An Extended Brain Approach to Personal Finance

Everybody has an opinion about money. Have you ever heard something like "You should have a budget!" or "Never spend more on shoes than food!". The area is ripe with everyday myths and bias - what Ramit Sethi calls invisible scripts in his book I Will Teach You to be Rich.

Sethi has written a powerful book because it is not based on money myths, but instead traces closely scientific insights about how humans actually think. Instead of arguing that people should be more aware of their spending habits, it guides you through a method of setting up your finances to automatically work for you. Good habits are hard to maintain and slip-ups will occur. So, your most essential personal infrastructure (money) should not rely on willpower, says author Ramit Sethi.

What is an extended brain?

Recent cognitive science has moved away from the idea that all mental processes happen in the brain. Instead, scientists argue that the brain is just part of a thinking system (the scientific name for this is distributed cognition). The brain sort of extends itself into helping devices: A computer extends your memory capacity, a calculator extends your math capacity, and a pencil extends your writing capacity. The body then relies on its environment to remember stuff and get stuff done. It’s pretty smart actually: by relying on environmental cues, your brain is set free to be creative and think, instead of always trying to remember everything.

Maybe you’ve heard of the marshmellow experiment where children can get two marshmallows instead of one, if they delay eating the first one. A common sense interpretation of this study is that children with more delayed gratification willpower do better later in life. A better insight from this study, however, is that some children APPEAR to have more willpower because they remove the marshmallow from their eyesight, thereby not getting tempted. By relying on their environment to hide the marshmallow, they avoid the willpower question all-together. With a better strategy, they don’t even need willpower by plainly removing the temptation.

Such an insight can be applied to personal finance too: by doing some work now to automate you personal finances, you can avoid the willpower question of paying bills or spending too much every month.

Click-and-forget finance

Some people will be scared off by the clickbaity title “I Will Teach You to be Rich” targeting a young audience. And that is a shame, because Sethi’s book has some amazing insights into offloading finance worries and putting your money into an automatic system on cruise control. Whereas classic budgetting books argue that you should have MORE awareness on your money, an extended brain-approach, such as Ramit’s, says NO. You should not think about boring budgetting and counting every dollar. You should be able to have relaxed control and be sure that your money is slowly growing and are sent automatically to the right places.

There is more to it, but the very short version of Sethi’s method is having multiple bank accounts and then automatic transfers between them every month. Everyone’s system will vary slightly, but basically you send a chosen percentage to savings, to bills, to credit card, etc. By setting up these automatic transfers, you avoid the problem of thinking about spending and savings every month.

An elaborate walk-through by Sethi found here

There are also ways to invest automatically in passive index funds automatically every month (in Denmark, Nordnet’s månedsopsparing is a good choice - no affiliation).

A larger forgetaboutit system

For the productivity connoisseur, Ramit Sethi’s automatic finance system is just part of a larger life system for allocating attention to the things that actually matters. You could incorporate the idea into most facets of life. For an extended brain perspective on productivity, check out Getting Things Done. For tidying up, the Konmari method share many of the ideas - there’s even a book on tidying up at work. Here’s even a scientific article arguing that grief is an emotion handled through an extended brain.

Malte Lebahn-Hadidi

Malte Lebahn-Hadidi