Here’s the unpleasant news: we are each responsible for our spending – but chances are you have fallen for a range of cognitive tricks. Many of us buy more to avoid shipping changes, we buy unnecessary items on sale because it feels like we’ve saved and we buy “two-for-one” when, actually, only one of the items would do. And there are other, much more common thinking traps.
I didn’t splurge, did I?
When it comes to budgeting, how do we account for those special, one-off expenses, such as a pricey birthday gift? According to a study from the United States, we tend to ignore them. Exceptional expenses (like a lavish dinner while on holiday or a new computer) are unusual and infrequent items that typically get excluded from future budget calculations, as if they never existed. Further, the study finds, we don’t even pull together the cost of all these exceptions to see the total cost over the year. The result? Our budget does not accurately reflect what we spend, and we can end up overspending time and time again.
Our tip: Stop fooling yourself this way; make an allowance in your budget for these exceptions. What you buy may vary but you are likely to spend something from this "bucket" every year.
I feel like I earned these new shoes
We tend to shop differently depending on whether we mentally classify a product as “hedonic” – for pleasure – or utilitarian – for practical purposes. Hedonic products tend to come with a side-serving of guilt. Because that’s uncomfortable, we can trick ourselves to get around it. According to a well-known study by marketing expert Erica Okada, a purchase involves two forms of “currency”, money and time. For utilitarian goods, she writes, we are happier to spend money rather than time, so might pay more for the most convenient option rather than waste effort hunting for a deal. For hedonic products, it’s said that the reverse is true and we expending time and effort so that we feel that we’ve done more to justify the purchase. The result? If you find yourself driving all around town or spending hours searching online for the best deal on a product you really want, you may actually be trying to alleviate your guilt about buying it.
Our tip: This is difficult, but if you want to avoid the angst, be alert to the tendency. Try an alternative approach: looking at the cold, hard facts of your budget before shopping. This might help remove the emotion from the buying decision if you know you have saved for the item and can buy it guilt-free.