How To Teach Yourself to Avoid Spending Mistakes. Dan Ariely on Money.

Video via BigThink
A great video from economist and author Dan Ariely, and my notes:

Money is a wonderful mechanism, but also money is difficult to think about. We think about money as the opportunity cost of money.

What will you not be able to do in the future if you buy X?
People naturally made a substitute for a same product at the same time.  But this is not the case, When we do consume something now, what do we give up in the future?
What is the shadow value of price?
It is hard to think about, make money concrete. 

I like Vacations in the Bahamas, Shoes, Lattes and Books.  If you buy X, you give up half a day in the Bahamas.
Money has lots of problems with it.

With money we fool ourselves.
Automatic Deductions are a wonderful thing.  Instead of doing this later in the month, and saving at the end.
If I rely on my own decision-making many many times I will fail, but if I think really hard once to set up a guideline, then follow it.We compare items to items.  Not for the difference in this bottle of wine vs. this one, I could get three gallons of milk.
Thinking in concrete terms would help us a great deal.

The pain of paying.
Imagine eating 50$ worth of food, or each bite you take you will have to pay 50c.  The simultaneity of pain.  As you pay while you eat, you might not enjoy the food as much, but you might also not eat as much.  [Man, how this could apply to diet.]
Pay for a cruise six months in advance, or the moment you get off the cruise?

If you pay cash, you feel a bit more guilt.  With a credit card, you think, another time.

Use the pain of paying for how much you want.  Credit cards, little.  Debit, more.  Cash, even more.  Envelopes.  [Dan Ariely on Dave Ramsey.]
Not a matter of we need more pain; but, what categories do we feel we want to spend more on, and what categories do we feel we need to cut down.

One thought on “How To Teach Yourself to Avoid Spending Mistakes. Dan Ariely on Money.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s