Have you ever been out with a group on a Friday night, gotten to the front of the line at a club, and found out there’s a cover charge?
You know what happens, right?
The guys go, “Ugh…how much?” and start fishing out their wallets.
And the women roll their eyes, and say, “We are NOT paying a cover!” and start checking their phones for the next spot.
And the night is ruined.
There is a reason women hate paying cover charges at clubs — and it’s called “mental accounting.”
Today, I want to share a few interesting examples of how you can use this principle. Best of all, since it’s a psychological technique, 99% of financial “experts” miss it…yet you will master it.
Using Mental Accounting For World Travel
I have a lot of frequent-flier miles and, as you know, I’m fanatical about using the right accounts (like my favorite credit card) to earn significant amounts of points.
Interestingly, some people ask me this question: “How much are points worth?”
What they’re really asking for is a point value, something like “Each Starwood point is worth 2 cents.”
That is the mathematically correct answer. But it’s actually more nuanced than that.
Now that I have a sizeable amount of frequent-flier points, I’ve noticed that I’m traveling more than ever before. It’s like these points are burning a hole in my pocket — which is EXACTLY what I want.
In fact, I knew that cash is worth more than Starwood points…but I intentionally chose to earn more points. Why? Because I want to travel more, and I knew that due to mental accounting, having a large number of points would force me to travel more.
This is a subtle psychological technique missed by many.
Using psychology against yourself can be one of the most powerful methods of behavioral change.
In fact, here’s an email I got from a friend last week showing you just how I’m putting this into play:
I really do want to come to Asia in September. I’m thinking of flying in and out of Hong Kong on 8/31 and 9/17. I’d like to spend a few days in Hong Kong and visit Shanghai, Beijing, etc.
Lisa — Are those dates okay with you? Could I crash with you while in Hong Kong? Are you interested in doing weekend trips to other places in China?
Ramit — Do you want to meet me for any part of this trip?
MY RESPONSE TO THE EMAIL:
“i am potentially in — let me know your dates. let the drinking begin”
The beauty is once you have a sub-account for special items — like travel — you will use it. This is psychology at work.
This is why I set up sub-savings account for myself, forcing myself to clarify the largest purchases I’ll make in the next few years….and automatically save for them.
This is also why I set up a “Spend to Save” account, where I force myself to spend money on things that will eventually save/earn me more.
The point? You can use psychology to shape, harness, and funnel your spending into ways you want to spend. Travel? Taking people out to coffee? Going out on dates?
All possible, using intentional mental accounting.
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