So how do you make the most efficient use of yours?
The answer is, you probably cant.
But thats not the case, the book reads.
The truth is, making bad money decisions is a hallmark of humanity.
Were fantastic at messing up our financial lives.
How do you get slightly less bad with money?
Recognizing our shortcomings and the ways we act irrationally is one way.
But of course thats not actually true.
Another classic example is upselling at the car dealership.
Thats because we often think about the percentage of spending, rather than the actual amount.
Relative to $0, thats a lot of money.
Mental Accounting
Mental accounting is about how we compartmentalize our spending.
Its all your money, after all.
This isnt necessarily a problem; in fact, it can be a quite useful shortcut.
This isnt rational, but it will stop you from going crazy.
But of course, we dont just leave it at that.
We change up our own rules with suspect justifications.
Then theres how wefeelabout money from different sources, calledemotional accounting.
For example, you may have no idea how to value a car, until you see the MSRP.
That gives you a figure to start from, regardless if its thetruevalue or not.
We base current and future money decisions on past ones.
Even if theres a place offering free coffee while we wait for our $25 oil change.
Another example of anchoring that can influence your financial life: salary negotiations.
But anchoring doesnt have quite a pronounced effect when you know a bit about what youre buying.
Alternatively, we can trust ourselves less.
Managing our personal finances responsibly is intended to set our future selves up for success.
One way is through having conversations with your future self.
Say, January 12, 2058, rather than in 40 years.
The authors also suggest meeting a computerized version of old you as a way to build empathy.
That may seem a bit strange, but there are other ways they suggest as well.
Automation, for one, assuming you have enough funds to do so.
You could also tryreward substitution.
Each deposit is greeted with a ticket that offers a small change of winning an additional amount of money.
These lottery-based savings plan work.
