Eric Barker wrote a terrific summary of Dan Ariely’s new book Dollars and Sense: How We Misthink Money and How to Spend Smarter. There are many great anecdotes. A few that stuck out to me were:
— Ignore “on sale” signs as well as making price comparisons on a relative basis. It doesn’t matter if an item is a ‘bargain’ if you have no use for it in the first place. Additionally, value each component of a purchase on its own. This is where add-ons to an already large purchase get downplayed because we are spending so much.
— If you want to spend less, pay for things with cash. Paying with cash actually has a similar neurological effect as physical pain.
— Instead of considering if the price of something is fair, ask yourself how much you personally value that thing.
— Put in place an automatic trigger to re-route some of your income into a savings or 401(k) account when you receive a paycheck. One study showed a group that did this increased their savings by 81% that year.
— Don’t let the merchant set the anchor that you compare to the “sale” price (e.g. this sweater used to be $150, but now it’s only $59!). Before shopping for something, go in with a mindset of what you expect to pay and use that as your comparison instead.