them as my debit card. I only charge them when I have the money in my checking.
2. To track, my credit union provides quicken which allow me to download my transactions live. Therefore, I was able to see how much I have spent so far in a month vs. my income regardless of the form of payment.
3. I rack up my rewards points and receive cash back.
This is an odd analogy. People actually do ride elephants, but it’s a lot more familiar if you replace the elephant with a horse. Have you ever ridden a horse on a trail? I can tell you that two things you’re not going to get as recommendations about how to get to where you’re going are “build a straighter trail” or “motivate the horse to want to get to the end”. No, you pretty much just use your own body to tell the horse where to go. It’s like this analogy us trying to be wrong.
I think the analogy works well. (1) Proportionally, the ratio of human to elephant is much bigger than human to horse, and illustrates how our emotional minds are so much bigger/stronger than our logical minds (more than a horse is to a human). (2) For many/most Westerners, the idea of using our logical minds to properly (properly) guide our emotional minds is as unfamiliar an idea as riding an elephant.
1) Yes, an elephant is bigger than a horse, but does this have any correlation to how big our emotional vs logical minds are? Probably not. A horse is already something like 10 times bigger than a human, is that not a big enough difference to illustrate a difference between our logical and emotional minds? Personally, I think that the two are a lot more *equal* than that, not more unequal. I don’t feel like I have so little control over my emotions, personally. Do you? Regardless, there’s no evidence either way presented in the article or in your comment supporting an elephant being a more accurate analogy than a horse.
2) The whole point of an analogy is take an unfamiliar concept and make it understandable by relating it to something you’re familiar with. If both concepts are unfamiliar, then the analogy loses its impact. This is why people say things like “a computer’s hard drive is like a filing cabinet” instead of “a computer’s hard drive is like a linear array partitioned into segments that are arranged logically into a tree structure with an index table stored at the beginning.” The point is to relate an unfamiliar concept to something you understand, like a filing cabinet, otherwise the analogy doesn’t help your understanding.
You’re a computer guy who works all day with logic, so my guess is that you tend to see the rational part as bigger than it actually is.
Ask a psychologist or zoologist and they might tell you that reason is a very thin varnish on a furious, hungry beast.
I actually find the elephant metaphor rather gentle.
For me it’s more like riding a bull or a bucking bronco or some mythical dragos. Good luck hanging on to that! Especially when it flies upside down…
The Enlightenment was wonderful and we are its heirs, but Nietzsche and Freud thoroughly destroyed the notion of the rational subject. The rest of the world still has to catch up. Not that I’m anti-rationalist by the way… that stuff always lead to fascism.
what if we substitute elephant for “tractor trailer”…
seems to me the same analogy would apply…we steer the truck, but the passage way and how we coax the gears, evaluate the height of bridges, and edge through tight spaces could be construed as “motivating the elephant”. We’ve got the high-up viewpoint and have to battle the idea of “I’m a truck, get out of my way”…and some of us are carrying around a heck of a payload from just heavy to explosive.
may make more sense to the elephant deprived American states.
The metaphor of the Elephant and the Rider came from Jonathan Haidt’s book “The Happiness Hypothesis”. The Heath’s would have used that and not a horse and rider because, as they state in their previous book “Made to Stick” – marketers are supposed to use cutesy images that stick in people’s minds so that people remember you and you can sell to them more easily.
If you aren’t in debt, are you saving for something? Or maybe, avoiding saving for something? I feed $400 a month to my albatross. maybe this book and this methodology would help with savings. I think it might also help with other areas of our lives that need tweeking and changing. I’ve put the book on hold myself, so hopefully I can learn something new! Congratulations on not having the debt though!
Is this a literal albatross that needs fresh fish, or a figurative albatross like the elephant in the article? If the second, how do you motivate an albatross to fly 5,000 miles non-stop? I want to hear more about your albatross.
Around her neck. yes? yes. It’s not a National
Geographic albatross, it’s a Coleridge one. A ball and chain without the marriage overtones. A poetic representation of guilt.
How can I roll my eyes on here? Sorry I’m not familiar with some random 212-year-od poem about an albatross. Next time you’re unfamiliar with anything at all no matter how specialized or niche I’ll be sure to mention how uneducated you are.
Eh, everybody knows about the Ancient Mariner, sorry you skipped class that day. And geometry was invented in antiquity (much longer than 200+ years). You don’t use it anymore or what? Damn those archaic triangles! They’re old! I want new ones!
About the rolleyes, go ahead. If you keep rolling them back you might see inside your brain and find how much anger seethes behind your logical postulates. Is it a horse or an elephant?
Alright, I’m not giving you a hard time for not knowing this poem by the way, just for being a gratuitous Cheney towards Marcia.
Which brings me back to the subject of rationality and its difficulty at a social level: it’s not universal, and no single person is its arbiter. Hence the need for keeping an open mind and showing some tact– their albatross might just be a different one than yours.
I’ve been investing for about 15 years now. It’s my “smoking” money. I used to smoke, and I know that if I needed cigarettes, I would find a way to buy they. Now I spend part of that “savings” on my investments. Not as much as I would have spent on cigarettes, but the amount saved grows. If I suffer a loss (as we all have) I have less stress about that. It would have been smoked up anyways!
I like the idea of a debt tsunami. I paid off two debts that had very little interest. One was one of those computer deals. I just knew that if something happened, there would be a big penalty at the end. By paying it off early, I’ve avoided that. The other one was a small but very old debt, accumulated during the heyday of balance transfers. Getting rid of that card closed the door to my past. Now I have two debts that are more recent in my life – decisions made during difficult times. One is almost finished and then we will start working on the albatross!
Using the debt snowball method however, has helped me immensely.
We were once $28-34k in cc debt. It took us 15 years, but it got paid off. I still use cc’s because I love the pay back. I have had 2 cards for around 7 years and have paid them no interest and have received around $3k from them. I heard that people like that are called “dead beats” in the industry.
I will never use a debit card. I know things are some better, but if your card is hijacked, it is easier to get settled from the cc company than from your bank.
I budget each month how much to spend. I actually budget enough so I buy everything I can think of on the cc’s. If something comes up (like 4 new tires this summer), I just take it from my savings. I do not have 1/2 dozen savings accounts for all my needs. I just have one and keep it high enough to cover what I need.
Debt free is very freeing. Hip! Hip! Hooray!!
I like the idea of the emotional part of you needing to participate in your debt removal. It goes so much easier.
I just can’t get behind the debt snowball (or tsunami) approach. I can’t imagine feeling more strongly that I need to get rid of an interest-free loan from a family member (unless that person was in dire need) than a 15% APR credit card bill. But of course, that’s my psychology, and, “Paying it this way will save me hundreds/thousands of dollars” is a lot better motivation for me than, “I feel bad owing my parents money.”
Relationships are more important than money. That’s why I would pay off a friend or relative before some faceless corporation, even if it cost me more financially.
Lauren {Adventures in Flip Flops} says10 September 2012 at 10:45
Sometimes, Becka, you don’t have a choice, or your options are so limited that it is your best choice. I recently needed a lot of work done on my teeth and I didn’t have the money (and yes, I’m insured, and yes, I have an emergency fund that was hit by several things at one time). So, I borrowed from my family and am paying them back ASAP even though I still have massive student debt. I pay those loans every month as well (and pay a few down), but I wouldn’t consider paying a few hundred dollars on a high interest loan when I could pay back my family right away, especially because they stepped in during a time of need.
It must be nice to NEVER need help from someone who isn’t a credit card company.
It’s a personal choice… I think the point he was trying to make was that some debts weigh more heavily on you than others do, so it could be more psychologically freeing to pay off certain debts first. I feel the same about my student loans vs. my mortgage, though my mortgage is a higher interest than my student loans.
For me, acknowledging my own emotions means acknowledging that anything other than the mathematically optimal choice is going to bug me. I did start out life with some “capitalization” debt, including student loan debt and a car loan right out of school; but I paid it off in a year or so, sending extra money to whichever debt had the highest interest rate at the moment, even when that rate changed a couple times.
Very good! You also need to consider establishing an emergency fund as you’re paying off your debt. That way when an emergency arises, you’ll have the money for it and won’t have to go further into debt. Start with an emergency fund of $1,500, and build it to have the number of months’ expenses it would take to find a job if you lost your current one.
Max, very good point! That one took us a while to learn so we kept going back into debt when the car needed repairs or the house needed something big. Having that buffer in a separate account makes it easier to ignore and take some joy in it’s growth.
I used to think that credit cards were evil, too. I can understand not having them if it doesn’t work for you. That being said, I have an experience I’d like to share:
A few years ago my husband and I bought plane tickets to Maui with ATA. The airline went bankrupt and ceased operations a few months before our trip.
Because I’d purchased the trip with a credit card, we were able to file a claim with our card stating the merchant had not provided services paid for. We got all of our money back!
If I’d used our debit car (which I’d been considering), we’d have been stuck in line with waiting for a handout after bankruptcy proceedings. Many years down the line we maybe would have gotten a fraction of our money back, if any.
I liked this article, real life stuff, and the fact that they were able to change things for the good is encouraging.
I did not get however how the book connects with their changed behaviors. How the books ideas we actually implemented— e.g Principle A is exemplified in Process B.
The book looks interesting though, and I’ll try to find out more about it.
This is a good post, Adam. It reminds me of something I call “mind vs. brain.”
The brain is logical and likes to recognize patterns to create shortcuts. In short, the brain (in absence of mind) will have an individual form lazy and/or self-destructive habits.
Mindfulness, in the form of self-awareness, is the greatest means of ending old habits and forming new ones.
Mindfulness is also the recognition of ego as a motivating (and destructive) force. Ego cannot exist in the presence of awareness; it dissolves the illusion that ego presents.
In this context, I would say that the ego is the elephant and that self-awareness is the emotional intelligence that manages it.
Eckhart Tolle’s “A New Earth” is a good book for those wishing to make lasting change.
“The ego identifies with having, but its satisfaction in having is a relatively shallow and short-lived one. Concealed within it remains a deep-seated sense of dissatisfaction, of incompleteness, of ‘not enough.'” ~ Eckhart Tolle
“See if you can catch, that is to say, notice, the voice in the head, perhaps in the very moment it complains about something, and recognize it for what it is: the voice of the ego, no more than a conditioned mind-pattern, a thought.” ~ Ekhart Tolle
So the ‘voice’ in my head that says, “I don’t want to go to work today!” is my ego talking?
And my rational response to that voice is, “Oh, come on. It’s not that bad…you get to get outside for a bit, socialize a bit, be challenged a bit, and get a bit of a paycheck…”
Is that me being mindful and satisfied?
Interesting. If so, I can see where some people live their lives listening only to that shallow voice and might therefore be lazy and unmotivated.
I liked your article and your “debt tsunami” term! This is EXACTLY the discussion I had with my husband last week.
Our only debt last week was:
$100k mortgage 5.25%
$17k student loan in my dad’s name (aka PLUS loan) 4.25%
$14k student loan in my name 3.83%
Savings:
$40k
Hubby argued the logical side: “If we’re going to pay off a significant amount of debt, then we should put it all towards our highest interest debt, which is the mortgage.”
I argued the “debt tsunami” side: “It is our moral obligation to pay off the loan in my dad’s name first.”
He finally agreed, and we paid off the $17k on Friday!! My dad was super happy when we told him. And I feel SO FREE. The debt is off his record and off my conscience. Also, our cash flow is now increased by $150 per month, and we saved nearly $4,000 in interest over the next 8 years.
Good for you, Amy. Family has to come first – for me, the emotional would outweigh the interest rate debt. And for all those out there doing the math, saying “Why would I pay an interest-free loan off first?”, consider how you’d feel if your parents approached your request for a loan from the other side of that coin and said, Fine, we’ll loan you the money at an interest rate half a point higher than your current debt.” I’m sure you’d feel taken advantage of…well, now you know how they feel!!!!
Actually, your strategy also makes sense from a logical perspective as far as risk is concerned. If you were to be hit by hard times (for example, long term job loss) you can always sell the house. Worst case scenario at least the mortgage debt could be discharged by foreclosure or bankruptcy, but you would still be stuck with that student loan debt…
Great article Adam, I love your debt tsunami – although like others I would hate my higher interest debt more than the lower ones. But I suppose if I had somethign that represented a bad choice it would be of emotional advantage to eliminate references to it form my life by paying off that debt. I think we did somethign similar when we sold our hot tub. It was a bad decision to buy it – and keeping it eroded the value (depreciating asset) but mostly reminded us of a foolish choice and a lesson already learned.
I think I need to go check out that book now. Time for a trip to the library 🙂
This just shows how reliant we are on credit cards. Its so much easier to book a flight or rent a car online and using a credit card makes it just so much easier. Look at all of those ‘awards’ and free miles you are passing up 😉 But see that is what they want you to believe, so that you will use their credit card.
For me I take a different stance and use fee free credit cards and pay them off so I pay no interest but at the same time I take advantage of all the free air miles I can get. I haven’t paid for an airplane ticket in over 2 years now.
This is a very nicely made argument discussing how to reconcile your emotional and rational responses to a problem, something often missing from financial advice. As a person who regularly squelchs emotion just *because* it’s not logical, it’s nice to have such a well articulated way to help family members who run screaming from budgets, whose eyes glaze over the moment interest rates are mentioned, and who are afraid to open credit card statements. I’ve always been a big fan of “do what works for you,” but figuring out what works is sometimes quite difficult, and I think this article will help.
My emotional side comes out when I think about travel because I enjoy it so much. Dollars and cents will always balance that out and I don’t have to work on it. I won’t travel unless I can enjoy myself which means the price of travel cannot be a burden.
Hey Adam–thanks for the post. “Switch” is a book that changed my life, too. I use the principles from the book on a regular basis in a treatment adherence group that I run for adults with Type 2 diabetes at the hospital where I work. I love the elephant and rider metaphor–and my patients seem to love it, too!
I agree that nothing is more important than paying back a relative/friend. That person is an individual who relies on their money for survival. That is a higher moral obligation, IMO, than a company that has (tens of) thousands of clients netting it profit.
However, after that, I am all for the Dave Ramsay debt snowball! There is NOTHING like the pleasure of paying off a loan entirely. I can’t imagine putting that off for 10 years just to save a few hundred dollars in interest.
Plus, to me there just seems to be something more secure about having fewer loans. If you run out of money and default, that’s fewer bad marks on your credit history, isn’t it? And fewer bill collectors harassing you.
I’ve heard the analogy of animal and rider before – we are rider, our emotions are the animal. But I’d never heard the part about motivating the animal – excellent point. After all, no real animal will go far unless it’s fed, watered, or spurred on in some way. Thanks for some enlightening information!
There are 86 comments to "Logic and Emotion: Why Smart Money Management Isn’t Just About Math".
I agree that you should budget to the point that it is still fun. Otherwise, you will get burnt out. While I take a different stance on credit cards than you, I certainly understand the benefits of not using credit cards.
For me it is gift giving. I don’t spend extravagant amounts of money in gifts, but I do often go over budget. It is a battle between being frugal and being generous.
Especially with my family, and close friends, I want to give gifts that I know they will use and be thankful for. These don’t always incur a large expense, but sometimes they do. Emotions definitely get me in this area.
Great example of an opportunity where emotion can outweigh logic. This is – of course – for better as worse as many christmas shopper could attest to!
Switch is an excellent read with its analogy of rider and elephant for any situation requiring change – personal finance, work related issues, community.
I view this article as brain and heart working towards financial betterment, rather than elephant and rider. When brain wants to set a path, heart should also be satisfied and willing or else, heart aches could change brain’s thinking in the journey.
I do satisfy my heart constantly by spending on entertainment, travel and good food. Our heart is like a little kid who gets satisfied only with love and material things.
We need to have balance in our life a balance between wise choices. some choices to save and some choices to spend.
Very nice article Adam but, good luck with your coaching program. Good that you started writing again on your blog.
I can see how heart and emotional mind could be interchangeable as you’ve laid it out!
For me, using heart makes me feel a little woo-woo. I connect with thinking of my emotional mind better – as silly as that may sound! Haha.
good say, Baker!
This is a really interesting post, and I think I need to track down that book.
I am a hugely emotional person, perhaps I am really a passenger on a woolly mammoth or something. If I could find a way to greater control the emotional side, my life would be better in about a million different ways.
Tying to the success you found rounding vs tracking to every penny, I have found similar cirucmstances in other areas. I tend to be a perfectionist, and that can really burn a person out when you demand exact answers.
You really should give it a read, it’s one of my top non-fictions of all-time. 🙂
By the way, I laughed out loud at your MAMMOTH comment. Hilarious!
Just ordered it! Can’t wait to read it. Maybe my husband will send you a big thank you card with a donation included if the insights from the book make me better able to control my emotions… 🙂
I like the elephant metaphor because it’s this big lumbering thing that’s difficult to control. But I LOVE the mammoth metaphor even better because it brings to mind the idea that so much of that emotional baggage goes back a long long time, often from family issues that can go back generations, which I think more accurately reflects the challenge in overcoming them!
I paid off my student loans while I was still a student (I’m doing my PhD and the loans are from my undergrad). I live in Canada, so govt student loans (which is what I had) are interest-free while you are a student. I remember the guy at the bank telling me that it wasn’t a logical decision, but I just wanted them gone.
They said the same thing to me! Though in my case it was a student line of credit and I had already graduated. Everyone kept telling me not to be in a hurry to pay it off. After all, the interest rate and monthly payment were low — and I did have twelve years to pay it off, and I should keep it open in case I need it…
And no, I didn’t listen. And it feels great.
THANK YOU for an excellent post that was just what I needed to hear this morning. “Switch” is definitely going to the top of my need-to-read pile. While my debt is getting paid off and I track our money religiously, my elephant/mammoth really battles my rider on keeping to the budget (specifically over eating out vs. food from home). Still working to figure out how to get mind and heart on the same page with that.
Thanks!
On the budgeting, whenever we struggle with specific categories we move it to something super basic like envelope budgeting.
We don’t use that ALL the time, but it’s great for simplifying the process and giving us a change of pace. 🙂
My husband and I are like Laura — our big money drain is eating out vs. eating at home. No one in my family has a big house, and no one is a fantastic cook, so when we get together with my parents, or my brother and sisters and all of their kids, we always go out. It’s a major money drain. Baker, I’m going to try the envelope method once again for that. Maybe this time I can satisfy the hungry elephant.
We don’t use credit cards either, for the same reasons you don’t – it’s just easier not to. We don’t like being in debt to anyone, at all. Everything gets paid cash up front (besides the mortgage, no way around that for us yet).
We have heard so many heated arguments from people as to why we should use credit cards – usually because they can’t imagine or don’t know how to live without them. They love to try to convince us that we “need” them, but you know what? You don’t! No one does actually. You can do everything with a debit card – even get a cash advance.
Have you heard of people talking about “purchase security”? Apparently if you have a problem with something you bought, then the credit card company won’t charge you for it. If people “need” that feature, maybe they need to be more careful about what they buy! A sign of too much consumerism for sure.
Great work Adam!
Kaylen – “purchase security” may not have anything to do with being careful, but about being protected if a product is defective or the selling company doesn’t deliver properly. Your consumer protections are stronger having used a credit card than other payment methods. While I certainly understand that some people may still not wish to use credit cards, it is unfair to disparage the choice for those of us who use them responsibly, especially when there is a real advantage in this case.
Agreed! Some people can use a credit card responsibly and some people can’t. It’s up to everyone to decide which tools work best for them.
I use a credit card sometimes. It doesn’t mean consumerism is running rampant in my life or that I’m in denial. To me it’s a debit card with a few extra perks.
I have to agree with Kristen. We love that our Amex credit card extends the warranty on almost everything we buy by one year. It makes the decision to pay for “extra warranties” at point of sale simple… we don’t. We have had the card for 3 years, never had to use Amex’s extended warranty (knock on wood), but we feel better when we make large purchases that we are covered. (Like when we moved into our house, we put all our large appliances on our card.)
The other thing I wanted to mention was fraud protection. If someone steals your money from your debit card/checking account, it’s nearly impossible to recover, or so I’m told. Credit card companies are more vigilant because they eat the cost in fraud cases.
Again, I completely understand why people would NOT use credit cards; I just don’t get why anti-credit-card users would disparage those of us who have many valid reasons for using them.
You’re right that people who don’t use credit cards shouldn’t disparage those who do. But from my point of view, it’s the credit users that more often disparage the non-credit users with remarks like, “Well, if you can’t handle credit cards…” Maybe some of us non-credit users have reasons other than lack of self-control that have led us to be credit-free.
I was going to make the same points as Amy about fraud prevention & the extra warranties but since she’s said it so well, I won’t repeat, just say +1 🙂
I have a single credit card which I only use for online purchases (which covers nearly all my big purchases & travel as well as trivial stuff) and pay off in full at the end of each month. I also asked for my credit limit to be kept low to minimise fraud issues/the impact of fraud even further.
I do recognise Adam’s point about saying “have we got this in our account right now?” and I won’t deny there isn’t the odd nasty-surprise month caused by the delay between using the credit card & actually paying it, but by and large, it’s not a problem and I feel safer using it online than a card linked to my current account.
@Marsha — I agree people have other reasons for avoiding credit cards. I don’t drink — that’s not because I think alcohol is evil or I have drinking problems, it’s just what works for me.
Usually on PF blogs and in the financial media the “avoid credit card” advice either comes from or is geared towards people who have credit card problems.
I say use them or don’t use them, that’s up to the individual, but be aware of the pitfalls and advantages either way.
I also like the fact that credit cards allow you to use “virtual” numbers, so that you don’t have to give a merchant the actual number. That way, if security is comprised on the site, the hackers wouldn’t be able to reuse your number.
I don’t know about anyone else’s debit cards, but mine offers everything except the extended warranty protection. I’ve contested charges, recovered money that was fraudulently charged, etc. etc. My bank will refund every fraudulent purchase made with my debit card up to a few thousand dollars and the few times I had to contest a charge, they handled everything efficiently.
I’ve never heard of being able to get a cash advance with a debit card. Unless you’re talking about deliberately overdrafting a checking account, which I suppose technically could be a cash advance?
Kaylen, it’s not just about “purchase security”. You have MUCH better fraud protections with a credit card than a debit card. I never use a debit card for purchases, ever. That said everybody has to balance the risk of the relatively unlikely nightmare of someone getting ahold of your debit card information and emptying your account, vs their own ability to pay off the credit card in full every month.
I meant to add, (for those who don’t know) if you are going to use a debit card instead of a credit card, always always run it as a credit card (so you sign rather than enter a pin)- the money will still come out of your account immediately, but theoretically you get SOME of the fraud safeguards that you get with credit cards.
I like that you are doing what works for you. One thing I disagree with though is waiting to invest. I don’t think most people have the discipline to pay off all thier debts never taking on any more new debt. If these people wait to invest until they are debt free they may never get started saving for retirement. For me I believe I have the discipline but never know what the future brings. So I like to invest and pay off debt. But if it is working for you then I believe you should stick with it!
That’s a really great point!
My approach is to try and *get* people passionate about the shift in focus and passion, and I think the sole focus helps that.
But if I honestly felt a particular person *couldn’t* achieve debt reduction even with focus, I’d strongly recommend they “pay themselves first” to counteract the slow reduction in debt. 🙂
I agree. It’s one thing to temporarily (as in, one or maybe two years) defer investing. But putting off all investing until every last dollar of debt is paid off, regardless of interest rate, is just going to hurt in the long run.
Agreed! Even though it may not make sense mathematically, I think it’s important to just get started investing or saving for an emergency fund. Even if it’s only $25 a week. Or $10 a week. Or $5 a week. Just getting into the habit of putting some money away for the future (long future = investing and short future = E-fund, in my opinion) is crucial.
Great post. I can totally relate to the “debt tsunami” idea. I have wondered how to characterize that means of prioritizing and you have given it a name!
I have a few different debts I am paying off and the one that is most emotionally driving me right now is a fixed loan that represents mistakes of the past that I want gone as soon as possible. It is not the one with highest interest but is my highest priority right now and the fixed payments are really hurting my cash flow and budgeting flexibility.
By taking on extra jobs, I will pay it off by June 2012 instead of August 2013–the original loan term. When it is gone, I will go at the remaining credit card debt and I will be in charge of the payment amounts and frequency. Whatever gives you the most motivation to pay off debt, go with it!!
I like the post, and certainly logic will only get you so far! I am also anxious about paying off my student loan – low interest or not, it’s still debt I owe to someone else!! The mortgage too, although that’s too big to tackle right now while we are still in school.
I did have an issue with one thing you said:
“We also recognized a difference in our habits when we spent with debit cards over credit cards. With credit cards we thought, “Can we pay this off at the end of the month?” But with debit cards we asked ourselves, “Do we have the money in our account right now?””
Well, by no means do you have to wait until the end of the month to pay off a credit card! You can pay for it that same day, just like a debit card – only one extra step to transfer the money. I NEVER buy something on a CC that I don’t “have the money in our account right now” for!
But really it’s about “what works for you” so if YOU don’t like credit cards, don’t use them.
That’s a good idea, however, some cc companies only allow you to make 4 online payments per billing cycle.
I use YNAB (budgeting software) and put in every cc purchase I make in real time. My budget shows each transaction as if I had paid in cash.
Keeps me honest about my spending without any surprises on the bill.
With my credit card spending, I ask myself:
“Do I have the money in my account right now?”
That’s the mindset of people who manage them properly. Change that mindset and they no longer have any power over you.
I’ve been volunteering for Debtors Anonymous lately and really do recommend that as a place for people who need an in-person meeting for additional accountability (added bonus is that it’s free). They also have telephone and internet meetings.
http://www.debtorsanonymous.org/
Curious about the rental car issue.
Spouse & I just got discharged from bankruptcy. With our (deservedly) awful credit score, we were concerned since rental car agencies all told us that if we used a debit card, they’d run our credit and implied that they would decide *not* to rent us a car given our low credit score.
So now we have a secured credit card that we use only for car rentals (if you’re wondering, no not for vacations-those, we drive our own car or visit relatives! We are self employed and rent cars for work-related conferences, non-profit board meetings, etc that are far enough away that flying makes more $ & time sense than driving).
If anyone has a non-credit card way for folks with truly bad credit to rent a car, let me know!
I think Enterprise rents to debit cards. They put a $200 hold on your card. Other companies may as well, just check on Hotwire that you want to pay with a debit card.
Many rental car company have a policy, you just have to ask.
Most will put a hold on your card – and for most it’s between $200-$400 until you return it.
Some allow you to pay with cash, if you provide identification and/or purchase a certain level of insurance. We’ve applied both of this instances when renting a car in the past.
I’ve also been able to rent cars with prepaid Visa gift cards; though these come with a service fee, as long as they see the balance is high enough to cover the car AND any damages that might be incurred/”hold” amount, they often will accept that.
Thanks for the advice!
Good to know that there are alternatives.
I think Hertz and Budget both told us “no” for cash – maybe that was unless we paid them a bunch extra for insurance.
Most rental car companies seem to take debit cards, but some pull your credit.
all the rentals in our area (including enterprise) only reluctantly accept debits…but also want a copy of a utility bill, a recent bank statement, and will put a hold on twice the total cost of the rental until the car is returned then it takes a week for the hold on the extra cash to be released after the initial cost is deducted.
however, as long as there is Amtrak (sans TSA), I’ll do without a CC.
I really enjoyed this post. Right now I’m reading Willpower by Roy Baumeister, I might have to add Switch to my reading list.
I totally agree that personal finance is not just numbers and math, because money means so much and means different things to different people. Emotion is clearly wrapped up in just about every financial decision we make.
We are a debit card family, I similarly spent differently when I used credit regardless of the fact that I paid it off in full each month, didn’t incur interest payments and raked in the frequent flyer miles. Bottom line, I spent way more when I used credit.
We do have a credit card which we use for travel b/c I have run into issues with holds and the like when booking hotels or rental cars. We do also use credit when making an extra large purchase (like a computer or tv) or to take advantage of certain rewards. But, no way would I go back to using a cc for day to day expenses, for us it just doesn’t work and the up side of rewards just doesn’t balance out the down side of spending more than we should.
This is a wonderful article. I too have my inner demon (Elephant) that I deal with everyday. My weaknesses are clothing and dining out. I recently decided to shop at thrifts store first before going into expensive department stores. This decision alone has allowed me to save $100-$200 a month while satisfying my elephant.
However, I do have to disagree on eliminating credit cards. Credit cards works best for me because:
1. I do not think of my credit cards as credit line which I need to be paid back at the end of the month. I think of them as my debit card. I only charge them when I have the money in my checking.
2. To track, my credit union provides quicken which allow me to download my transactions live. Therefore, I was able to see how much I have spent so far in a month vs. my income regardless of the form of payment.
3. I rack up my rewards points and receive cash back.
This is an odd analogy. People actually do ride elephants, but it’s a lot more familiar if you replace the elephant with a horse. Have you ever ridden a horse on a trail? I can tell you that two things you’re not going to get as recommendations about how to get to where you’re going are “build a straighter trail” or “motivate the horse to want to get to the end”. No, you pretty much just use your own body to tell the horse where to go. It’s like this analogy us trying to be wrong.
I think the analogy works well. (1) Proportionally, the ratio of human to elephant is much bigger than human to horse, and illustrates how our emotional minds are so much bigger/stronger than our logical minds (more than a horse is to a human). (2) For many/most Westerners, the idea of using our logical minds to properly (properly) guide our emotional minds is as unfamiliar an idea as riding an elephant.
1) Yes, an elephant is bigger than a horse, but does this have any correlation to how big our emotional vs logical minds are? Probably not. A horse is already something like 10 times bigger than a human, is that not a big enough difference to illustrate a difference between our logical and emotional minds? Personally, I think that the two are a lot more *equal* than that, not more unequal. I don’t feel like I have so little control over my emotions, personally. Do you? Regardless, there’s no evidence either way presented in the article or in your comment supporting an elephant being a more accurate analogy than a horse.
2) The whole point of an analogy is take an unfamiliar concept and make it understandable by relating it to something you’re familiar with. If both concepts are unfamiliar, then the analogy loses its impact. This is why people say things like “a computer’s hard drive is like a filing cabinet” instead of “a computer’s hard drive is like a linear array partitioned into segments that are arranged logically into a tree structure with an index table stored at the beginning.” The point is to relate an unfamiliar concept to something you understand, like a filing cabinet, otherwise the analogy doesn’t help your understanding.
You’re a computer guy who works all day with logic, so my guess is that you tend to see the rational part as bigger than it actually is.
Ask a psychologist or zoologist and they might tell you that reason is a very thin varnish on a furious, hungry beast.
I actually find the elephant metaphor rather gentle.
For me it’s more like riding a bull or a bucking bronco or some mythical dragos. Good luck hanging on to that! Especially when it flies upside down…
The Enlightenment was wonderful and we are its heirs, but Nietzsche and Freud thoroughly destroyed the notion of the rational subject. The rest of the world still has to catch up. Not that I’m anti-rationalist by the way… that stuff always lead to fascism.
*dragon.
aghh….
need. editing. button.
what if we substitute elephant for “tractor trailer”…
seems to me the same analogy would apply…we steer the truck, but the passage way and how we coax the gears, evaluate the height of bridges, and edge through tight spaces could be construed as “motivating the elephant”. We’ve got the high-up viewpoint and have to battle the idea of “I’m a truck, get out of my way”…and some of us are carrying around a heck of a payload from just heavy to explosive.
may make more sense to the elephant deprived American states.
The metaphor of the Elephant and the Rider came from Jonathan Haidt’s book “The Happiness Hypothesis”. The Heath’s would have used that and not a horse and rider because, as they state in their previous book “Made to Stick” – marketers are supposed to use cutesy images that stick in people’s minds so that people remember you and you can sell to them more easily.
I certainly want to read this book because I didn’t get that much from this small blog.
HOW do we control our emotional elephant? The writer said he changed how he slept, ate and worked, but gave no examples of that.
All I got was that he first paid off the debts he felt the most emotional about. How about those of us who aren’t in debt?
If you aren’t in debt, are you saving for something? Or maybe, avoiding saving for something? I feed $400 a month to my albatross. maybe this book and this methodology would help with savings. I think it might also help with other areas of our lives that need tweeking and changing. I’ve put the book on hold myself, so hopefully I can learn something new! Congratulations on not having the debt though!
Is this a literal albatross that needs fresh fish, or a figurative albatross like the elephant in the article? If the second, how do you motivate an albatross to fly 5,000 miles non-stop? I want to hear more about your albatross.
Oy, brother, you need a literary education.
Here be her albatross:
http://upload.wikimedia.org/wikipedia/commons/8/88/Ancient_mariner_statue.jpg
Around her neck. yes? yes. It’s not a National
Geographic albatross, it’s a Coleridge one. A ball and chain without the marriage overtones. A poetic representation of guilt.
How can I roll my eyes on here? Sorry I’m not familiar with some random 212-year-od poem about an albatross. Next time you’re unfamiliar with anything at all no matter how specialized or niche I’ll be sure to mention how uneducated you are.
Eh, everybody knows about the Ancient Mariner, sorry you skipped class that day. And geometry was invented in antiquity (much longer than 200+ years). You don’t use it anymore or what? Damn those archaic triangles! They’re old! I want new ones!
About the rolleyes, go ahead. If you keep rolling them back you might see inside your brain and find how much anger seethes behind your logical postulates. Is it a horse or an elephant?
Alright, I’m not giving you a hard time for not knowing this poem by the way, just for being a gratuitous Cheney towards Marcia.
Which brings me back to the subject of rationality and its difficulty at a social level: it’s not universal, and no single person is its arbiter. Hence the need for keeping an open mind and showing some tact– their albatross might just be a different one than yours.
Me, I just argue for the sport.
You lost me.
Exactly 🙂
If you’re going to nitpick everything said on this site, couldn’t you address the “debt tsunami” phrase?
What the heck does “tsunami” have to do with people’s emotions? It sounds like it’s just trying to outdo “snowball,” which is silly.
I’ve been investing for about 15 years now. It’s my “smoking” money. I used to smoke, and I know that if I needed cigarettes, I would find a way to buy they. Now I spend part of that “savings” on my investments. Not as much as I would have spent on cigarettes, but the amount saved grows. If I suffer a loss (as we all have) I have less stress about that. It would have been smoked up anyways!
I like the idea of a debt tsunami. I paid off two debts that had very little interest. One was one of those computer deals. I just knew that if something happened, there would be a big penalty at the end. By paying it off early, I’ve avoided that. The other one was a small but very old debt, accumulated during the heyday of balance transfers. Getting rid of that card closed the door to my past. Now I have two debts that are more recent in my life – decisions made during difficult times. One is almost finished and then we will start working on the albatross!
Using the debt snowball method however, has helped me immensely.
We were once $28-34k in cc debt. It took us 15 years, but it got paid off. I still use cc’s because I love the pay back. I have had 2 cards for around 7 years and have paid them no interest and have received around $3k from them. I heard that people like that are called “dead beats” in the industry.
I will never use a debit card. I know things are some better, but if your card is hijacked, it is easier to get settled from the cc company than from your bank.
I budget each month how much to spend. I actually budget enough so I buy everything I can think of on the cc’s. If something comes up (like 4 new tires this summer), I just take it from my savings. I do not have 1/2 dozen savings accounts for all my needs. I just have one and keep it high enough to cover what I need.
Debt free is very freeing. Hip! Hip! Hooray!!
I like the idea of the emotional part of you needing to participate in your debt removal. It goes so much easier.
G.M.N – good for you and congrats on paying off all that debt. Hip, hip, hooray indeed!
I just can’t get behind the debt snowball (or tsunami) approach. I can’t imagine feeling more strongly that I need to get rid of an interest-free loan from a family member (unless that person was in dire need) than a 15% APR credit card bill. But of course, that’s my psychology, and, “Paying it this way will save me hundreds/thousands of dollars” is a lot better motivation for me than, “I feel bad owing my parents money.”
Relationships are more important than money. That’s why I would pay off a friend or relative before some faceless corporation, even if it cost me more financially.
If relationships are more important than money (I agree!), the answer is probably “don’t borrow money from people you love.”
Sometimes, Becka, you don’t have a choice, or your options are so limited that it is your best choice. I recently needed a lot of work done on my teeth and I didn’t have the money (and yes, I’m insured, and yes, I have an emergency fund that was hit by several things at one time). So, I borrowed from my family and am paying them back ASAP even though I still have massive student debt. I pay those loans every month as well (and pay a few down), but I wouldn’t consider paying a few hundred dollars on a high interest loan when I could pay back my family right away, especially because they stepped in during a time of need.
It must be nice to NEVER need help from someone who isn’t a credit card company.
It’s a personal choice… I think the point he was trying to make was that some debts weigh more heavily on you than others do, so it could be more psychologically freeing to pay off certain debts first. I feel the same about my student loans vs. my mortgage, though my mortgage is a higher interest than my student loans.
For me, acknowledging my own emotions means acknowledging that anything other than the mathematically optimal choice is going to bug me. I did start out life with some “capitalization” debt, including student loan debt and a car loan right out of school; but I paid it off in a year or so, sending extra money to whichever debt had the highest interest rate at the moment, even when that rate changed a couple times.
Very good! You also need to consider establishing an emergency fund as you’re paying off your debt. That way when an emergency arises, you’ll have the money for it and won’t have to go further into debt. Start with an emergency fund of $1,500, and build it to have the number of months’ expenses it would take to find a job if you lost your current one.
Max, very good point! That one took us a while to learn so we kept going back into debt when the car needed repairs or the house needed something big. Having that buffer in a separate account makes it easier to ignore and take some joy in it’s growth.
I used to think that credit cards were evil, too. I can understand not having them if it doesn’t work for you. That being said, I have an experience I’d like to share:
A few years ago my husband and I bought plane tickets to Maui with ATA. The airline went bankrupt and ceased operations a few months before our trip.
Because I’d purchased the trip with a credit card, we were able to file a claim with our card stating the merchant had not provided services paid for. We got all of our money back!
If I’d used our debit car (which I’d been considering), we’d have been stuck in line with waiting for a handout after bankruptcy proceedings. Many years down the line we maybe would have gotten a fraction of our money back, if any.
I liked this article, real life stuff, and the fact that they were able to change things for the good is encouraging.
I did not get however how the book connects with their changed behaviors. How the books ideas we actually implemented— e.g Principle A is exemplified in Process B.
The book looks interesting though, and I’ll try to find out more about it.
This is a good post, Adam. It reminds me of something I call “mind vs. brain.”
The brain is logical and likes to recognize patterns to create shortcuts. In short, the brain (in absence of mind) will have an individual form lazy and/or self-destructive habits.
Mindfulness, in the form of self-awareness, is the greatest means of ending old habits and forming new ones.
Mindfulness is also the recognition of ego as a motivating (and destructive) force. Ego cannot exist in the presence of awareness; it dissolves the illusion that ego presents.
In this context, I would say that the ego is the elephant and that self-awareness is the emotional intelligence that manages it.
Eckhart Tolle’s “A New Earth” is a good book for those wishing to make lasting change.
“The ego identifies with having, but its satisfaction in having is a relatively shallow and short-lived one. Concealed within it remains a deep-seated sense of dissatisfaction, of incompleteness, of ‘not enough.'” ~ Eckhart Tolle
“See if you can catch, that is to say, notice, the voice in the head, perhaps in the very moment it complains about something, and recognize it for what it is: the voice of the ego, no more than a conditioned mind-pattern, a thought.” ~ Ekhart Tolle
So the ‘voice’ in my head that says, “I don’t want to go to work today!” is my ego talking?
And my rational response to that voice is, “Oh, come on. It’s not that bad…you get to get outside for a bit, socialize a bit, be challenged a bit, and get a bit of a paycheck…”
Is that me being mindful and satisfied?
Interesting. If so, I can see where some people live their lives listening only to that shallow voice and might therefore be lazy and unmotivated.
I liked your article and your “debt tsunami” term! This is EXACTLY the discussion I had with my husband last week.
Our only debt last week was:
$100k mortgage 5.25%
$17k student loan in my dad’s name (aka PLUS loan) 4.25%
$14k student loan in my name 3.83%
Savings:
$40k
Hubby argued the logical side: “If we’re going to pay off a significant amount of debt, then we should put it all towards our highest interest debt, which is the mortgage.”
I argued the “debt tsunami” side: “It is our moral obligation to pay off the loan in my dad’s name first.”
He finally agreed, and we paid off the $17k on Friday!! My dad was super happy when we told him. And I feel SO FREE. The debt is off his record and off my conscience. Also, our cash flow is now increased by $150 per month, and we saved nearly $4,000 in interest over the next 8 years.
Good for you, Amy. Family has to come first – for me, the emotional would outweigh the interest rate debt. And for all those out there doing the math, saying “Why would I pay an interest-free loan off first?”, consider how you’d feel if your parents approached your request for a loan from the other side of that coin and said, Fine, we’ll loan you the money at an interest rate half a point higher than your current debt.” I’m sure you’d feel taken advantage of…well, now you know how they feel!!!!
Actually, your strategy also makes sense from a logical perspective as far as risk is concerned. If you were to be hit by hard times (for example, long term job loss) you can always sell the house. Worst case scenario at least the mortgage debt could be discharged by foreclosure or bankruptcy, but you would still be stuck with that student loan debt…
Great article Adam, I love your debt tsunami – although like others I would hate my higher interest debt more than the lower ones. But I suppose if I had somethign that represented a bad choice it would be of emotional advantage to eliminate references to it form my life by paying off that debt. I think we did somethign similar when we sold our hot tub. It was a bad decision to buy it – and keeping it eroded the value (depreciating asset) but mostly reminded us of a foolish choice and a lesson already learned.
I think I need to go check out that book now. Time for a trip to the library 🙂
This just shows how reliant we are on credit cards. Its so much easier to book a flight or rent a car online and using a credit card makes it just so much easier. Look at all of those ‘awards’ and free miles you are passing up 😉 But see that is what they want you to believe, so that you will use their credit card.
For me I take a different stance and use fee free credit cards and pay them off so I pay no interest but at the same time I take advantage of all the free air miles I can get. I haven’t paid for an airplane ticket in over 2 years now.
This is a very nicely made argument discussing how to reconcile your emotional and rational responses to a problem, something often missing from financial advice. As a person who regularly squelchs emotion just *because* it’s not logical, it’s nice to have such a well articulated way to help family members who run screaming from budgets, whose eyes glaze over the moment interest rates are mentioned, and who are afraid to open credit card statements. I’ve always been a big fan of “do what works for you,” but figuring out what works is sometimes quite difficult, and I think this article will help.
My emotional side comes out when I think about travel because I enjoy it so much. Dollars and cents will always balance that out and I don’t have to work on it. I won’t travel unless I can enjoy myself which means the price of travel cannot be a burden.
Hey Adam–thanks for the post. “Switch” is a book that changed my life, too. I use the principles from the book on a regular basis in a treatment adherence group that I run for adults with Type 2 diabetes at the hospital where I work. I love the elephant and rider metaphor–and my patients seem to love it, too!
I agree that nothing is more important than paying back a relative/friend. That person is an individual who relies on their money for survival. That is a higher moral obligation, IMO, than a company that has (tens of) thousands of clients netting it profit.
However, after that, I am all for the Dave Ramsay debt snowball! There is NOTHING like the pleasure of paying off a loan entirely. I can’t imagine putting that off for 10 years just to save a few hundred dollars in interest.
Plus, to me there just seems to be something more secure about having fewer loans. If you run out of money and default, that’s fewer bad marks on your credit history, isn’t it? And fewer bill collectors harassing you.
I’ve heard the analogy of animal and rider before – we are rider, our emotions are the animal. But I’d never heard the part about motivating the animal – excellent point. After all, no real animal will go far unless it’s fed, watered, or spurred on in some way. Thanks for some enlightening information!