Abu Dhabi, UAEMonday 18 November 2019

How to face the fear of making a big lifestyle change that will save you money

Let your brain adjust to your new reality and be patient with yourself

Moving home to downsize to a smaller and cheaper property left Zach Holz feeling very anxious. Getty Images
Moving home to downsize to a smaller and cheaper property left Zach Holz feeling very anxious. Getty Images

Before moving out of my one-bedroom serviced apartment and into a room in a shared villa, I almost had a panic attack. As the boxes stacked up, my eyes widened and my heart galloped. How would they all fit into my new space? This was after a solid month of getting rid of everything that I absolutely didn't need. Suddenly, the plan I'd been executing for months — to downsize to save money — seemed like the worst idea.

In personal finance, there is a popular idea called the hedonic treadmill. This is our brain's way of adapting to ever increasing levels of spending as we get salary raises.

Zach Holz

Then, I arrived at the villa with my boxes. For some reason, in my state of anxiety, I'd remembered the room being about half the size it actually was. I even had pictures and videos, but my brain had shrunk the size over the reality. My possessions slotted in perfectly and my panic evaporated.

I later realised I was going through "loss aversion", which is just your brain's way of making losses, or potential losses, seem twice as bad as commensurate gains would be. Nobel Prize winning Economist Daniel Kahneman and his partner Amos Tversky outlined this process in 1979, and in terms of our evolution, it makes sense. It's usually better for us to maintain a status-quo than to suffer a devastating loss and maybe starve to death, so the people hard-wired to avoid loss were more successful in passing down their genes.

Loss aversion can make changes in our lives incredibly scary, just as my own brain shrunk the size of the room until I was nearly incapacitated with anxiety. I had no control over it, my subconscious brain was simply trying to maintain the status-quo.

But moving to a room into a shared villa from my own apartment saved me about Dh3,000 a month. It's also cut my commute by two thirds, gave me lots of room to do yoga and the neighbours are friendly. It took a month to settle in, but now I'm quite content.

In personal finance, there is a popular idea called the hedonic treadmill. This is our brain's way of adapting to ever increasing levels of spending as we get salary raises. Our Toyota isn't good enough, so we need a Mercedes. And a few weeks after we buy that Mercedes, we go from being excited about it, to it just being "our car". Our old iPhone is a bit too slow, so we have to get the new one. When we shop, we get hits of dopamine, but like any addict, we need bigger hits as we continue our behaviours because we get acclimatised to the previous level and it doesn't provide the same retail therapy boost.

This is why those that climb the career ladder, and get generous pay rises along the way, often don't save money or meet their financial goals. It's also why a huge amount of people, no matter their income, live pay cheque to pay cheque and can't pay an emergency Dh1,000 bill. There's always something new to buy, or upgrade.

But we don't have to let the hedonic treadmill make us into chumps. We can use it to supercharge our saving, if we just reframe it. The human mind is remarkably adaptable, allowing almost any situation to become the new normal.

That's why once I got over my initial panic of downsizing my apartment, I got used to it and learnt to appreciate the benefits. It's not a sacrifice because it's just normal. I hacked the hedonic treadmill.

To give another example, a few months ago I stopped eating animal products, much to the surprise of everyone who has ever known me. Before, I never thought I'd be able to make that "sacrifice". Give up Buffalo wings, steak and cheese? Never.

Then the health benefits started rolling in. I lost 20 kilograms, stopped snoring and my skin cleared up. My new normal was awesome.

To successfully break through the barriers of loss aversion, first, you have to be brave to try something out of your comfort zone. It helps if you think breaking out of your everyday life will help you reach a particular goal you care about.

The second thing you need is patience to allow your brain to adjust to the new situation. If you try something new and your brain screams and fights back, like mine did before I moved, you have to be stubborn, keep your goal in mind and press on. When I moved, I told my new landlord I would pay for the first two months with the option to leave after that period was up. This made sure I stayed long enough to get used to it but was not locked in if it was awful.

Unless you take action, your life won't change. What areas could you make changes in that feel like sacrifices, but would further your larger goals? I bet you'd be surprised what you can get used to.

Dubai schoolteacher Zach Holz (@HappiestTeach) documents his journey towards financial independence on his personal finance blog The Happiest Teacher

Updated: October 31, 2019 06:39 PM

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