The easy way to save money 6 powerful secrets from research

The easy way to save money 6 powerful secrets from researchThe easy way to save money 6 powerful secrets from researchWed all like to have mora money. (That stuff isreallyuseful, aint it?)Being worried about makin the bacon can end yur marriage, skyrocket your blood pressure, and even cause your brain to malfunction.FromDollars and Sense How We Misthink Money and How to Spend SmarterMoney is the top reason for divorce and the number one cause of stress in Americans. People are demonstrably worse at all kinds of dicke bretter bohren mssen solving when they have money problems on their mind.Thing is, weallmake dumb money mistakes, many of which were leid even aware of. And a lot of those are due to quirks of human psychology.Luckily,Dan Ariely, a professor of behavioral economics at Duke University, has a new book out that explains some of the problems were prone to when it comes to moolah and what we can do about them. The book isDollars and Sense How We Misthink Money and How to Spen d Smarter.Lets look at some of what Dan has to say and see how we can save some shekels1) On Sale signs are the devilMore generally, Dans advice is ignore relative comparisons. Focus on what the thing costs, notlage how big a discount youre getting.Saving 90% on a bus pass isnt a great deal if you never take the bus - but we make dumb purchases similar to that one all the time.FromDollars and Sense How We Misthink Money and How to Spend SmarterIt seems that discounts are a potion for stupidity. They simply dumb down our decision-making process. When an item is on sale, we act more quickly and with even less thought than if the product costs the same but is marked at a regular price.And were assaulted by these relative comparisons all the timeYoud never have paid a few hundred dollars for heated seats - but when youre shelling out tens of thousands of dollars for a car, that extra seemsrelativelycheap - and so you say, Ah, what the heck Sure. You should judge add-ons separately by their value, not by comparison.Similarly, paying percentages can be dangerous. Five percent might seem small but, again, that can be deceptive. Change the percentage into a dollar amount and objectively ask Am I comfortable paying this figure for this service?(To learn more about the science of a successful life, check out my bestselling bookhere.)So companies use tricky comparisons and we often fall for it. But what problems with money do we completely create on our own?2) Its not a bonus. Money is money.Your paycheck goes toward bills and serious stuff. But that unexpected check you received in the mail? That money you won at the casino? That gift card aunt Phyllis sent you? Well, its okay to spendthatmoney on frivolous goodies because thats different.No, its not. Money is money.FromDollars and Sense How We Misthink Money and How to Spend SmarterEvery dollar is the same. It doesnt matter where money comes from just because in our mind the money belongs to the bonuses or winnings account- we need to pause, think, and remind ourselves that its just money. Our money.Researchers refer to this as emotional accounting. Rationally, a dollar is a dollar. But as rationality-challenged humans, we feel the source of the money affects how we should use it. Bad idea.FromDollars and Sense How We Misthink Money and How to Spend SmarterPeople are likely to spend something like their salary on responsible things like paying bills, because it feels like serious money. On the other hand, money that feels fun- like $300 million in casino winnings- is likely to be spent on fun things, like more gambling.Studies show that when $200 is called a rebate were inclined to deposit it in the bank. But when that $200 is called a bonus were more likely to buy a treat.In fact, research shows people wouldpreferto receive money as a bonus versus additional salary for that very reason. It lets us feel like its okay to indulge instead of save.FromDollars and Sense How We Misthink Money and Ho w to Spend Smarterif we ask people how they would use a $12,000 lump sum versus an additional $1,000 a month, fruchtwein say they would spend the lump sum on something special to make themselves happier. Thats because a lump sum payment would not arrive along with the usual monthly ebbs and flows of income and expenses- putting it outside of our regular account system. If, on the other hand, the money is received monthly, it would be categorized as salary- and fruchtwein people would use it to pay normal expenses.Many people treat a tax refund as a bonus that they can have fun with. Again, thats tricky emotional accounting. You didntgeta bonus yougavethe government an interest-free loan and theyre returning the principal.How we get money often affects how we spend it. But it shouldnt. Money is money.(To learn the seven-step morning ritual that will make you happy all day, clickhere.)Okay, youre getting rid of your arbitrary categories. But how do we actually spend less without havin g to use any willpower? Thats easy. Make spending painful3) Use cash more oftenHanding someone cash hurts your brain. Seriously. Neuroscience research shows its indistinguishable from physical pain.FromDollars and Sense How We Misthink Money and How to Spend SmarterThe term the pain of paying was based on the feeling of displeasure and distress caused by spending, but more recently, studies using neuroimaging and MRIs have showed that paying indeed stimulates the same brain regions that are involved in processing physical pain.But we ever-resourceful humans have found a way (many ways, actually) to spend a lot and not feel that pain. The biggest culprit? Credit cards.FromDollars and Sense How We Misthink Money and How to Spend SmarterStudies have found not only that people are more willing to pay when they use credit cards, but also that they make larger purchases, leave larger tips, are more likely to underestimate or forget how much they spent, and make spending decisions more qui ckly.Ever find yourself treating foreign currency like its Monopoly money? Ever abuse that Amazon one-click button?Anything that makes transactions simpler and quicker or blurs the process of handing over greenbacks reduces the pain of paying - and makes you more likely to spend.Writing checks doesnt cause the same amount of ouch that forking over cash does, but its still pretty good because having to write out five thousand dollars will give you pause. But credit cards, gift cards, casino chips and nearly all online shopping is a financial opiate and dramatically reduces the pain that keeps your bank account flush.There is an exception worthy of mention here. The vast majority of the time, increasing the pain of paying is a great idea. But there are occasions where its worth it to be pain-free. You dont want to be saying owwwww repeatedly on your honeymoon or during other big milestones.You want to just enjoy the moment.So whip out the plastic and have fun. But make those occasion srare.(To learn the 3 secrets from neuroscience that will make you emotionally intelligent, clickhere.)So what one word pretty consistently results in dumb financial decisions?4) Fair is a four-letter wordIts pouring outside so youre going to get an Uber. But Uber is surge pricing.Thats unfair Forget it. Ill walk.Maybe Uber is taking advantage of you. Maybe theyre not. But the real question is would you pay the surge price to not arrive home soaking wet? Probably. So youre not punishing them. Youre punishing yourself.Fair is a four-letter word. Thats what my friend,Chris Voss, former lead international hostage negotiator for the FBI, likes to say.And Arielys research agrees.The concept of fair messes with our heads and causes us to reject deals that still offer plenty of value.FromDollars and Sense How We Misthink Money and How to Spend SmarterLets not get caught up in whether something is priced fairly instead, consider what its worth to us. We shouldnt pass up great value- access to our home, a salvaged computer, getting a ride in winter weather- just to punish the provider for what we think is unfairness.The concept of fairness runsverydeep in the human psyche. Nobody likes to feel exploited. And nobody wants to be known as someone who can be exploited.But most of the time it doesnt pay to get hung up on the concept of fair. Think about whether youre getting reasonable value for the money youre paying. Otherwise the person who gets punished will probably be you.(To learn an FBI hostage negotiators tips for how to lower your bills, clickhere.)So far weve avoided talking about the thing most lists of ways to save money talk about first self-control. How do we boost it? Okay, lets discuss epic poems and time travel5) Try a Ulysses contractIn Homers The Odyssey, Ulysses tied himself to the mast of his ship to resist the Sirens song. (I just use the block number feature on my iPhone, but whatever.)When youre thinking about the future youre pretty rational. But w hen youre in the moment, face it you can be an impulsive moron. So do somethingnowthat constrains your behaviorlater.Metaphorically, tie yourself to the mast of your ship witha Ulysses contract. (Or Odyssesus contract if you prefer the Greek. Hey, Im open-minded.)FromDollars and Sense How We Misthink Money and How to Spend SmarterA Ulysses contract is any arrangement by which we create barriers against future temptation. We give ourselves no choice we eliminate free will.You probably already use a financial Ulysses contract and dont even realize it - you call it a 401(k). You made the decisionin advanceto save for retirement and now your hands are tied.So go into your online banking account and set up a recurring automatic transfer for every time you get a paycheck. When your salary gets deposited, X amount is immediately shuttled into savings. Research shows this will help you save - a lot.FromDollars and Sense How We Misthink Money and How to Spend SmarterA study by Nava Ashraf, Dean Karlan, and Wesley Yin found that one group of participants who had their bank accounts restricted- that is, they chose to have money automatically deposited in a savings account- increased their savings by 81 percent within a year.And Ulysses contracts arent just good for finances they work for almost any future temptation. Hand your keys to a friend before you go drinking. Have a pal change your passwords on social media accounts when you absolutely need to focus.(To learn the six rituals from ancient wisdom that will make you happy, clickhere.)Whats another irrationality that screws up many financial decisions, from salary negotiation to buying socks?6) Drop anchorAnchoring is a potentially devastating cognitive bias where the first number mentioned in a given scenario unconsciously influences your future choices.Well-designed menus often have a very high-priced item at the top. It doesnt make you more likely to buy the filet mignon but itdoesinsidiously make everything els e look like a bargain.Few people pay the manufacturer suggested retail price for a car. But that number is always big and visible when you look at the specs. Whether you realize it or not, its affecting the offer you end up making.So how do you resist an anchor? By having adifferentanchor in advance. Do your research and know what most people end up paying for that car and the MSRP will have less influence.FromDollars and Sense How We Misthink Money and How to Spend SmarterThis finding- that anchoring has a weaker effect when we have some rough idea of value versus when we have no idea- is important to keep in mind. When we start with an established value and price range in our minds, its harder for outsiders to use anchors to influence our valuations.The most ironic version of anchoring is when we do it to ourselves - when your previous badeanstalt decisions influence your future choices.You have consistently overpaid for lattes and oil changes in the past so you mindlessly keep d oing it. Stupidity as default.Look at your regular purchases and ask if they really make sense and whether there are cheaper alternatives. Personally, I have not updated my phone plan in two decades and am still paying $9 a minute for calls.(To learn the 4 rituals from neuroscience that will make you happy, clickhere.)Okay, were no longer money morons. Lets round everything up and find out what happens when we all get richSum upHeres the easy way to save moneyOn Sale signs are the devilRelative comparisons mess with your head. Focus on the end price, not how good a deal it is.Its not a bonus. Money is moneyHow you got the cash should not affect how you spend it. Saying that bonus money doesnt count feels good but being broke feels very very bad.Use cash more oftenMake spending painful and youll spend less. (Using cash is simpler than having a friend punch you in the face whenever you whip out your credit card.)Fair is a four-letter wordFocus on value. The plight of moral justice in the economic universe can wait until after the electrician gets your lights back on.Try a Ulysses ContractSend me the deed to your house. If you dont have more money in your savings account two months from now, I keep the deed. See? Saving is easy.Drop AnchorThe only way to not be influenced by prices is to influence yourself ahead of time with other prices.Youre going to be rich one day, right? Ill roll with that. Youre a future zillionaire. Cool.So then you wont need to worryabout these silly psychology quirks that affect your spending, right?Wrong.FromDollars and Sense How We Misthink Money and How to Spend SmarterAbout 16 percent of NFL players file for bankruptcy within twelve years of retirement, despite average career earnings of about $3.2 million. Some studies say the number of NFL players under financial stress is much higher- as high as 78 percent- within a few years of retirement. Similarly, about 60 percent of NBA basketball players are in financial trouble within five years of leaving the game. There are similar stories about lottery winners losing it all. Despite their big paydays, about 70 percent of lottery winners go broke within three years.The more you earn, the bigger your mistakes will be. So review the common problems your grey matter has with money and learn to make smarter choices. This way you can keep your millions.Money isnt the most important thing in life. But when you dont have to worry about moolah, its far easier to focus on whatdoesmatter most.Join more than 320,000 readers.Get a free weekly update via emailhere.Related postsNew Neuroscience Reveals 4 Rituals That Will Make You HappyNew Harvard Research Reveals A Fun Way To Be More SuccessfulHow To Get People To Like You 7 Ways From An FBI Behavior ExpertThis article first appeared at Barking Up the Wrong Tree.