Personal Finance 

Five Psychological Money Tricks That Work

Email  Print Print  

Psychology TextbookFor being such a dollars and cents type of issue, personal finance sure has a lot of psychology involved, doesn’t it? If it weren’t for psychology, ideas like Dave Ramsey’s debt snowball method would be dead on arrival. The debt snowball works because it taps into human psychology, not mathematics. Paying off your smallest debt first isn’t mathematically optimal. It works because after you pay off the smallest debt, you get a sense of accomplishment, a boost of morale, and you are more likely to continue the project. You apply your smallest payment to the next smallest debt and continue until you’re debt free. You pay a little more in interest but you are rewarded with actually finishing because the snowball motivates you to keep at it.

That led me to wonder what other bits of personal finance advice tap into human psychology for success?

Using Cash Only

There’s a reason why casinos use chips to represent money, it’s because chips don’t look like real money. When you swipe your credit card, it doesn’t feel like you’re spending money. When you pull a ten dollar bill out of your pocket, it feels very real. This psychological difference is the reason why so many people experience success spending less when they spend only in cash.

Cash forces you to plan ahead because you can’t spend more than the money in your pocket. Cash forces you to pay for 100% of your purchase right this moment, not 0% now and 5% each month for the next ten years because of interest. Cash forces you to make that tradeoff immediately – do I want the money for later or do I really want to buy this?

Create Barriers to Spending

The best example of how to create a barrier to spending is freezing your credit card in a block ice. People who have gone to cash only usually apply this technique to their credit card because they want to force a delay in spending. If you want to buy something with a credit card, you’ll have to wait until the ice thaws and you can get to your card. It’s a clever idea because it adds two important barriers to the spending process:

  • Time
  • Headache

If you make it harder to spend money, you’re less likely to do it. There’s a reason why so many online stores want to store your credit card information for later use. They tell you it’s a good idea because then you won’t have to fish for your credit card next time, which is very true. However, it removes one of the biggest barriers to the buying process – paying! If you had to wait a few hours (for the ice to melt) before every purchase, chances are you would spend less and that’s what I’m driving at. Create barriers to spending and you will spend less!

Buying Generic

Companies spend millions of dollars a year on branding and people seem to enjoy the “better” brands because of it. Back in college, we used to fill our one glass bottle of Skyy Vodka with Vladimir, which came in a plastic jug. Why? Branding. The stuff out of the bottle of Vladimir tasted awful, but somehow when it was poured out of the dark blue bottle it was magically delicious. So why not buy one box of the brand named stuff and simply refill it with generic whenever you’re finished with it?

That first bit was a little tongue and cheek but I think the spirit of the idea is very true. In the last year or two, with the recession, a lot of people have gone to buying generic versions of products because they were cheaper. As the economy recovers, people are sticking with those choices because they’ve learned that the generic versions are just as good. I don’t think anyone would believe Vladimir was the same as Skyy (unless they were stupid college kids who just didn’t care), but how different is a generic pasta sauce vs. a branded one? Probably not as much as the price difference.

Here’s one actual secret – it’s not uncommon for a brand name company to produce the generic product in the first place. So you could be buying the same, or similar, product for much less.

This idea is most powerful whenever you’re talking about over-the-counter brand name drugs. The active ingredient in most drugs can be purchased in a generic form. Loratadine is the active ingredient in Claritin and you can it for a fraction of the cost of brand name Claritin.

Set Up Automatic Savings

Set it and forget it. This idea is the main thrust behind David Bach’s Automatic Millionaire and it’s a powerful idea. By putting your savings on autopilot, you will likely accumulate more savings than if you tried to remember each month. It’s less about psychology and more a testament of how busy we keep ourselves but the idea still holds true. Contact your employer’s HR department to set up an automatic 401(k) contribution, set up an automatic deduction from your checking account to a high yield savings account or a broker.

By making your savings automatic, you let your forgetfulness work to you advantage. You’d probably rather forget and be saving than forget and not be saving. 🙂

Visualize or Photograph Your Goals

Ever wonder why there are an inordinate number of beer and pizza commercials during football games? Or how about restaurant ads right before dinner? It’s because the advertisers understand the idea of priming. Priming is when earlier stimulus influences our response to later stimulus. In the case of beer commercials during football games, Budweiser and Miller want you to think of them the next time you are thinking about football. Papa Johns wants you to savor better ingredients, better pizza… perhaps at half time.

If you have any financial goals, rather than have them be reflected in just a number – such as the savings account balance for your down payment, take a photo of your dream house and out it somewhere prominent. Put it on your credit cards. Write it on your checkbook. Set it as your computer background. If you’re saving for your kid’s college education, put a picture of that little critter’s face on your credit card so you’re reminded of that goal every single time it matters.

Are there other psychological money tricks that work to help you save more, spend less, and otherwise get closer to your financial goals?

(Photo: epac_island)

{ 39 comments, please add your thoughts now! }

Related Posts

RSS Subscribe Like this article? Get all the latest articles sent to your email for free every day. Enter your email address and click "Subscribe." Your email will only be used for this daily subscription and you can unsubscribe anytime.

39 Responses to “Five Psychological Money Tricks That Work”

  1. FFB says:

    Great tips! Buying generic can really save. I get Loratadine at BJ’s MUCH cheaper than I can get Claritin. I also get drug store brand psudoephedrine rather than name brand Sudefed.

    It’s amazing how smart we can be but little tricks like these are what actually do the trick!

  2. Soccer9040 says:

    Another psychological tip or concept is “Artificial Scarcity”

    It goes right along with Paying Yourself First. Basically by paying yourself first, you are forced to adjust your spending to match whats left over.

    Most people spend and then say they will save whatever is left over. Often times, there is nothing left over.

    By saving first you eliminate the extra spending, thus creating artificial scarcity.

    • ziglet19 says:

      Yes, this works great for me! As soon as I get paid and pay my bills, I take 70% of what’s left and put it in savings, the rest is my grocrey/gas/spending money until the next paycheck. I usually spend all of what’s left, but because I set aside my savings first, I still get my savings put aside.

  3. I never understood buying named brand products. There usually is no noticeable difference in taste, but they cost so much more. I have since switched to buying products from Trader Joes and other natural goods stores since all of their products contain far less preservatives and the price is often cheaper than the normal price on the named brands.

    • Agree except for soda. Trader Joe’s uses an alternative sweetner for their soda’s and I just can’t get over its weird taste.

    • Chris says:

      Sometimes the generics are prepared and packaged alongside the name brand items using the exact same inputs. One day, the plant produces for the name brand seller, the next day for the generic.

    • ziglet19 says:

      I have been toying quite a bit with buying generic compared to what I have used in the past. Most of the time, it’s no problem, and the generic is just as good as the brand. But every once in a while, I find something that just doesn’t work for me (Knudsen fat-free cottage cheese is not bad, but the store brand is yucky) and in those rare cases, I just keep with the brand.

  4. Kyle says:

    I agree with FFB, OTC drugs are the same in generic as they are in Brand name. I also use the heck out of some Loratadine and if I had to buy it as Claritin I would be broke as all get out.

    It really makes sense though how these little things make a big difference. Paying cash is just visualizing the depletion of your spending accounts so you feel it more as you spend. Debit Cards and credit cards take down a barrier to spending and I don’t think it has really helped society.

  5. cubiclegeoff says:

    One method that I use that has worked is I take the portions of my budget that we have some control over, such as groceries, eating out, etc., put the amount we have budgeted on a whiteboard in the kitchen and subtract as we go through the month. That helps us see what we have left and how we have spent our money for the month.

  6. Anthony says:

    I agree with all of your statements, but especially, the vodka one.

    A lot of people swear by Grey Goose Vodka. But if you’re going to mix it with juice, a cheaper vodka will taste almost exactly the same. I’d wager to say that a college student’s taste cannot distinquish between Grey Goose and “lesser” quality vodkas.

    • T says:

      That’s certainly different from my college experience. Kids could definitely tell the difference between top shelf and lower quality brands, the only thing was that they knew why they were drinking and decided that taste was not a deciding factor in their purchase. I can’t stand the taste of certain brands even when mixed I can’t say that this would work for me. Same goes for premium vs. bargain beers etc. My strategy with this is spend the same amount and consume less.

    • The Other Schmitty says:

      I remember seeing a segment on 20/20 where they did a blind taste test of vodkas and everyone (in a small group) was shocked to find that they hated the vodka which they later discovered was Grey Goose.

      I’m not much of a drinker, but I always thought vodka was supposed to be virtually flavorless.

  7. The cash rule is so true. I absolutely can NOT hand over cash. I could never make certain purchases with cash. This is often why I take out cash for two week intervals to buy my food. I will buy much less when I have to hand over the cash.

    Credit/debit cards on the other hand are much easier to hand over. You’re simply not in the same mood as you are when you hand over cash. I can’t explain how or why but I’ve experience it many times.

  8. zapeta says:

    I try to overcome the psychological by automating my finances and paying myself first.

    One place that is designed as a psychological trap is the supermarket. I started saving a ton of money in groceries when I made a list before every shopping trip and only purchased items on the list. I buy generic whenever possible and I do as much of my shopping as possible at Aldi where everything is a house branded product.

  9. Caitlin says:

    I’ve always had trouble with the “freeze your credit card in ice” barrier, because I know my credit card number. Sure, it would work for in-store purchases since you’d need the physical card present, but even back when I over-used my credit card, it was online that I had the problem.

    • CK says:

      yikes, maybe call and ask for a new number to be issued on your account. And try not to memorize it!

    • echidnina says:

      Yeah, online shopping is a big barrier for me too. A lot of tricks like “carry only cash” don’t work in that case. Especially with services like Paypal, etc, it’s very easy to overspend without even thinking about it.

  10. Shirley says:

    Each week I put 10 one dollar bills in a small basket handy to the front door. These are used for schoolchildren who come to the door asking to be sponsored for doing a fund raising event. When they are gone for the month, there’s no more until the next month.
    (Whatever is left at the end of a month goes into my savings account.) It’s my way of creating “Artificial Scarcity”.

  11. Melissa says:

    I can agree Grey Goose is completely overrated and most people cannot tell it from Smirnoff…actually, Smirnoff may taste better. Same for Belvedere. Also overrated. But Vladi or Banker’s Club, nah, I’ve been able to tell the difference in a blind taste test.

    However, that being said, that’s not the case for all booze. You can’t hand me a Yuengling black & tan and tell me it’s a Guinness. You certainly can’t hand me a shot of Vladi and tell me it’s Chopin. Not all distillieries, wineries, or breweries are created equal. There are some “good buy” moderate-priced brands of alcohol or cheap local brews that are great, but the rot gut or low-end stuff basically is just that.


    I like the freeze the credit card thing. Personally, I just cut all of mine up but one and keep them in a drawer, but it’s the same concept.

    I think the best barrier I’ve found to spending is moving to an area with a lot of congestion/traffic. All I need to do is visualize the traffic nightmare should I go shopping and voila! Desire to go spend money dimishes quickly!

  12. With drugs, the only thing that most people probably care about is effectiveness, which takes the whole subjective “taste” aspect out of the equation. Does my generic Omeprazole taste different that Prilesec OTC? Possibly. But as long as the pill contains 20 mg of omepezole and nothing harmful, I’m happy.

    • Effectiveness does vary based on formulation (i.e. how the pure drug is mixed into a pill, gel-cap, syrup etc. Different formulations have different results. Try to buy stuff that looks as similar to the original you prefer and even then make sure the results are what you expected after you take the meds. My friend the pharmacist tells me that different brands work better for different people – its not one size fits all.

  13. Pop says:

    Believe it or not, a ton of studies have been done that show we think something tastes better when we’re told the cost was high. My favorite was on wine. People were served the same wine but some were told it was $10 and some told it was $90. The $90 consistently scored higher–not only in the tasters’ stated preferences but in brain scans of pleasure areas the scientists conducted. So I guess anything you can do to trick yourself into thinking something is expensive will make it taste better. Here’s a link to a story on the study:

  14. Anonymous says:

    Claratin and Flonase have been the only drug I’ve taken in the past decade. When Flonase started being advertised on TV, the price doubled. Since I used it rarely, I just stopped using it. My doctor said the generic wasn’t equivalent.

    As for Claratin, after reading the New York Times Mag article several years ago about its journey from lab to market, and how a placebo was more effective, I didn’t bother to buy it again.

    What I use is a neti pot with warm water and a little sea salt. Twice a day. Works like a charm.

    • Wilma says:

      You know, I’ve tried the neti pot as well as other nasal type cleaners and it just doesn’t help me. I thought if I kept my nasal cavity clean then I wouldn’t get sick as often. I’m here to tell you I’ve gotten the head and chest flu 3 times in 4 months this year. Makes me wonder if that neti pot didn’t have some thing to do with it.

  15. Wilma says:

    I can tell the difference between top shelf and bottom shelf vodkas. If you drink it you can. Besides the taste there is how you feel the next day. If your going to consume heavy quantities then you better go top shelf. The more expensive brands are filtered multiple times. No hang over beats cheap vodka any day. I don’t care how much some thing is if I don’t like the taste I’m not consuming it. Caviar is over priced, it stinks and tastes bad. Give me the Grey Goose over that stuff any day.

    Generics are great but there are some things like vodka that only the name brand will do. When it comes to mayo, you can’t fool me there either. I know what Hellmans tastes like and no other brand comes close. I too go with a list and a calculator to the store. It helps when your figuring out how many oranges you really need and if you need 2 fruits or one.

    No window shopping for me. I only go to the mall when I need an item and I go in and get it and come right out after my purchase.

    Spending time to research that purchase whether it’s a washer or a pair of jeans slows you down too. Wait for that sale. Research tells you if it’s a bargain.

    • Chris says:

      That’s funny. I have participated in actual consumer research regarding vodka taste testing to help a friend launch his Vodka company. I used to be a Grey Goose drinker but Smirnoff Triple Distilled beat Grey Goose every time. As did many other lesser name and price bottles.

      • echidnina says:

        There have been tons of studies on how wine quality is not related to price, as well. A $7 bottle of wine can be just as enjoyable as a $30 bottle. 🙂

      • Anonymous says:

        I’m not sure why anyone likes grey goose, it’s too permanent marker tasting, some of my favorite slightly more expensive vodkas are a more pleasant drink.

        On a more relevant note, although warning this is probably a trivial snobby rant, I think my beef with drinking lower end alcoholic drinks is more easily seen in beers. Would anyone actually prefer a Corona over Dogfish Head’s summertime Lawnmower beer in a blind taste test? Corona is marketing at its finest.

    • echidnina says:

      There may be a difference if you’re drinking it on its own… But if you’re going to be drinking screwdrivers or what-have-you all night, there’s no point wasting money on the top-shelf vodka. I’ve also seen DIYs on filtering your crappy vodka to make it more drinkable… I dunno if it’s worth it or how effective it is.

  16. jsbrendog says:

    training ourselves to nto spend money is just like training the dog not to defecate in the house…although i guess one has much mroe dire results than the other.

  17. Amen to all you’ve written about using cash! I’ve written on the virtues of cash on my own site and on others and have generally been beaten up for favoring the cash position.

    Comments like “I get 2% back on my purchases and I pay my balance every month”–good for YOU, but generally speaking, the whole purpose of credit cards to begin with is to get us to spend more money then we ordinarily would. They weren’t designed to be the cash management tools some people make them out to be.

    From a pure thrift standpoint, cash is the way to go.

  18. Saver says:

    Here is one more for your bucket. 4 Ivy League economists found that daily reminders helped participants save up to 16% more money.

    As a public service, SaveEveryWay was launched to do just this!

    We are currently helping almost 2000 people stay focused every day!

  19. Izalot says:

    For me what works in budgeting is just like in dieting. Write down everything you eat and put the costs associated with it. Every time I spend with credit card or cash I document in Quicken. This dedication makes me aware and think twice over when I buy anything.

  20. emma says:

    I wish using cash as a spending deterrent worked for me! It’s the opposite. I spend the most “frivolous” funds buying a diet coke at a gas station while driving, perhaps a pack of gum from a vending machine, maybe a bag of smoked almonds at the mini mart, etc. I won’t do that with a debit card. I won’t swipe for less than $5 and I generally won’t swipe for something I don’t really need. So by keeping NO cash on hand, I save a lot of money in the ‘oh, just a soda and snack’ vortex.

    Also cash for me is money already 90% of the way to being spent. It has already been deducted from my bank account, I’ve already acknowledged that it’s no longer in the vault, I’ve already dealt with losing the money from my bottom line — now it’s sitting in my pocket ready for that teeny little nudge of wanting something to finalize what started when I removed it from my account. Spending it means nothing to me as it has no affect on my bank balance. It’s already “gone”.

    Debit is harder for me to deal with, psychologically. Debit is when my bank account balance shrinks. This I feel! Wow, when I spend $100 on groceries I’ll have less than $1000 in my checking account. If I spend $80, I’ll still have $1000.

  21. Adam says:

    I want to ‘second’ the automatic savings idea.

    By setting it up once it requires no willpower to keep saving month in/month out.

    Being a robot is good…apart from when it comes to dancing. 🙂

  22. Anonymous says:

    Amen to all you’ve written about using cash! I’ve written on the virtues of cash on my own site and on others and have generally been beaten up for favoring the cash position.

    Comments like “I get 2% back on my purchases and I pay my balance every month”–good for YOU, but generally speaking, the whole purpose of credit cards to begin with is to get us to spend more money then we ordinarily would. They weren’t designed to be the cash management tools some people make them out to be.

    From a pure thrift standpoint, cash is the way to go if you’re weak.
    If you’re weak, if you lack the will to save and must force yourself with infantile gambits, then go ahead it is the way. But if you have some will, if you can make a decision to spend money or not; then placing it in an account will always yield you more. Now I’m earning 4 percent a month in a credit account; that extra 4 percent will translate to over 400 dollars this year, an amount which would be less if I used cash(I only use it for laundry/car washes) and much less If I used it all the time.

  23. I was thinking about how barriers are removed to online ordering! Jimmy John’s subs will store your login information, payment information and your last order making it incredibly easy to place an order.

    By not allowing my information to be saved for future use I consciously add a barrier back in place. When I am home, my card information is not within arms reach…so if I want to be order out, I have to get up and get the card….sometimes going through the kitchen is all the motivation I need to find something to eat at home.

    Crazy, but it works….most of the time!

  24. Good overview of tricks. By completely removing options you can literally change your behavior and simply adapt. I did this by selling my car and forcing myself to ride a bike. Now I’m more in shape and enjoy my commute along with having more money. Tricks like these help us adapt and make new habits, which in the end are only difficult because we tend to over complicate them.

  25. Toni says:

    I leave my credit cards in my safe deposit box except for the one that I carry. My schedule is a 10 hour day and off every Friday; I can’t get to the bank before or after work because they have already closed so I have to wait to get whatever it is that I wanted. Most of the time I realize that I don’t need it after all.

Please Leave a Reply
Bargaineering Comment Policy

Previous Article: «
Next Article: »
Advertising Disclosure: Bargaineering may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.
About | Contact Me | Privacy Policy/Your California Privacy Rights | Terms of Use | Press
Copyright © 2016 by All rights reserved.