Stop Letting Decision Fatigue Ruin Your Finances

You’re not bad with managing money. You need a better decision-making process that won’t leave you feeling exhausted and overwhelmed.

According to a 2022 study, 58% of Americans report living paycheck to paycheck. That includes 1 in 3 respondents with annual incomes of $250,000 or more. This data infers that making more money doesn’t necessarily fix your financial stress.

In teaching thousands of people about finances, I’ve learned that motivation is a fallacy. It’s impossible to be motivated to make better money choices when you’re prone to decision fatigue.

Do You Have Financial Decision Fatigue?

According to the American Medical Association , decision fatigue is the theory that after making many decisions, a person’s capacity to make more choices over the course of a day becomes worse. “The psychological effects of decision fatigue can vary, potentially leading to difficulty making the right decisions, impulse buying or other avoidance behaviors,” said Dr. Lisa MacLean in the AMA report.

You’ve likely felt this before when making big financial decisions such as buying your first home, researching your next car or figuring out how to pay off your student loans. But I’ve coached other people who have financial decision fatigue on smaller choices such as how much to spend on eating out or on plane tickets. I’ve witnessed avoidance of important financial moves like paying off credit card debt or investing that could have a huge financial impact to their futures.

Curate Your Cash Accounts

To combat decision fatigue, the first solution I recommend is getting rid of as many cash accounts as possible, so you have fewer places to look when you need to make a financial decision. I start off by suggesting only four accounts with purposes that are mutually exclusive:

• A checking account to pay for your daily living expenses;
• A high-yield savings account for your emergency fund;
• A second high-yield savings account for short-term savings such as vacations, holiday presents, buying a car or saving up for a home; and
• A business checking account if you have a business.

When you have your cash spread across too many accounts, it creates unnecessary decisions on where to pull the money from when you need it the most.

Stop Tracking Your Must-Have Bills In Your Budget

When people show me their long spreadsheets with their budget, it’s clear to see why it’s exhausting — they’re tracking decisions and purchases that had to be made no matter what.

It may feel nice in the short-term to check the box on paying your most obvious bills such as the rent, the car payment and the utilities. But unless you have no income, those items need to be paid for first, no matter what. It was surprising to see so many people I’ve taught who are still manually paying these bills versus putting them on autopay. I learned they are afraid to put them on autopay because they don’t have enough cash as a buffer to pay them, and have to wait until the next paycheck to pay them.

To start putting these expenses on auto-pilot, one-month’s worth of cash needs to be saved up, so that you’re not worried about overdrafting from your accounts once the payments get pulled. It might only seem like small line items. But for example, if you have rent, a car payment and three utility bills every month, that amounts to 60 small decisions requiring time and energy that would be better spent on other discerning choices.

Stop Chasing Investments Over Credit Card Debt

About one-third of Americans carry credit card debt from month to month, up 6% from 2022, according to a January 2023 Bankrate survey of 2,458 U.S. adults. I had one student exclaim, “I’m actively looking for passive income sources!” when she was carrying thousands of dollars in credit card debt.

With credit card interest rates averaging 24.20% , decision fatigue will become inevitable. Finding any investment that is accessible to the general public with a 24% guaranteed return will be hard to come by. Instead, by choosing to pay down credit card first, you can:

• Guarantee a known rate of return (what you would have paid in credit card interest);
• Have fewer accounts to track; and
• Know exactly how much you have in cash to spend if your balances are always at zero.

Most importantly, you can reduce your decision fatigue by giving yourself permission to not have to choose between paying debt and investing at the same time. This frees yourself up mentally for investing once your debt is cleared.

Default To Saving Money First And Then Spending

Research on decision fatigue demonstrates that it typically causes people to revert to the “default” option — the choice involves relatively little mental effort. In times of mental stress, I find myself resorting to impulse purchasing as a way to cope.

Sixty-four percent of U.S. adults reported an increase in their impulse spending in 2022, according to an annual survey commissioned by Slickdeals. The average person reported $314 per month on impulse purchases, which can total $3,768 over the course of a year, and of course even more decision fatigue from making unnecessary buying decisions.

A simple way to combat this is to practice shifting your default reaction to saving money first rather than spending. While I was focused on paying down my student loans, I still felt the impulse to visit my mall as a form of stress relief. My weakness has always been shoes, and so instead of buying those on the spot, I’d resolve to put the money away instead and come back if I really wanted them.

For example, if I found a pair of shoes for $49, I would immediately pull out my phone and pay $49 toward my student loan debt. Performing the action immediately versus just thinking, “I’ll save the money,” ended my decision process with a better choice as the default.

Don’t Dismiss The Obvious

Get quality sleep, eat to stay energized and make financial decisions earlier in the day rather than at the end of a stressful workday will also improve your choices by getting ahead of physical fatigue.

Even more helpful is not doing financial decision-making alone. An accountability partner — whether it be a friend, a family member or a money coach — to help you decide more objectively can not only make the process less tiring, but also a little less lonely.

By Bernadette Joy, Contributor