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BVC #10 – Psychological Money Games [VIDEO]

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If there’s nothing else you learn about personal finance, remember that it’s more about psychology than it is about numbers. You don’t go over your credit limit because you don’t know how to add, you go over because you either don’t know you’re that close or you don’t care. You don’t go into debt because you weren’t capable of doing the math that showed that you were spending more than you earned. In the end, it’s mostly psychology and I talk about some different “games” or tricks you can use to help you be more responsible.

I added three markers in the video for the points where I talk about Dave Ramsey’s Debt Snowball, the 100 Boxes, and the Zero Spend Days. It’ll help if you want to skip certain parts.

Finally, my apologies for sounding all stuffed up, the allergy season is in full force in Maryland and the Loratadine I’ve been taking doesn’t seem to be cutting it.

{ 25 comments, please add your thoughts now! }

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25 Responses to “BVC #10 – Psychological Money Games [VIDEO]”

  1. Daniel says:

    Awesome new vid Jim!!!

    I do the Hundred Boxes thing, for the same reason I enjoy your videos so much and for the same reason I chose art as my career – I am a VISUAL person. For some people, something like this might not be necessary. But for me, looking at this chart every day (I have a small version of it pinned to my cubicle wall) is all the motivation I need to keep pushing.

    It also breaks down saving, into manageable, more attainable, smaller goals. My ultimate goal is yes, to hit the hundredth box. But each time I drop any money into my savings accounts, my immediate goal is to hit the NEXT box on my chart, not the hundredth.

    So in that sense, it also turns saving into more of a game for me, rather than a chore.

    Finally, we probably all know that writing down a goal, is a huge step towards reaching it. Well, the Hundred Boxes is my version of writing down my goals. I wrote mine down with an image instead of words.

  2. David Duran says:

    Great videos Jim. You’re quite the showman and the message / personality comes through really well vs. text alone.

    The trick that we use, if you can even call it that, is the classic ‘pay yourself first’. By the numbers it shouldn’t matter if you save money at the beginning of the month or somewhere in the middle but for me there’s certainly a psychological difference. If I see a big number in my account right after getting paid it’s too easy to forget about things like the car, rent, insurance, and groceries that will be coming out over the following few weeks.

    So right off the bat we set aside the amount we want to save and then keep an eye on the accounts to make sure they don’t hit zero. It’s a lot easier to keep yourself honest when our savings is tucked away from the rest of the ‘regular’ cash.

    • Wizard Prang says:

      I take that a stage further. My salary is paid into a savings account and I transfer out what I need to my checking account. That has two benefits: first it saves me from “Yippee-I’m-RICH!” syndrome, and secondly, and more importantly, I am no longer dependent on a paycheck, to the point where I sometimes only realize I got paid when I get an e-mail from the bank..!

      Some months ago there was a payroll SNAFU, and someone called us to let us know that we would get paid two days late. She was _really_ surprised when I said “no problem”.

  3. Jessiah says:

    The psychology to these three methods are absolutely true. Especially the Debt Snowball. One key feature for my family and me was getting excited to pay off one of our debtors, completely. When we first began the debt snowball and lined up our debt, a school loan with a small balance was first. With over a year left to pay on this small loan, I felt as though we should be putting any extra money to pay down the balances on our high-interest debts, like our car loan. I was wrong and I’m very thankful as we were able to eliminate the small school loan in about three months.
    The psychological effect this had on us was to get us excited about destroying our debt. It gave my wife and me an “I can” attitude and since then we can, and are, working up the snowball closer to being debt free. I found that our attitude is often times the single most important factor when dealing with personal finance.

  4. Wow, great concept for a video!

    I’m a big fan of this type of stuff. This is one of the main reasons my wife and I try to use cash/debit for discretionary spending. Anytime we use cash or debit we have to stop, at least for a second, and consider whether we literally have the money. With credit cards this just isn’t the same process for us.

    I call this stuff “mental hurdles.” Jumping them helps us keep on track by curbing some of our impulse spending. Also, I like to put my debit card in a “sleeve.” It takes a little longer to get it out of the sleeve and before I can remove it I’m confronted with my goals right there on the sleeve itself.

    I really dig this stuff! Awesome job with the video!

  5. Sean says:

    Great video, thanks!

    I have my own system “Getting Paid to Save”.
    I try to divide my finances between necessaries (bills, rent, webcam girls) and discretionary funds (eating out, movies, etc.)

    Then I tack on some other personal goals to make myself ‘earn’ my money for discretionary funds. So I get paid $20 an hour to play piano, or $50 for cleaning the house.

    Yes, it kind of sucks to earn your money twice, but at least there’s no tax the second time around. Unless you really want to be masochistic and divert 1/3rd into savings.

  6. MissMartha says:

    Jim,

    I really like the videos, but can you please stop cutting off the top of your head? :)

    But in all seriousness, I too used to keep track of every penny and dollar spent. It became too tedious however when I started added in games to reduce my spending it helped me to make my goals easier.

    I also did the same type of game when driving. I like to see how many MPG can I get per tank of gas. I also think, probably unfounded, that it could help me notice anything potentially broken with my car.

  7. Bargain babe says:

    Sweet video. I impose a 30-day waiting period for any purchases over $100. It helps me separate the emotions that kick in when I see something I want. After 30 days it’s a conscious decision, not a psychological reaction.

  8. Paige says:

    What a great video! I love the idea of the 100 boxes! I am going to start doing that. I also like the no spending days. I am a stay at home mom, so this will be a fun challenge for me. I tend to get bored and go to thrift stores and such during the week. Maybe this will help curb that. Thanks!

  9. Anthony says:

    (Before I get bashed, the following example is a just that: an example.)

    Here’s a snowball calculator: http://www.whatsthecost.com/snowball.aspx?country=us.

    I punched in some values, just out of curiosity, assuming three different debts:

    1. $15,000 at 15%
    2. $10,000 at 10%
    3. $ 5,000 at 5%

    Paying a total of $750 a month.

    Paying the highest interest first, it would take 51 months to pay off the debt. The total interest paid would be $7,633.

    Alternatively, using the Debt Snowball method, it would take 53 months and $9,545 in interest.

    The delta is 2 months and $1,821. In the bigger picture, $1,821 is a small extra to pay. Psychologically, most people in debt would be comfortable with Debt Snowball because it gives them a warm, fuzzy feeling.

    Paying highest interest first, the example debtor would have 3 debts for at least 41 months. Whereas, for the Debt Snowball method, they would have 3 debts for only 12 months. Psychologically, that would make me feel better and more motivated to finish paying my debt. If I held 3 debts for 41 months, I would get frustrated and give up more easily…

    • barry says:

      Debt does not have a “one size fits all” solution, unfortunately.

      I agree with ALL of the games you outlined, as they are all helpful tools. If you feel that you’re wasting your money using Ramseys’ “Debt Snowball”, then don’t do it! But don’t get discouraged and quit trying either!

      Unlike many in the “live debt free camp”, I regularly use “rewards credit cards”. I do absolutely nothing new or exciting with my cards. I buy nothing that I wouldn’t have paid cash for. I simply take the 1.5-5% cash back and deposit it into my high rate checking account as soon as I can. If I’d “cut up my cards”, I wouldn’t have this opportunity.

      No, no one has ever made a million dollard from the cash back on their cards. But it’s “Free Money”…more or less.

      • Wizard Prang says:

        Well said. I agree with Dave Ramsey for the most part, but his “no one made a million with points” argument is a straw man. The correct question is “how many millionaires used Credit Cards?”

  10. DebtGoal says:

    Psychology is no doubt a major part, but economics and math are there as part of the problem, too. For example, once someone has gotten into debt (for psychological reasons let’s assume), getting out of it is as much math as mental: prioritizing and analyzing debt amounts to determine the optimized path for quick paydown is a complex yet analytical hurdle.

  11. Josh says:

    Re. the Debt Snowball: It’s true that it’s not mathematically optimal if you assume that you will be spending the same amount on debt repayment over the term of all the debts, but if you pay the smaller debts off first, the money it frees up gives you more flexibility inin paying off the remaining debts if your income unexpectedly goes down.

  12. Mike says:

    Hi Jim,

    Good video. It’s true; So often the mental game is such a big part of savings. By breaking things down to a level we can relate to, we gain momentum and hence, make headway.

    Mike O’Sullivan

  13. I know, I know. I do this too. It’s awful. I need to keep better records, in all honesty. How I manage to save so much money is beyond me. If I can really organize better, I can’t imagine how much more I could be putting into savings!

  14. SJ says:

    Getting into high-rate debt is *rarely* rationally or mathematically optimal, i.e. look @ credit card debts eww…

    That’s why I think it’s an acceptable idea, people are irrational getting into debt so use irrational tricks to get out.

    If the rates are low and about the same, then the delta shouldn’t be that bad…

  15. Pinyo says:

    Awesome video! I love the three games, especially the 100 boxes and no spend days.

  16. Shelley says:

    I follow the emotional logic of each of your ideas — the snowball, the no spend days (sometimes procrastination has its benefits!) and the 100 boxes. I don’t have any debts now and most of my days are no spenders, since I’ve retired. My game is to meet my needs from what I already have. For example, I try to use up the food in a part of the freezer before buying any more; make Christmas gifts from the fabric I have in my stash; make birthday cards instead of buying them. I read blogs instead of buying magazines. Having time to use some creative ideas is one of the many long range blessings of living frugally. Keep up the great work!

  17. Maureen says:

    I really enjoyed that video and am a strong believer in the power of psychological money games to combat spending. It is so much about a psychological state than how much you have. In response I’d like to add a tip. I’ve been tracking since I was 16 (a turning point when I decided to take control) and four years on I’ve made huge mistakes, miscalculations, seen the effect of upsetting events on my spending but I’ve also learnt a lot about what keeps me tracking. I had no name before but I will name this the: “Less highlighter, the better”

    My trick is to go through as I track every penny I’ve spent and categorise. Instantly I can see what I’ve spent on food, going out and transport. However it’s not always easy on the eye to see the real figures or categories so to make it easier I highlight in bright pink that which was an unnecessary expenditure e.g. a takeaway, coffee to go, new dress (I have plenty of clothes) etc. It may seem silly but as I flick through my spending book I can see blocks of pink and blocks of normal biro. The less pink I see the better I feel about the control that I decided to take. It’s psychologically encouraging to see little pink when the month has gone by.

    Also highlighting is reminding you that you just bought something unnecessary and yes you must treat yourself now and again but with this system you can make sure you don’t go overboard.

    I think this is effective because when I studied psychology at a-levels I remember always being told to make my notes colourful and to actively use coloured pens. The brain doesn’t like looking at a page of black biro but it’s a whole lot more interesting to look at a rainbow filled page! (for some!)

    Good advertisement. Now I’m going to watch your video on emergency funds!

  18. Joyful Abode says:

    Awesome video! I just “discovered” your blog today via The Simple Dollar and I’m subscribing. :)

    I wanted to tell you about my money game… People tend to argue over whether it’s better to pay yourself first or pay yourself last. I do both; I pay myself first AND last.

    I have a large budgeted amount that goes into savings at the beginning of each month, but as the end of the month nears, I go into my online banking, make sure everything is reconciled, credit card is paid off, and bills are paid, and transfer the remainder into savings before the next paycheck is deposited.

    It always gives me an extra boost to get to transfer MORE than our budgeted amount into savings… the “extra” comes from not spending as much on groceries or gas or other estimated items.

  19. sugee says:

    Excellent post! Great ideas.

  20. Christine says:

    I think the debt snowball especially works for people whose debt is spread out over many credit cards. We juggle a half-dozen cards now, which just increases the chance that we’ll make a mistake or one of the cards will do something weird to us. So we are paying off the lower-balance cards first because it will simplify our lives more quickly and make it easier to be financially responsible.

  21. Splendor says:

    Thank you! I love the 100 boxes idea!

  22. princess_peas says:

    As a trainee accountant, my current best idea is simply writing all my spending down and keeping a proper cash book the way I would if my personal money was a small business. Being quite new to getting my finances in order, too, what I am also doing is to set a weekly spending limit for cash, but then the following week, reducing it by some and trying to stick to the reduced amount. I am trying to get the amount of money I need down to the lowest level, but although I could go a week of zero spending, or at a real push, two, if it goes over, it will then go really over, is my concern.
    But anyway. The other thing is, I like my cash at home, in a jam jar on a prominent shelf. This is savings, I might add. I want to see the jar getting fuller, more than I want to see increases in numbers on a statement. If my jar gets full, or I reach a big figure (eg. £50 or even £20) in the jar, then it will go into the bank.
    I tend to have only one day a week running errands – saves on busfare – I take a list that I assemble during the week, and sometimes I tick things off that I don’t buy, because I decide I don’t need them. That’s a great feeling. But on all the other days, I take the money out of my purse, apart from what I am actually going to need on that day (or the next day if I do it at night), so that I don’t have the opportunity to impulse spend. The place I put it is on the same shelf as my savings jar, so I think to myself, “if I can leave that in there all week then maybe I can put a NOTE in the savings jar this week!!” (Being british, our lowest note is £5.) I haven’t managed it yet, but maybe I will this week!

    Maureen, I really like your idea too, and seeing as i especially hate pink highlighter above all the other colours, maybe using one will help me even more.

    Sean, I think that is a really great idea, but my only problem is, if there is only a small amount of discretionary money available in the budget anyway, I would feel cheated if I couldn’t ‘earn’ more. I would seriously do them more times than was necessary as well.


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