How We Waste Money, and How to Stop

Upplanning Edge

How We Waste Money, and How to Stop (1)
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Source: https://paradigmlife.net/blog/paying-attention-can-save-money/

 

Money is great – we all know this, but what about when you lose money? I think we can all relate to that awful feeling. Our financial decisions are affected by so much around us, so it’s hard to not stop and think for a second…. what’s smart and what’s truly not?

As Paradigm Life points out, it’s what behavioral psychologists call a cognitive bias. They’re “statistical errors in our brains” when making decisions. A few examples of this are bandwagon, groupthink, and herd behavior… we’re all guilty of it, and sometimes it can really affect us financially.

Paradigm breaks down a few biases that really don’t help our bank accounts:

Time Discounting: Immediate gratification. “It’s easier to just pay extra now, rather than order for cheaper online.”

Denomination Effect: We are more likely to spend smaller bills. So if you break a larger bill, that can disappear much faster than having smaller bills.

Overconfidence: Self-explanatory. Sometimes we simply think we’re smarter than we are, so we make ridiculous financial decisions because “we’ve been managing money for years.”

Post-Purchase Rationalization: The “high” from purchasing something is much easier to accept than the logic of wasting money.

 Status Quo Bias: We always stick with what we know, and don’t push ourselves to really learn all financial possibilities. “I’ve always had a savings account with this bank, so I’ll continue with just this.” 

Of course these are just a few cognitive biases, but they’re definitely highlights of how we could be making smarter decisions with our money.

So, what can we do to avoid these financial decisions than ultimately end up hurting us?

There are always alternatives or things to consider before making any purchase. Paradigm Life suggests a few approaches that we resonate with:

 

  • Don’t make financial decisions when stressed or distracted. Make sure you’re fully there mentally and have weighed the effects.
  • Look in the past and see if you’ve made similar decisions. Did you regret it? Were you 100% satisfied? You know yourself best – dig deep and make sure it’s truly what you want or need.
  • Be realistic about how much money you have in your bank account, and keep it that way. If you can’t afford it right now, don’t put it on your credit card!
  • Consider all options. Is it cheaper online? Did you check a less expensive store?
  • Also think about what you will lose if you don’t make this purchase. Will you lose a lot? If not, maybe it isn’t really worth it.
  • As we said, you know yourself best. Develop a system to get you out of this cognitive bias and truly think logically before any decision. 

A lot of times, we make decisions on a whim. Keeping the above approaches in mind can keep your logic in place and not cause you to make any regretful decisions.

  

Have you ever heard of the Infinite Banking Concept?Many people haven’t heard of this, and that’s okay. As Paradigm Life helps us explain above, many people just stick with what we know; however, this concept has changed lives all over the world financially. We teach this to people everyday, but only those that are willing to expand their knowledge and explore all the options of gaining wealth. Interested in learning more?

 

Contact us at 713-493-7528 or info@upplanningedge.com. You have nothing to lose, and a lot to learn… right?

 

 

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