One of the most important aspects of efficient money management is also one of the least discussed. That’s psychology for you. Many of us don’t think about our finances from a psychological standpoint for some reason, although the state of our finances can often be a reflection of our attitude toward life.
Exploring the psychological aspects of your money habits will not only help you save money, but it will also give you fresh insights into what motivates you in general, and hopefully help you see things in a different light. So, how can you go about using psychology to help you save money? We’ve put together this short guide to outline a selection of the main things to consider.
1. Be aware of shopper psychology
Big retail environments are very interesting places to be. Look at the floor layouts, the shop window merchandising, the lighting, the store signposting. It’s not chance that makes them like this, of course. Big shops – especially supermarkets – are designed to invite you to buy stuff.
As money-saving shoppers, it’s imperative that we’re aware of the distinction between the things that look great (and well-priced) in store and the things that we actually need!
All of which is part of an important process – seeing shopping as a skill. And like all skills, it’s one that we can all seek to improve no matter how good we already are.
2. Identify your irrational shopping urges
I don’t know about you, but I’ve never gone into a supermarket and bought an excessive amount of onions (as much as I love onions!). However, I wish I could say the same about knitwear. There are times I have been in a department store, so tempted to buy a new expensive sweater that it’s almost like a supernatural force is driving me to buy it. But I have learned to resist.
So here we have the difference between a rational and an irrational shopping behaviour. I buy exactly the amount of onions I am going to need, yet I feel an urge to buy as many expensive sweaters as possible. There’s a telling element of psychology right here – perceived value. The irrational part of me wants to hoard a load of expensive clothes, simply because they’re expensive. So by going on shopping trips armed with that knowledge, I can identify the urge and deal with it much more easily. And as a result I’ve become almost resistant to the impulse buying that used to bedevil my finances.
3. Shop with purpose
Going shopping shouldn’t mean putting yourself in the way of too much temptation. One way to avoid this is to visit smaller, specialist retailers where you’ll find what you need, without having to walk through aisles of alluring inessentials on display as you make your way to your target purchase.
Shopping locally can be one way to help keep distraction away – and recent figures show high loyalty towards local business, so it could be the start of something beautiful!
Read also: The Best Books About Minimalism
4. Pay in cash instead of using your credit card.
It hurts more to watch a $50 bill get spent than it does to swipe a piece of plastic. It’s all based on psychology, but it works.
“When you pay with cash, it causes a sensation of loss of ownership that does not occur in the case of electronic payment, because you get your card back, but at a subconscious level you haven’t had that sense of loss,” according to a research published in the Journal of Consumer Research. I completely agree.
5. Trading down comfortably
For just about everything we buy, there’s likely to be a cheaper version out there. So, one obvious way to save money is to trade down.
It would be too much of a lifestyle change to trade down on everything. A big forceful change like that often means that we feel uncomfortable and out of place – soon returning to old behaviors (and therefore changing nothing).
So the trick with trading down is to do it piecemeal. Find brands and products that cost less, and try them out. If they’re not to your taste, go back to your usual one. It’s not about self-denial. It’s about getting the right products at the best price.
6. Stick to minimalism
A minimalist approach to your life can save you thousands of dollars a year and drastically reduce the amount of extra junk in your life. Even if you adopt a slightly more minimalist approach than your current situation, you can stop the need to buy new things.
7. Surrogate purchase
In a book I was reading recently, I came across an intriguing topic (The money book). It’s referred to in the book as “surrogate expenditure,” which is similar to surrogate spending. Jolie, a young woman who shares an apartment and dreams of purchasing her own home, is a good example of this. Jolie enjoys cooking and imagines herself in her dream home, complete with a large kitchen where she can create delectable dishes for her friends.
There’s only one problem: Jolie doesn’t have enough money to put aside for the housing deposit. As a result, she spends what little money she has on sophisticated culinary gear and gadgets. Spending her money on a Chinese colander or a set of copper pots and pans makes her feel, if only for a moment, like she’s getting closer to realizing her huge ambition of having her own kitchen.
Because you can’t have what you really desire, a house with a nice kitchen, you buy kitchenware as a substitute. But, in reality, if she had saved that money instead of buying all those small items, she would already have a significant portion of the deposit required to realize her ambition.
Identifying your impulse buying triggers and being mindful of your surroundings can help save you money every time you go shopping. While it may only be a small amount it can quickly accumulate over the course of a few months, and you may find your bank balance considerably more healthy in a year’s time!