Money isnt hard because of the math, its the psychology that trips us up.
I spent half an hour shopping for a coat on Amazon.
I bought the wrong paint for my bathroom.
Maybe you stick with a college major you hate only to pay for a degree you never use.
These are all expensive long-term mistakes.
I use a two-step process to deal with it.
First, I recognize my trigger.
Then, I calculate how much more Ill pay if I keep going.
Whenever this thought pops into my head, I recognize it as the fallacy in action.
Now, I follow up with, How much more will I pay if I keep going?
For example, if I buy more paint, this mistake goes from $25 to $100.
When you quantify it in that way, it puts your choice into perspective.
Really, though, simplyrecognizing your triggeris the most helpful deterrent.
Its the tendency to ignore other views to get to protect a decision youve already made.
This happened to me recently.
I didnt want to admit Id blown my budget.
It can be especially sneaky when it comes to complicated decisionsand financial decisions are often complicated.
I navigated my finances, budgeted for my debt payoff goal and committed to it.
When a coworker mentioned I was leaving money on the table, I refused to see his point.
I already made a decision, and according to my bias, it was the best decision.
As a result, I did indeed leave free money on the table.
It takes time to figure something out, so its hard to admit you didnt get it right.
The remedy is simple: keep an open mind.
Ultimately, you just have to listen to other views and facts.
It helps to have someone to hold you accountable, too.
My parents and my fiance are good at giving me a reality check.
Also, defensiveness might be a trigger.
The bias often makes us immediately defensive of our decision when someone offers another point of view.
If you might recognize that trigger, its easy to recognize the bias.
Anchoring Bias
You might have heard about theanchoring effectin terms of shopping.
but then a $14 cheeseburger suddenly seems reasonable.
As a result, you miss out on your earning potential.
Beyond simply recognizing it, the best way to overcome it is to do your own research.
The same goes for your salary.
That way you dont go into debt.
I replied, Everyone goes into debt to buy a car, though.
Thats justwhat people do.
Thatsthe bandwagon effectin action.
Its part of the reason for the housing crisis.
I did something similar with my retirement savings.
Obviously, my friends have nothing to do with my retirement, but thats how the bandwagon effect works.
Its not always a bad decision to follow the crowd.
Overcoming the bandwagon effect doesnt mean making the opposite, unconventional decision.
And it can work against you when it comes to your finances.
We usually prefer the status quo because its comfortable.
Its hard to muster up the willpower to completely change your life.
Thats a tall order.
This is why many experts say you shouldleave some room in your budget for splurges.
It might also help to incorporate a personal finance day into your schedule.
Biases arent always a bad thing.
Status quo bias or even choice-supportive bias can save you from an impulsive, expensive change in that moment.
Illustration by Sam Woolley.
