Behavioral expert: 3 mental roadblocks that are stopping you from making hard financial decisions - CNBC

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The term "decision fatigue" exists for a reason: Not every choice is an easy one to make and weighing our options takes time and energy.

When it comes to decisions about money, it's easy to feel even more bogged down as the weight of each choice often comes at a price.

But it's these financial decisions, such as how to pay off credit card debt or when to start investing, that can really cost you the longer you put them off.

According to Mariel Beasley of Duke University's Common Cents Lab, a behavior science lab focused on the financial well-being of people with low income, there are three behavioral roadblocks that you might be unknowingly constructing that are preventing you from making tough — but expensive — money decisions.

Here are the three mental roadblocks Beasley says are standing in your way and how to tackle them.

1. Ostrich effect

A common phrase in behavioral economics, "ostrich effect" refers to human's tendency to avoid or ignore negative information about their money. It comes from a fictional theory that ostriches bury their heads in the sand to avoid danger, harnessing the idea that nothing is there if they don't see it.

What it means: "We hate confirming bad news," Beasley says. "This often means that we are less likely to reach out for help or review our options when things are bad."

For example, you may know that if the economy persists as it is during the economic recession, you won't be able to pay your rent in two months, yet you don't look for housing help or other options until eviction is imminent.

"This means that they are trying to problem-solve in the middle of a crisis with a very pressing deadline – which impedes creativity and increases stress," Beasley says.

How to tackle it: Trying to ignore the problem because it's painful and hoping it will resolve itself doesn't make a challenging financial issue simply go away. Instead, face the news early on and plan ahead before the worst-case scenario is a reality.

If you're worried about affording your rent or mortgage, reach out to family and/or friends for help, rent a room out in your home to make extra income or seek out financial assistance from your mortgage broker. It's also important to understand your tenant's rights ahead of time before eviction happens.

2. Decision paralysis

When presented with multiple, perhaps complex, options of ways to move our finances forward, we tend to freeze and avoid making a decision at all, Beasley explains.

What it means: Like the phrase says, we become paralyzed with all the decisions before us so much that we overthink and overanalyze to a point that no decision is made at all.

For example, if you are in a financial situation where your income is strained, you have a handful of options: You can find additional work, dramatically reduce your costs, apply for government benefits or ask family members for money. With so many choices to make (and none that are easy), it becomes overwhelming and we opt out of deciding anything. 

How to tackle it: Start by taking small steps and conquer the highest priority things first, like the bills that immediately put your well-being in jeopardy if not paid. Once you secure things like your housing and making sure your lights stay on, you can then focus your energy on finding other sources of revenue. If you have a laptop and a WiFi connection, start by reading over these five easy ways to earn extra money from your couch.

If you have any extra cash now and are financially stable, it's still smart to think ahead. Start by saving your money in a high-yield savings account, such as the Vio Bank High Yield Online Savings Account or Varo Savings Account, that can earn you a better return on your money than keeping it stored in a traditional savings.

Vio Bank High Yield Online Savings Account

Information about the Vio Bank High Yield Online Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication. Vio Bank is a division of MidFirst Bank, Member FDIC.

• Annual Percentage Yield (APY)

• Minimum balance

  $100 to open

• Monthly fee

  None, if you opt for paperless statements (otherwise, $5 per month)

• Maximum transactions

  Up to 6 free withdrawals or transfers per statement cycle

• Excessive transactions fee

  $10 per transaction

• Overdraft fees

• Offer checking account?

• Offer ATM card?

Pros

• Strong APY
• No monthly fees, if you opt for paperless billing
• Up to 6 free withdrawals or transfers per statement cycle
• Easy-to-use mobile banking app

Cons

• $100 minimum balance to open account
• $5 monthly maintenance fee, if you don't opt for paperless billing
• $10 fee per transaction if you make more than 6 in a statement cycle
• No option to add a checking account
• No ATM access

Varo Savings Account

Information about the Varo Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication. Bank Account Services are provided by The Bancorp Bank, Member FDIC.

• Annual Percentage Yield (APY)

  1.21% (with option to earn up to 2.80% if meet requirements)

• Minimum balance

• Monthly fee

• Maximum transactions

  Up to 6 free withdrawals or transfers per statement cycle

• Excessive transactions fee

• Overdraft fees

  None up to $50; anything greater, Varo would decline the transaction

• Offer checking account?

• Offer ATM card?

  Yes, if have a Varo checking account

Pros

• High APY and option to earn even higher
• No minimum balance
• No monthly fees
• Up to 6 free withdrawals or transfers per statement cycle
• No penalty for overdrafts up to $50 (anything greater, Varo declines the transaction)
• Option to add a checking account
• ATM access if you have a checking account
• Offers 2 programs to help automate your savings

Cons

• Overdrafts over $50 will cause transactions to be declined
• Cash deposits are only available through third-party services, which may charge a fee

3. One-dimensional mental models and identity

Mental models help people make sense of the world and better understand who they are. "We create ideas in our head about how the world operates and how we fit into that world," Beasley says.

What it means: Though these worldviews help us understand and interpret what we ought to do under certain circumstances, they aren't always good.

"Sometimes our sense of identity can help us align our behavior to our values," Beasley says. "Although there is also evidence that suggests that this sometimes means we fulfill negative stereotypes about our identity when those negative stereotypes and our identity are both primed."

For example, the economic fallout caused by the coronavirus pandemic has caused millions of Americans to really financially struggle — some for perhaps the first time in their lives. "A mental model of poverty and aid, coupled with their own identity as someone who is financially responsible, doesn't take handouts, independent, etc. can really get in the way of someone reaching out for help before it's too late," Beasley says.

These certain beliefs, or mental models, that government aid programs are for a different kind of person can make someone less likely to apply for benefits like SNAP (food stamps) or TANF (Temporary Assistance for Needy Families).

How to tackle it: Perhaps one of the hardest things to address are the stereotypes and views of the world that you hold. But doing so will relieve you of having to fight through a hard financial battle when you otherwise could be receiving some help. Try to imagine that it's not you in this situation, but instead imagine it's a friend or neighbor. Then imagine the advice you would give them. "Research shows that we tend to give better advice than we take for ourselves," Beasley says. 

Once you mentally get out of your own situation, you can think more clearly and strategically, rather than emotionally, which will likely lead to a better long-term solution for you.

Information about the Vio Bank High Yield Online Savings Account and Varo Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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