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Personal finance is not about more willpower

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Note: The bottom of this post includes a link to the most detailed public description of my own personal-finance system that I’ve ever done.

How often have you heard this?

  • “If I just try harder, I should be able to save more money…”
  • “Yeah, I know I should max out my 401(k)…”
  • “I know, I spent way too much last month. I’m not going out at all this month”

Each of these makes me want to buy a cartoonishly large magnifying glass, lie under it on a sunny day, and calmly light myself on fire.

If you think personal finance is about trying harder, ask yourself: How has that worked for you in the last month? The last year? Have you really saved more? Invested more?

The idea that personal finance is about willpower is based around the heroic idea that our willpower is the most centrally important driver in our lives. But social psychologists know that the situation around us is at least as important as our personality. For example:

  • The Milgram Experiment showed that the situation, not personality, could cause random people to give terminal electric shocks to helpless participants
  • The excellent 1973 study by Darley and Batson study constructed a situation in which seminar students, as they walked to give a talk on The Good Samaritan, walked past someone “sitting slumped in doorway, who moaned and coughed twice as they walked by.” In fact, some even walked directly over the person. The situation that the researchers created determined the behavior, not the participants’ personality (although personality does play a role in other research on helping)
  • Any of Brian Wansink’s excellent studies on food and psychology. “To a person, people will swear they aren’t influenced by the size of a package or how much variety there is on a buffet or the fancy name on a can of beans, but they are,” Dr. Wansink said. “Every time.” We like to believe we are in control of what we eat and how much eat, but the truth is actually much more complicated — and often related to external factors like the menu engineering, portion size, or your waiter

People don’t like hearing that external factors are often more responsible for their actions than they themselves are. But it’s true, and I’ll write more about investor psychology, social influence, and persuasion in upcoming posts.

So, back to money. We all “know” managing our money is important. We say being financially responsible is a “value” of ours. But knowing and saying doesn’t make it so.

The structures around us matter.

The importance of automation: Do the right thing by default

Here’s an illustration of how you can use psychology against yourself to do the right thing.


You might have seen my recent guest post about passive barriers. The chart above shows how contribution rates to 401(k)s jumped after companies implemented something called “automatic enrollment,” where employees are automatically enrolled in their 401(k)s.

This was vastly more effective than educating people about the advantages of 401(k)s. In fact, in another study, 100% of employees who attended a financial seminar planned to begin contributing to their 401(k). Only 14% did.

First, get the structures right. Then you can work on your willpower, which will be much easier once you see $100/month automatically going into your savings account.

Now, I don’t want to pretend that managing your money won’t take any behavioral change. Of course it will. Even though you’ll be able to still spend extravagantly on the things you love (sometimes, even spending more), you’ll have to cut costs mercilessly on the things you don’t. That takes work, and if you think that automating your money alone is going to make you rich, you are a moron.

But automating your money is a big win, and it sets up an infrastructure for getting rich without forcing yourself to pay attention to the day-to-day minutiae of managing money.

I’ve written a guest post on my friend Tim Ferris’s blog (he’s the author of The Four Hour Workweek), which includes a detailed writeup of how I’ve automated my finances. Check out the automation tips and get your structures set up right.

Automate your finances here: The Psychology of Automation: Building a Bulletproof Personal-Finance System

Join my FREE Private List on automation, investing in yourself and living a rich life

Automation is critical not just to making your accounts play nice, but to getting ahead in life overall. That’s why I created an exclusive (and FREE) Private List of advanced material that I never share here on the blog.

Each week, I’ll send you:

  • Advanced psychological insights to dominate
  • Detailed, tactical advice on negotiating
  • How to use systems & automation to grow your money automatically
  • Ways to earn more using skills you already have
  • Much, much more

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  1. “Spend extravagantly on the things you love, and cut costs mercilessly on the things you don’t.”

    That makes so much sense to me, and I’ve never heard anyone put it quite that way before. Seems like common sense and yet counter-cultural at the same time. I like it.

    Certainly is not the message I was raised with, but if we all decide not to feed our passions and the things that truly give us the greatest lasting joy, then what is the point?

    Thanks for opening my eyes to that concept.

  2. Nice post. If my bill payments weren’t automated I’d be writing this from a cardboard box under a freeway. :)

  3. […] post:  Personal finance is not about more willpower « I Will Teach You To … Share and […]

  4. Ramit,

    Thanks for your work. I’ve always shied away from anything related to finance until a few things clicked recently that made me realize budgets do not conflict my need to be free, but protect it and support it. Anyhow, I noticed you recommend that we contribute to both a 401 k and Roth IRA. Is that only if we’re going to max the 401k? Also, if we have entrepreneurial plans, should we trim the investing and fund a liquid account for starting the business?

  5. I agree that automating things is absolutely essential. If you can make something easy and mindless, then it will happen. People these days have too many things going on with work, family, the economy, etc…. to make personal finances a priority (unfortunately for them). Luckily, with the internet and home computers, so much can be automated these days that people do not have any more excuses!

  6. Hi Ramit.

    You recommend asking for a credit limit raise very regularly.

    Your tip about mentioning an increase of spending in the coming period is well and good, but then dont you have to actually increase your spending in order to get justify another raise in the limit?

    If I spend regularly around $1000 per month on credit cards, but I would like to have a $5000+ limit and keep raising it, how do I do it w/o raising my spending?


    PS: found you via Tim’s post. Good luck with the book!

  7. I’m conflicted about this post because it does take some measure of willpower to START things. Starting an automatic savings plan, starting further education that will earn you more money in the future, starting a will, starting to contribute to your 401K, starting a life insurance or disability plan…

    I do agree that willpower is a minor part of a long term financial strategy. Factors that have much more impact are persistence, research, periodic evaluations and figuring out a system that works for you.

    @ go everywhere team – Spend extravagantly on what you love is a great sentiment, but if it were up to my husband just about every area would be one he “Loves”. Travel, computers, photography, brewing, snowshoeing, rock climbing, happy hour etc. It takes some introspection to realize what 1 or 2 hobbies give you the most satisfaction.

  8. For a long time, I believed that personal finance and willpower were intertwined, which tended to result in my feeling guilty when I didn’t reach my goals in particular month. But, I completely agree that automating your savings plan is the way to go. It’s a Power of Small approach– making a small, almost unnoticable change– that can make a huge difference in your bank account. It was the only way I could actually make my contributions to my IRA every month.

  9. Nice post, Ramit.


    Call me crazy, but I do think it takes willpower to make changes. Putting your finances on automatic (I have done this and LOVE IT!!!!!) won’t do a lot if you don’t have the willpower to NOT overspend in the other areas of your budget.

    The fact that someone NEEDS to do something and yet they don’t do it, means they don’t have the willpower to make changes. Right?…

  10. I keep reading the argument that people have too much going on to worry about their money. If you worried about your money more, you wouldn’t be running around like a crazy person!!

    Secondly, If you’re spending too much, too often on the wrong things, then personal finance is ABSOLUTELY about willpower. It’s about changing habits. If you’re automating a transaction to put money out of reach, that doesn’t change the habit. It just moves the location where you will go to get to your money when you want to spend it.

    If you think personal finance is about trying harder, ask yourself: How has that worked for you in the last month? The last year? Have you really saved more? Invested more?

    Trying harder is the wrong thing to attack here. If you’re trying anything, then you’ve got willpower. The point to attack is WHAT are you trying harder AT?

    You need to change the desire to spend if you truly want to change the fact that you’re not saving. Willpower is required to make such a change. There’s no way around that.

    There’s also a fine line between automating and “setting and forgetting”. If you want to stop losing money, start saving more, start making more, etc. You need to start PAYING MORE ATTENTION to your finances. You need to learn how to manage money. Creating an automatic transfer doesn’t teach you anything. It just moves your money around when you’re not paying attention. If you don’t change your spending habits, you will find the money you have and you will spend it.

    Change the habit and you will learn the importance of saving and investing.

  11. I’d echo the comment above saying that there IS willpower involved in spending within your means. That said, you can ease the burden a little by going with the “Bang for your Buck” strategy.

    When I want to get something, I always take a moment to think about whether or not it offers Bang for the Buck.

    $20 on a meal at a fancy restaurant? Low Bang for the Buck.
    $20 toward my spring trip to Puerto Rico? High Bang for the Buck.

    For me, thinking about Bang for the Buck stops me from throwing away money on things I’d only marginally enjoy by considering what I could spend the money on that would make me happier.

    Has anyone else ever used this strategy?

  12. Jon in Colorado Link to this comment

    Although I agree and support your idea of automating your savings, I think that is only half the battle.

    There needs to be a new discussion about savings and investing for 20 and 30 somethings. The old way just is not working anymore. I read all the fiancial magizines and web sites and all the stories are the same as they were 1, 2 and 3 years ago. IRA, 401K blah blah blah.

    I am 37 and have substantial income. I did suffer large losses during the downturn but I dumped more cash in and now instead of having to wait for the market to recover 100%, I just need the market to recover 25% to break even. Nowhere did I read that or any similiar ideas.

    Lets start a new discussion for a new era in money management.

  13. Dave in Arizona Link to this comment

    Speaking from experience, I am 53, automating your savings is the least painful and most effective way for anyone to accumulate money. People can always find reasons and jusify to themselves why they will start saving next month, most of the time this does not happen. However if you just start with automatic withdrawals from your pay check or checking account you will start seeing results very quickly. In most cases when your savings begins to grow it will give you incentive to try and increase the percentage of your pay check which is being contributed to a savings or investment plan. Automate as much as possible to simplify your life. Best of luck.

  14. I save/invest 30% of my income, and yes it’s automated. Forget Budgets

    I work with whatever left after the 30% is gone!

  15. Thanks Ramit. This one quote really hit home for me:

    “If you think personal finance is about trying harder, ask yourself: How has that worked for you in the last month? The last year? Have you really saved more? Invested more?”

  16. Just had an interesting experience with CapitalOne. I asked for a limit increase on a fairly new card. I have a 790 FICO and make good money. They turned me down! The “full explanation” I was supposed to receive in the mail arrived today and it said “A credit limit increase on your account is not currently available upon request.” What kind of a “full explanation” is that? I’m thinking about canceling the card even though I love the easy-to-redeem miles. Anyone have an idea what’s going on? BTW, the letter says, “our associates have little power to reverse this decision” (somebody at CapOne must be reading Ramit’s book).

  17. […] Personal finance is not about more willpower If you think personal finance is about trying harder, ask yourself: How has that worked for you in the last month? The last year? Have you really saved more? Invested more? […]

  18. “If you think personal finance is about trying harder, ask yourself: How has that worked for you in the last month? The last year? Have you really saved more? Invested more?”

    There are so many people I’d like to ask that question to. What an important message.

  19. Wealth / Money Expert for Teens – sharing the ‘best of the web’ this week…

    What teens need to know about money – a wealth of resources and information at your fingertips:
    Personal finance is not about more willpower
    The purpose of money
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  20. […] don’t think “discipline” is realistic for most busy people. (Note from Ramit: See Personal finance is not about more willpower.) Sure, I’m bummed about paying $2600 for something I should be able to remember to do, but […]

  21. […] but as J.D. mentions and as well as various others in the personal finance blogosphere… ( I Will Teach You to Get Rich by  Ramit Sethi) is that setting up an account to automatically withdraw the amount of money you […]

  22. […] of my results). I’ve recently ranted on how personal finance is not about willpower, and how we love to demonize fat and poor people for not trying hard […]

  23. […] Personal finance is not approximately more willpower. […]

  24. Although willpower isn’t the only thing that’s important, willpower does play some role in achieving your financial goals and building wealth because willpower is the crucial ingredient in living within your means. Without any willpower, not much will be accomplished financially.

    Automation as is described in the article is obviously also important and very helpful and can help increase the willpower you have to do the important stuff because you no longer have to focus on the mundane and simple stuff. There’s new literature that has come out that postulate that each time you have to make a decision, you deplete your daily reserve of willpower. By automating many things, you increase the amount of willpower left over for those things that are particularly difficult or those things that don’t lend themselves well to automation.