Are You A Mental Accountant? (Grand Finale)

Remember when Jeff Foxworthy came out with his unforgettable series, “You Might Be A Redneck?” It was a huge hit that led to book deals, TV shows, and enough riches to fund every redneck’s retirement. The only problem with the series was that (although funny) it wasn’t very educational – at least not compared to Are You Smarter Than A 5th Grader. After seeing how my visitors have spiked the past few days, I’m hoping my “Are You A Mental Accountant” series will follow in Foxworthy’s footsteps.

To Recap

You might be a mental accountant if…

• You have savings in the bank AND carry balances on your credit cards.
• You spend “gift” money differently than you would spend money from your savings account.
• You treat your tax refund differently than your usual paycheck.

The Solution

What kind of person would I be if I put all my efforts into pointing out what is wrong with you but didn’t offer solutions to help?

Answer: an ex-girlfriend.

• Treat all money as earned income.

Anytime you receive a windfall, regardless of how much it is, pretend it is money earned from your primary job. Don’t think you can do that? Then try thinking about how much time it would take you to earn the amount you’re about to spend. Maybe this will slow down your spending.

• Chill out on your credit card.

Don’t take this the wrong way. I love my credit card. I use it for everything. Rewards programs are too lucrative right now to use cash. However, if you’re spending more money than you normally would because of the convenience of plastic, then you’re doing yourself more harm than good.

• Break down your major purchases.

Don’t group purchases together. If you’re buying a car for $20,000, don’t tack on the sunroof for $1000 and the heated seats for $1000 simply because you’re already spending $20,000. Instead look at each purchase individually. If you’ve been driving your car for 2 years, would you pay $1000 for those same heated seats?

• Slow your roll.

There’s no deadline on when you have to spend money. If you receive a windfall, before making any sudden moves – wait a few months.

• Make your weakness your strength.

If you have a problem with mental accounting then use it to your advantage. If you are mentally setting up separate accounts for different purposes then do just that. Set up multiple accounts with automatic drafts from your paycheck to fund them.

Conclusion

Don’t think I’m some sort of genius for presenting the concept of mental accounting. Just remember, I read and regurgitate. If you want a more in-depth look into mental accounting, I recommend you read How Smart People Make Big Money Mistakes.

Thanks for reading,

A. Blinkin

Tagged as: behavioral economics, saving