Money decisions are hard because they always involve the future.
If you’re trying to save for retirement, your lizard brain has difficult understanding that putting $500 away each month for 40 years at an 8% rate of return will result in $1.61 million.
Your lizard brain wants to get that pizza. Or grab a beer (or three) with your friends. Or get that expensive vehicle to impress your friends and show your parents you made something of yourself.
It doesn’t care about $1.61 million in forty years – it wants pizza NOW. 🍕
Given that disadvantage, imagine trying to make decisions about your future when you’re hungry. Or tired. Or upset. Or scared.
Or any other emotional state other than well fed, rested, and relaxed.
This highlights the importance of the HALT Rule and why you need to know and follow it.
📰 In times of geopolitical upheaval, such as now with the Iran war, you can easily be in a HALT state without realizing it. We are constantly inundated with news and video, it can have an impact on your psyche without you realizing it. It’s very similar to during the pandemic, when we were surrounded with news of deaths and overflowing hospitals and a mysterious airborne virus. Be careful what you consume and ensure it’s to your benefit.
Table of Contents
What is the HALT Rule?
HALT stands for – Hungry, Angry, Lonely, Tired.
The rule is simple – don’t make any important or significant decisions if you are in any of those states.
You know how you behave differently in a grocery store when you’re hungry? That’s a prime example of why the HALT rule is so important. You buy different things when you’re hungry than if you’re not.
You know you make worse decisions when you’re tired – you probably don’t take as much time, aren’t as considerate, and sometimes you just want to get the decision over with so you can rest.
When you’re in a HALT state, address the state and then address the decision.
☝️ One clarifying point – don’t fixate on the named states. They’re meant to capture heightened emotional states when your decision making is compromised. Angry doesn’t mean to be aware only when you’re angry, it can mean upset, scared, sad, or any other non-base emotionally heightened state.
How to Identify HALT States
You know when you’re hungry, angry, lonely, or tired… but there will be times when you have to make a decision and you transition into a HALT state. Or you get distracted and don’t realize it.
For important decisions, ask yourself if you’re in a HALT state.
This leads to another question – how do you identify important decisions? Grocery store shopping certainly isn’t important, right?
For this, I use a simple rule – if it involves more than 1% of your net worth, it’s significant.
If you have a net worth of $10,000 then anything over a hundred bucks is significant. If you have $100,000 then the bar rises to $1,000. You can adjust this per your needs but you need some kind of rule.
So if you have $100,000 to your name, you need to ask yourself if you’re in a HALT state if you go to the bank and ask for $1,000. Or if you log into your brokerage account and sell more than $1,000 shares.
Get in the practice of asking yourself. The answer can be “yes, do it” but you need to get in the habit of asking yourself.
The takeaway is to just be aware that being in a HALT state will negatively impact all of your decisions, so you better make sure you aren’t compromised when you make important decisions.
Can You Prevent Bad HALT Decisions?
Not completely, but you can limit them by putting measures in place to stop your lizard brain.
It’s akin to not keeping junk food around because you don’t want to be tempted when you’re tired and hungry and craving some salty snacks.
There are people who don’t optimize their W4 exemptions and contribute too much tax withholding from each paycheck to the Treasury Department. Then they get a big tax refund in April, to which everyone else screams “you’re giving the government an interest free loan!”
They’re not dumb. They do this because it prevents bad HALT decisions. They reduce their paycheck, forcing savings, and then can be prudent with the larger refund in April.
The reason why homeownership was seen as a wealth builder is the exact same way. On a nationwide basis, home values have increased only a little bit above the rate of inflation. In other words, the real rate of return is only around 1-3% a year. Not impressive.
The stock market has significantly performed better so why the love for homeownership? Because it’s forced savings and because we forget how much maintenance and repair we have to pay along the way!
Prevention Is Suboptimal, Inconvenience Isn’t
Forced savings is always suboptimal.
Instead, simply make it inconvenient to make bad choices.
The best example of this is retirement savings. When you contribute into a 401(k), with a few exceptions, you can’t withdraw the funds without paying a penalty. If the stock market takes a dive, as it tends to do every 4-6 years (bear market), selling all of your investments wouldn’t help you in the near term unless you were willing to take the income tax and 10% penalty hit to withdraw the funds.
Related: How I keep sane when the market is volatile
The money is, inconveniently, stuck in there unless you want to pay through the nose (after it had fallen in value significantly). You’re more likely to stick it out knowing that you don’t need those funds for many many years and that the market should recover by then.
Another way to make life inconvenient is to never save your credit card numbers in your account. To make a purchase, you have to get a credit card and enter in that 16-digit number, then the 3- or 4-digit verification number, and all those other annoyances. Oh and put your cards in another room away from your computer.
Of, even better, institute a 48-hour rule. You don’t buy anything unless you wait 48 hours.
Ask a Trusted Friend
Making decisions when you’re in a HALT state is sometimes unavoidable.
In those instances, and if you are able, ask a trusted friend. Heck, ask several.
This serves two purposes:
- You get the opinion of someone who cares about you and is not in a HALT state.
- This will take time, so you’ve baked in a waiting period.
If you just got a phone call from the police and they’ve instructed you to go to the bank and get $10,000 to settle a legal issue… chances are your trusted friend will tell you that they think it’s a scam. $10,000 trips your “important decision” trigger and you’ve smartly realized you’re in a HALT state of tired/scared/panic.
This alone can save you from something terrible.
Also, Suboptimal is OK
An optimal result is the goal but it’s not a requirement. It’s like demanding you be perfect. You can aim to be but it’s OK to come up short sometimes.
Sometimes you’ll make decisions in a HALT state without realizing it – and that’s OK.
We’re just trying to do the best we can and we don’t always have to get it right. The goal is to get it all right and in the times we fall short, don’t be so hard on yourself.
There’s always next time and, hopefully, life is long enough for things to even out and work itself out. 😄
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