Spending and investing are more than a price tag and you digging into your wallet.
Your psychology plays a huge role in how you decide to make a purchase.
Working hard for your money obviously means you deserve to spend it as you see fit, but do you sometimes find yourself falling into that trap of buyer’s remorse?
There’s an easier way to determine whether or not you’re making the right decision at the checkout counter, or the car dealership, or even on the phone with your broker.
It’s what I’m here to fill you in on today.
From now on, you can say goodbye to buyer’s remorse and hello to a happier and healthier consumer outlook.
Have you ever walked out of a store, bags in hand, and not remember why you bought anything?
Or maybe you got all the way home, and you realize that the fitting room lighting was deceiving, or you missed important fine print on your purchase.
If only there was a way to divert this disappointment before you swipe your credit card.
Luckily for you, there is. It may seem silly, but in order to make the most out of your money you can use psychology to fool yourself.
Now this isn’t like hypnosis or lucid dreaming where you try to dupe your conscious thoughts. It has to do with habit-making, and how to reward yourself for good behavior when spending money.
There’s a term in psychology called behavioral economics. It refers to the decisions we make when evaluating the benefits and drawbacks of buying something.
Unfortunately for us, we’re not very good at it.
Research shows that the majority of buyers make irrational decisions when evaluating the value of an item, or a stock (in terms of investing), and allow their emotions to cloud their judgement.
I’m sure you’ve heard this before, but I can’t stress it enough: leave your emotions at the door.
Too many times have consumers held onto extravagant buys or allowed a stock they’ve taken a liking to tank their portfolio.
The best advice I can give you to avoid the nasty losses that can come from misused behavioral economics is as follows.
First, allow yourself time to make a decision. Especially when making a large purchase, like a car or a home, do not rush.
The same goes for buying stocks. Although big payouts may tempt you, and experts may be squawking buy, buy, buy, give the stock a few days, or even weeks. See how it pans out, and then decide if it’s a good investment.
Another step to keep money in your wallet is to form positive habits.
For example, reward yourself with an hour of your favorite TV show when you avoid an unnecessary online order.
By creating this reward system, you open something in your brain called a neural pathway.
Kind of like how it’s easier to walk in tall grass after someone has already parted the way for you, the more often your neurochemicals tread that pathway, the easier it will be to activate it.
Activating that pathway is essentially teaching your brain that when you do certain things (like make a good financial decision) you receive a reward (like watching TV). This causes the release of happy chemicals in your brain that make you want to do it more and more.
So, the bottom line here is it’s easy to train yourself to be a better consumer and a better investor. What that means is you’re making the most out of your money, and who doesn’t want that?
Next time you’re in line at a store or about to buy in to a stock, hold off. Remember irrationality is natural in your mind, and do what you can to block it.
You’ll see a larger balance in your bank account, and more happy days across your calendar.