By Adam Jusko, ProudMoney.com, firstname.lastname@example.org
Every month my cable/Internet company tries to steer me into automated payments straight from my checking account. I resist. Why? Because, Number One, I hate my cable/Internet company, and I do the opposite of whatever I think will make them happy. Number Two, I do it because I want to force myself to look at a physical bill each month, to check for sneaky price increases, to think about what I’m paying, and to ask myself “Is this still worth it?” In my experience, once a company starts pulling straight from your bank account, you barely pay attention to what you’re paying unless the amount is way out of whack one month.
I think Dan Ariely and Jeff Kreisler would pat me on the back for my resistance. Their new book, Dollars and Sense, is about all the irrational ideas we have about spending and saving our money. But it’s also about the strategies we can use to stop ourselves from giving in to the wrong impulses. If we think harder about what we’re doing, and if we’re wise to the ways of marketers who try to fool us, we’re more likely to put our money to work in ways that truly make us happy.
- Why do we convince ourselves that an item is a great buy just because the store says it’s 50% off? Did we want the item before? Why do we assume that the original price was fair and the new price is therefore amazing?
- Why does a $30 bottle of wine feel too expensive at the store but reasonable when we eat out with friends?
- How did we get to the place where spending $700 or more for a phone seems OK? How many hours of work does it take you to get $700? Is that much of your time worth the same as the phone? Could you buy a month’s worth of food for $700? Is the phone worth the same as a month’s worth of food?
- Why are we willing to pay more when buying with a credit card than we would if we had to pull that much cash out of our wallets?
We spend our money without thinking rationally, whether that’s deciding what an item “should” cost based only on past experiences with similar items or spending more/less for the same item based on the environment we’re in when we buy it. (I paid $12 for a craft beer at the ballpark this summer, chalked it up as acceptable because it was in the “fun” budget.)
OK, so if we’re irrational with our money, who’s to say what the “real” value of an item is?
Ariely and Kreisler would say each one of us has to decide what the “real” value is, and if our logic is sound, go ahead and pay it. But don’t let someone else define the standard. If $700 seems too much for a phone, find a cheaper one. Or, if having the top-of-the-line mobile phone is the thing that makes you happiest in the world, $700 might be cheap for the pleasure.
But it’s not just about what something is worth. It’s also about stopping ourselves from spending when we don’t want to. Going back to my earlier cable/Internet example, by forcing myself to see the bill every month, I’m purposely adding the “pain” of paying into the process. The authors make the case in Dollars and Sense that ease of payment reduces this pain and makes us spend more. Their example of two couples choosing between all-inclusive and a la carte at a resort is a great example of how financial pain (or lack thereof) twists our behavior. Sometimes, pain is good.
Dollars and Sense is cut from the same cloth as Ariely’s popular book, Predictably Irrational. If you liked that book, you’ll like this one, too. If you didn’t read it, you’ll like this one anyway. Ariely already has an engaging writing style, and the collaboration with “lawyer turned award-winning comedian” Kreisler adds more fun to the mix.
None of us is ever going to save and spend with the impenetrable logic of Mr. Spock. But Dollars and Sense offers strategies to get us closer, and its authors are optimistic that we actually can.