Most people know that marketers know the little tricks to get consumers to buy more. I recently read an article by U.S. News & World Report about ways your brain fool you into losing money. I have figured out was to turn around the dynamics so I put more money aside for my future instead of falling into mental money traps. According to the article, people can avoid overspending by being more aware of their psychological biases. I have saved $50,000 in 10 years for retirement by flipping my tendency to spend into a tendency to save.
Ignoring the 99 cents
One of the reasons people tend to spend more is because of what the author calls the “left digit effect.” People tend to think more about he numbers on the left side of a decimal point than the right side. I use the same approach when paying down debt and saving for retirement. I go online to look at my mortgage statement so I stay motivated to pay it down. My paper statement might read $94,472, which motivates me to pay it down until it reads 93,999. Some months I ended up paying more than other months, but I’ve already cut a total of 8 years off my mortgage by paying extra.
Using cash instead of credit
Experts say it’s more psychologically stressful to part with cash than it is to pay with a credit card. It’s also more motivating for me to save cash than it is to save random numbers on a screen. I make a point of taking out extra cash on a regular basis when I’m shopping. I later deposit the cash into a savings account. Physically interacting with money gets me back in touch with the negative consequences of overspending and positive outcome of being frugal.
Equating price with quality
According to U.S. News & World Report, some people pay more money than they should simply because they think higher prices mean better quality. The article cited a pricing experiment at a winery. More people purchased what was originally a $10 bottle of wine one it was priced at $20. I use a similar mind trick when investing. I am tempted to buy stocks when they are selling at higher prices. My solution is to go ahead and buy the higher-priced stocks, but then purchase a covered call so I essentially “rent out” the shares. In most cases, the stock price goes up and down, but eventually rises above my purchase price. As a friend once pointed out to me, even if I “lose” money in the stock market, I will probably have more money put aside after the sale than people who spend all their money.
Because I’m so focused on ways of investing, saving and paying off debt, I distract myself from overspending. I take more pride in having less by living in a home with a minimalist style.
More from this contributor:
What We Gave up to Buy Our Dream Home
I’m Happy in our Smaller Home
Fighting Fair About Money