You've done your monthly financial planning and realized that it's pretty tight. Based on that, you've made a decision — you and your family won't eat out this month, so you can save money.
Around the 15th of the month, a couple of friends you haven't seen in a long time invite you to meet at a bar on a busy street near your house. Even though you know you should decline, you end up accepting so as not to offend them. When you get there, you have a few drinks and then go to a restaurant for dinner. At the end of the night, when you event planner email list calculate the total, you have spent more than R$200.00. So, the question remains: why do we spend even when we can't afford to spend?
Mental accounting is malleable, that is, a way our brain finds to manipulate our mental accounts. “Wow, I worked so hard this month, I deserve a treat, don’t I?”
Emotional accounting — or emotional money laundering
“We don’t spend money in a way that makes sense, but rather in a way that makes us feel good.” This is certainly one of the greatest insights found in the Psychology of Money.
Keeping in mind that all human actions are driven by avoiding pain or achieving pleasure, it becomes easier to understand why we often let our emotions speak louder. Therefore, we can spend our money on:
serious matters: when paying off a debt, for example;
noble causes: making a donation to an orphanage;
own reasons: after all, you deserved to buy that “little blouse”, didn’t you?
Time and categorization — timing is everything!
A good example given to explain the relationship between timing and money is the purchase of bottles of wine: for wine lovers, buying the product is an investment — it can be stored for months (or even years) and only enjoyed at a special moment — after a certain time, the feeling is that you didn't even pay for the product.
Timing isn't just about spending money, it's also about earning it.
When asking employees of a company if they would prefer to earn R$1,000.00 per month or R$12,000.00 in annual bonuses, the most sensible answer was the first option, since it would help with financial expenses.
However, when asking the same employees what they would do with the R$12,000.00 bonus, the answers were directed towards expenses that would make them happy : trips, gadgets and gifts for themselves.
Why does this happen? When we have R$1,000.00 added to our salary, we see that money as having the function of “serious money” — paying bills, rent, health insurance, etc. A bonus of R$12,000.00, on the other hand, diverges from the commitment of the salary received monthly, because of this, people feel less guilty about spending that money on pleasures instead of obligations .
Conclusion
Based on the insights gathered in Psychology of Money, it is possible to see that people are increasingly hostage to their financial lives. Therefore, marketing and sales strategies need to be developed with the trigger of the pain x pleasure relationship in mind, in order to stimulate the audience until the moment of the purchase decision.
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