Spend Less: 7 Mind Hacks

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When it comes to spending money, your brain has a whole A to Z of biases steering you towards splashing out instead of sticking to your budget. Find out how these mind habits work and learn hacks to help you get the better of them.

Anchoring bias

Your brain has an extraordinary knack for grabbing on to information and making assumptions on this limited knowledge. It’s a great time-saver, but doesn’t serve you well when it comes to deciding how much to spend, whether it’s a kettle or a wedding dress. Anchoring bias is the all-too-human habit of pouncing on the first price you see and using it as a yardstick for what you should be paying. And this can lead you to get comfortable with the idea of paying more than you need to or can afford.

Doing research is by far the best way to overcome anchoring bias. Having a range of prices in front of you can help you get the best value for money. If you’re buying a second-hand car for example, don’t snap up the first one you see without comparing lots of others available with the same year, make and model.

Bandwagon effect

Humans are social animals and that means we want to fit in. When making buying choices, it’s not unusual to look to those around us for cues on what to buy and how much to spend. So when you’re in the market for that second hand car and discover others are getting a loan to buy brand new wheels, you might be tempted to do the same.

Again, it’s doing your homework that’s going to help you talk yourself out of jumping on the bandwagon with spending more on your car, mobile phone plan, holiday or any other purchases your peers are enthusiastic about. Getting to know all your options and weighing them up to determine what works best for you is an important part of make buying choices you won’t regret later.

Choice-supportive bias

Buyer regret is something everyone gets a taste of now and then. Like the designer couch that’s actually really uncomfortable or the state-of the-art kitchen appliance that’s so hard to clean it never gets used. Thanks to choice-supportive bias (also known as post-purchase rationalisation, or ‘buyer’s Stockholm syndrome’) you let yourself off the hook for your mistake and miss out on a learning opportunity.

Humans hate being in the wrong so much we’d rather convince ourselves we made a good decision and seek evidence to support this view. And this can lead to similar mistakes in the future where you fall for special features or a slick design instead of seeking out something that’s good value and better suits your needs and budget. By treating every purchase you make as a new opportunity to choose wisely, you can consciously avoid any rose-tinted view of your previous retail blunders.

Framing bias

A close cousin to anchoring bias, framing bias helps sales staff the world over upsell their customers to a more expensive product. By presenting you with three or more products ranging in price from low to high, they’re carefully guiding you towards choosing a mid-priced option that could, in fact, be relatively expensive.

Writer and broadcaster Claudia Hammond describes the solution perfectly in her book Mind Over Money: The Psychology of Money and How To Use it Better. “If you are buying a product and the shop gives you a choice of three, don’t let the expensive one sway you towards the middle one.” In other words, there’s no harm in choosing the cheapest, as long as you still end up getting what you need from your purchase.

Ownership bias

This is a budget busting habit that’s even harder to avoid since online browsing became possible. It’s the tendency we have to see an object and then imagine it as a part of our lives. Whether it’s a rug or a handbag, in your mind’s eye, you already own it and that can make it much easier to click buy, even when that means parting with more money than you can afford.

If you have the willpower to steer clear of this sort of temptation, so much the better. But avoiding window shopping altogether – whether in bricks and mortar shops or online – is a lot to ask. It might be more realistic to save some money into a spontaneous spending fund instead. By having a little of your budget dedicated to impulse buys, you can indulge in some wish fulfillment now and again, as long as you’ve built up enough to cover the cost upfront rather than borrowing to make it happen.

Present bias

This is a totally natural tendency we generally have to value our present experience too highly when we’re weighing up spending now vs. saving for the future. The ‘When in Rome’ shopping story we tell ourselves for overspending on while on holiday is one example of this bias. You may never visit this place again so you may as well buy that amazing artwork or outfit, even though you’d normally consider it way beyond your price range.

Of course, you don’t have to be on holidays to talk yourself into spending instead of saving. One way to short-circuit our present bias is to automate savings and be very clear about the relative value of what you’re saving for. If you’ve decided on a holiday with the family overseas as your most important priority for the year, figure out how much to put away each month and arrange a direct debit to make sure that amount is taken from your salary every week or month.

Status quo bias

We humans are creatures of habit and making changes can be something we find hard as a result, especially when it takes a little time and effort. This is why we make such loyal customers, even when the product or service we’ve been paying for, year after year, may not be the best value.

There are a couple of approaches you can try to nudge yourself out of your comfort zone and push against status quo. The first is to make small changes, a little at a time, so you’re more comfortable in making the switch and less overwhelmed by the research and decision-making involved in choosing the best provider for your insurance, mobile, utilities, etc. On the other hand, it can be very motivating to take care of these tasks in all one go and have the satisfaction of making significant savings across the board. If you’re someone that gets a kick from bagging a bargain, this second technique might be ideal for you.

Money & Life, FPA