It’s a well known fact that human psychology is exploited to make us spend more. All you have to do is run a Google search on how retailers or even restaurants, for example, use our psychological tendency to be irrational in making decisions. If that’s how it works, surely we can use the same to know how to save money as well.
Dan Ariely, Behavioural Economist at Duke University, had to say that saving money (or even cutting back on spending) is a long-term behavior and “in the whole repertoire of human behavior, there are almost no behaviors in which we take the long-term future into account”, for example smoking, overeating and even overspending on alcohol during night outs.
If you find yourself spending all of what you make or even more than what you make (thanks to plastic), the key is to change the value we assign to each spend. Ariely says “we should rigorously audit our spending–and try to calculate how happy that spending really makes us”. For example, on Monday morning you spend £3 on a fancy coffee, drive to work when you can walk along the river to get to work, spend heavy on an expensive vacation etc.
Ariely says a good place to start is experimentation. Simple.
This year I take an expensive holiday as I did last year, but maybe try a cheaper/budget holiday next year for a change. Then I ask myself did it really matter? Did it change my happiness? Did it serve the purpose of the holiday, which was to get away from my fast-paced life and get away from thinking about work?
Advertisers and marketers exploit this weakness i.e. we don’t pause to think about why we do something in the first place and then get carried away by marketing messages that are designed to make us spend more. Once I pause to think about why I ‘need’ my holiday this year; what do I really, really ‘want’? I will then find it easier to assess the amount of my money I need to spend on it in order to have my need or want met. If a holiday is about escaping my hectic life, does it matter if I stay at fancy sea-side resort where Posh Spice stayed at one time? I can stay at a cheaper hotel ad still be able to get away from my hectic schedules of everyday life, right? Am I any less happier? Were my needs met?
Unless, of course, the posh life is what I need and want in life (not judging anybody).
The resort will probably market itself as a serene spot in the middle of nowhere, and where fleeting moments standstill, and what not.
Experimentation is a good way to get started on making psychology work for you and save money. Best part is, you are in charge. Make it a game, or perhaps challenge yourself. You will know the tactics that work on you- does guilt force you to do something? Do scare tactics work on you? If they do, use them.
I tried one myself, because I know panic tactics work on me. One night I went out with friends but left my credit card at home- I wanted to see how I did with just cash at hand. I took the bus and didn’t drive- knowing well I miss the last bus home and will need to hail a cab. This meant the cash I would have left at the end of the night had to be enough for a cab- I am under no circumstances walking over an hour to get home at 4.00 am.
How did I do it? I used three pieces of string- Yellow, blue and Red. I tied the yellow string around £10 for food, blue for £15 on drinks, and red for £12 on the cab ride home. If I overspend on alcohol, it can only come from my cab money. And as I spend more and more on food or drinks I will know how close I am to running out of the budgeted money and therefore losing cab money. The thought of having to walk home sent me into a bit of scare or panic and kept me from spending more than I had to.
At the end of the night, I tried to evaluate whether I got what I wanted- a good time with people I know are good friends, on a Friday night after a long week at work. And the answer was a big ‘yes’. Not any lesser than I do on any other weekend but more because I didn’t overspend and my experiment worked. Try giving me a reason to do it any different, and I don’t see why I would.
It’s all upto you because you know yourself the best. What is it you really want or need when you set off spending your money trying to have them met? If you know or even if you don’t, set experiments for yourself just like I did. You might surprise yourself and start thinking in very different ways when it comes to money. My experiment was successful and I noticed the spill-over effect on other things I tend to spend on. Are you ready to start some of yours?
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