By Jeff Kreisler
5 common mistakes we make during the holidays that will quickly turn us into The Grinch when our bills arrive.
1. We ignore opportunity costs
Think about transactions in terms of opportunity costs by considering more explicitly what we’re sacrificing for what we’re getting. For instance, we can translate dollars into time, how many hours of wages, or monthly salary, we must work to pay for everything in the end.
2. We mentally account
Holiday spending doesn’t feel like normal spending because it’s for a special occasion! As a result, we treat it differently than other spending and get carried away. The $200 you spend on a train set may be the same as the $200 you spend on heating bills. Budgeting can be useful but remember this simple principle: the money is yours and belongs to you.
Take a look that you take a look at some of these statistics here accumulated by That Sweet Gift. Just look at how much the average U.S citizen spends on their spouse. It’s well over $100, and that’s pretty crazy when you think about you might normally spend that $100 on. Besides, that’s one gift for one person. The cash is going to add up real quick.
3. We avoid pain
Maintaining some pain of paying helps us at least consider the value of our options and the opportunity costs that lie within. The reduction in the pain of paying is a particular curse of Cyber Monday. One-click sales and saved credit card information, all reduce the pain of paying. They make paying easier and make us less aware of our spending. The best solution for the pain of paying may be as simple as “don’t use credit cards.” Realistically, we won’t suddenly stop using credit cards, but we should be skeptical of the latest technologies, especially those that are designed to demand less of our attention and make it easier for us to part with our money.
4. We trust ourselves
Trusting our past judgments, choices, and responses to prices are normally considered a good thing. That’s often not a good idea, particularly in the context of holiday spending. When it comes to spending, trusting past decisions contributes to the problems of anchoring and arbitrary coherence. In addition to questioning the prices others set, we should also question the prices we set ourselves. We should avoid doing something, just because we’ve always done it before. Let’s learn from our prior spending history: is a cinnamon latte really worth $5, is a cable bundle worth $140 per month, the answer is obvious, it’s the mental acuity it takes to get there that’s hard!
5. We overemphasize money
Prices are just one of the many attributes that signal the value of things. They’re not the only reason that matters. Don’t let someone else’s idea of value, that is, the price, be what you grab onto for salvation. A price is just a number, and while it can be a powerful part of a decision, it doesn’t mean everything