Mental Accounts

money and mental accounts

We have mental accounts for different categories, like for food, free time activities, clothes, and that helps us control our expenses. They help us spending too much money on single categories like free time or clothes.

But it also can lead to spending more money then we should and can. If you’re buying an expensive jacket you won’t save money when you’re buying food.

Imagine this: Its summertime. Everybody feels great and there are cool festivals. You decided to go to one which was very expensive (about 300 dollars).

When you come back a friend asks you if you want to go to another festival which costs 100 dollars. You are most likely going to say no, am I right?

Because you just spent 300 dollars on another festival.

But you are likely going to spend 100 dollars on food or new clothes.

mental accounts in the daily life

We all could get new jeans from our parents (new clothes) but then they also paid for a new winter jacket (because it was cold and we “needed” it).

There is a relationship between two stimuli, which difference is directly proportional to the intensity of the stimuli itself.

Easier said: If you spend 300 dollars for a festival ticket, the 15 dollars for the theatre doesn’t matter anymore.

We see this often in our daily life: If we are on a plane for 8 hours, the 20 min delay doesn’t matter or if it’s 90 degrees outside, we don’t realize if it is 88 or 92 degrees.

companies and mental accounts

Companies use this attitude to their advantage. Hands up who bought an expensive phone and then bought an 5 dollar per month insurance. Welcome to the club!

But actually you don’t need this insurance, you just spend 144 dollars a year for I don’t know how long. And you’re phone maybe breaks once every 3 years.

P.s the most common damage that happens to a phone, is the breaking of the screen. That you can easily protect with a protective film.

Or if you like to travel: If the breakfast isn’t included in the hotel, you just pay an additional 15 dollars per Person (even though you sometimes can get 2 meals with that money, depending on where you’re at).

The conclusion is: if you get tempted to buy any “additionals” while making a big purchase, don’t do it. You can always go back later and buy it if you really need it.

Have you ever realized you had mental accounts? Let me know in the comment below!

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