3 Common Money Mistakes Everyone Makes That Are Easy To Fix
The Wealth Gang team writes about financial information, passive income ideas, apps, programs, cash management tools and other wealth gadgets that we think you might want to use or learn more about. Sometimes, we write about products, services or items that might be associated with affiliate partnerships. In these instances, we will earn a small percentage of the revenue from sales. There is, of course, no cost to you.
Thank you for all your support! Without you, we could not keep this site running. Gang Gang!
People make mistakes. Making the same mistake over and over and year after year can prove to be costly.
Especially the common money mistakes that happen so frequently that people don’t even realize they’re screwing up.
Dan Ariely, a professor of behavioral economics at Duke University, explained to CNBC Make It the three common money mistakes that people often make. These mistakes are linked to what people buy, how people decide to pay, and how they look at their savings.
Ariely shares three proven ways to fix common money mistakes that will hurt you down the road.
Money Mistake #1 – Avoiding ‘Pain’ When You Pay
Ariely, the author of the best-selling book “Predictably Irrational,” explains that when you choose a credit card instead of cash to pay for something, you’re “avoiding pain.” This pain avoidance will often lead to higher spending.
“The difference between paying with cash and credit cards is that the timing of consumption and payment don’t coincide. With cash, we pay and consume at the same time. With credit cards, you consume and pay at a later time.”
Ariely explains that when you pay at the moment, your enjoyment goes down a little because you think about the money you just spent and how you don’t have it anymore.
Money Mistake #2 – Not Reflecting On Past Purchases
“Every time we buy something, it’s an exercise in “how happy will this thing make me?” explains Ariely. At the moment, everything makes us happy because that’s what we want.
The professor suggests instead doing it reverse and reflecting on the purchase a few days later and asking, “how happy did that purchase make us?”
This forces people to admit that a sandwich, new pair of sneakers, or going out for drinks didn’t make us happy. It was just a momentary distraction from other things.
Ariely encourages people to look back on purchases, ask yourself honestly if that purchase truly made you happy, and eliminate all of the purchases in the future that you already won’t be happy about a few days later.
Money Mistake #3 – Not Making Savings Visible
Finally, Ariely suggests making savings as visible as possible, almost as a daily reminder of how much money you have saved for the future or an emergency.
He suggests making it visible not only to ourselves but also to the entire family to promote pride and motivation to save more.