Monday, June 15, 2009

Why Smart People Make Big Money Mistakes

This morning, I stumbled on this post over at I Will Teach You To Be Rich, about mental accounting and how smart people make big money mistakes. One particular quote stuck out at me:

"We have a tendency to value money differently depending on where it comes from. If you win $50 in the lottery – considered “found” money - you more likely to spend that on garbage than the $50 you earned on the job. If you get tax refund – you’ll run out and spend it instead of saving."

This is SO RIDICULOUSLY TRUE. I noticed last year that I tended to never have extra money in my "business" account (the checking account I use for dance job and mystery shopping expenses and income). For some reason, all the money that came in from those enterprises I viewed as "free money" and spent it rather frivolously. I put aside a percentage for taxes, but didn't actively save any portion of it, and as a result, have very little to show for it. My life isn't much different since I basically quit bringing in extra cash from dancing or mystery shopping, because my spending habits haven't really changed--if I wouldn't have paid for it with "regular" income before, I just go without it now, rather than spending that money on it.

Knowing that that's a common problem might enable me to prevent it from happening in the future, if I happened to ramp up either one of those sideline jobs again.

If you're interested in the whole book (I am!) enter to win it here.

1 comment:

  1. Thanks for entering to win!
    What a fascinating book - so much of that is just spot on!

    Claire at Choyster Cash

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