Comments on: Mental Accounting: Why Smart People Make Big Money Mistakes

By: Why your friends don’t save money, eat healthier, or clean their garages | I Will Teach You To Be Rich

Sat, 08 May 2010 16:02:23 +0000

[...] « Mental Accounting: Why Smart People Make Big Money Mistakes [...]

By: Ken

Ken — Wed, 01 Jul 2009 00:48:38 +0000

My comments on the recommendations:

The advice on not wasting any money no matter how it’s “earned” (or found!) and making sure you keep up your record keeping are great pieces of advice.

However…$3000 is NOT $3000!!!! In the example, a $3000 increase in a home price is not even a 2% price increase. $3000 increase on a $3000 dining set is a 100% price increase! Besides the obvious math, the home provides an asset that in most cases increases in value while the dining set will be worth nothing in 20 years. Percentages in relation to cost…AND value of the item are what you need to focus on!

Finally, I find it interesting that in “Is Frugality just another word for guilt” Ramit says that “I’ve always believed that you can’t out-frugal your way to rich,”, but in THIS article he says “Little things can add up. $10 a day in extra soda, gum, magazines and lunch out is $3,500 bucks a year”.

Ken

By: Queercents » Blog Archive » Queercents Weekly Roundup: Summer Solstice Edition

Sat, 27 Jun 2009 15:00:27 +0000

[...] has a great article about the perils of mental accounting and some of it’s pitfalls. (Read it at I Will Teach You To Be [...]

By: Tim Fisher

Tim Fisher — Wed, 17 Jun 2009 12:04:42 +0000

Maybe we should all get Capital One custom credit cards but instead of a picture of our dog, we should upload a picture of a simple sentence: “Would I buy this if I was using cash?”

Might make us think twice and it’s a bit more permanent than a sticky-note in your wallet or purse.

By: hustler

hustler — Wed, 17 Jun 2009 05:26:39 +0000

I’m guilty of relative spending. I know that I wouldn’t mind paying 500 bucks more on a $20,000 item. But I would not pay 200 bucks more on a one hundred dollar item. I need to read this book!

By: Kristy @ Master Your Card

Kristy @ Master Your Card — Wed, 17 Jun 2009 02:39:11 +0000

Interesting post. I find that I’m pretty relative with my money situations as well, but I usually tend to go in reverse…if that makes sense. Whereas what you’ve described in someone willing to pay a little extra on big ticket items, I’m usually not. The bigger the number, the more I try to lower it. On small purchases, I tend to be alright with a few dollars more here and there so long as it doesn’t exceed what I wanted to spend initially. I know that sounds a little weird, but hey, I’m pretty bass ackwards anyway.

I must say, I have not read this book, but I believe I’m going to the library this weekend! Thanks for sharing.

By: Daily Links for Tuesday, June 16th, 2009

Daily Links for Tuesday, June 16th, 2009 — Tue, 16 Jun 2009 11:44:01 +0000

[...] Mental Accounting: Why Smart People Make Big Money Mistakes « I Will Teach You To Be Rich [...]

By: JT

JT — Tue, 16 Jun 2009 07:39:14 +0000

Yes, as others have said…this is my biggest problem area. I’m all automated and in control everywhere except little unplanned windfalls. Example: I got an award from my company for a project I worked on…$300. I *should* have put at least half that in the bank…but I thought since it was extra money I would spend it…I ended up via, eh, *smart* “mental accounting” spending it two times over. Stupid mistake.

By: Felix Leong

Felix Leong — Tue, 16 Jun 2009 04:36:18 +0000

I was watching Dan Gilbert talking about our mistaken expectations on TED a week before and then I came across this article, and both of them striking home on how our own brains, behaviour and habits does make us look through a rose coloured glass and make seemingly “stupid decisions” about money.

Reading that it gives me the thought that we do need to acknowledge the fact that we usually viewed and treated money in a relative sense – and that we need to base our relativity onto something that is conducive to our situation. (Reminded me about Tim Ferriss on viewing money in the context of time and vice versa) and constantly review our habits of money and the basis of such judgement calls and decisions that we made.

Thanks Claire for a short but well-thought out post!

By: Ken Siew

Ken Siew — Tue, 16 Jun 2009 03:20:31 +0000

Simple truth yet most are guilty of it. Now that this post has raised a good level of awareness, let’s spread this idea to as many people as you can so that they won’t make the same mistakes! Sharing it on StumbleUpon/Twitter/Facebook. I’ll probably check out the book too. Thanks Ramit!