You: I should get my RRSP money in as soon as I can.

You: Ah, but I’m really not sure where to put the money.

You: Doesn’t matter just get it in.

You: But I kinda hafta decide what I’m gonna buy before I open up the RRSP. Will it be a mutual fund, or a GIC or a segregated fund, or will I buy the index?

You: If you wait to decide, you’ll never put the money in the account.

You: Yah, but I can’t decide, so I’m going to wait.

Could it be that the reason we don’t save is because with so many choices on how to invest we’re stymied. Yes it could.

Sheena S. Iyengar of Columbia University and Mark R. Lepper of Stanford University have found in their research that people are less likely to make a decision when they face too many options.

They set up sampling booths at a grocery store offering some customers 6 choices of jam and other customers 24 jars of jam. While only 40% of passersby stopped at the booth featuring 6 different types of jam, 30% actually bought the product. The larger display drew more tasters: 60%. But here’s the kicker: only 3% actually bought the product.

It seems that having too much choice seems hampers our ability to make the decision on what to buy.

Hey, if you can’t decide what you should buy with your RRSP dollars, you can always go with a Savings Account option to get the money in before the deadline. Once that decision is out of the way you can then focus on what you’ll invest those dollars in to make them grow.

In choosing your investments for your RRSP make sure:

1. You know what you’re buying

2. You’re staying true to your investment personality (your ability to handle risk)

3. You stay in line with your investment time horizon.

Left to marketers, you’d spend all the money you should be saving warding off the heebie-jeebies. There’s the toothpaste that’s going to protect your enamel from eroding. There are the germs on your counter-top that will make your whole family sick. And there are the criminals waiting to steal your stuff, your car, your financial identity.

The thing that should really be scaring you is how easily you’re being manipulated into spending money you should be setting aside for the future. If you allow the fear-mongers to ‘motivate’ you to buy something you really don’t need, you’re not only leaving yourself exposed emotionally (why would you give them that kind of power over you?), but also financially.

While most of us are loath to admit the fear-factor works – it makes us feel like wussies – fear ranks as one of the strongest motivators and advertisers are blatantly using it to scare the britches off us.

Who hasn’t watched a home security ad and thought, “Gee, $24.99 a month is nothing for the peace of mind I’ll get from having the ‘free’ system.”  You may even have had the same thought watching the ID-theft ads.

You would think that in this day and age of rabid cynicism few people would fall for the fear-inducing marketing ploys, but fall people do. Before you follow your knee-jerk response to protect yourself and your family by coughing up some hard-earned dough to ward off the bogeyman, do some research. Don’t buy simply because a marketer has pushed the right button.

Many of the items that we buy that aren’t good for us we buy on impulse. And just as the pain of paying with cash can stop you from loading up on one more pair of earrings, so cash can stop you from loading up on chips, cookies and pop. Yup, cash can curb your spending on crap food.

Professors Manoj Thomas, Kalpesh Kaushik Desai, and Satheeshkumar Seenivasan from Cornell and the State University of New York tried to establish a connection between food purchases and the payment methods people used. They turned to real life shoppers to gather their data.

When the shopping baskets of over 1,000 households were studied over six months, the ones where shoppers were using cards to pay for purchases had much more “impulsive and unhealthy” food. In fact, shoppers who used credit bought 40% more unhealthy food than those who paid with cash.

Cash shoppers found payment much more painful and it is this “pain” that researchers believe make them far less willing to spend on “vice” products.  Load up your cart with cakes and chips and swiping your credit card is no biggie. Forking over cold hard cash is not as easy.

Perhaps the limit on the amount of cash available also has something to do with shoppers’ prioritizing; the unlimited capacity of a credit card makes any purchase a possibility.

How we pay isn’t the only thing that influences our purchases, so does the time when we go shopping. People who shop on weekends buy less junk. Why? Well, weekend shoppers also tend to be list shoppers; they plan their purchases and so are less susceptible to impulses.

People who shop before 11 a.m. and after 5 p.m. also tend to buy unhealthy food. Hungry? Maybe. Or maybe those are periods of lower energy when your self-control doesn’t have the power to overcome the power of the Impulse Monkey.

If you’re living life according to The Gail Rules, you already know the value of using cash. You also know how important it is to shop with a list. This research is just more proof that being a conscious shopper makes you a better shopper. And it can keep you from packing your face full of stupid calories. Score one more for the Magic Jars.

So what is? Well, studies have been done that show if you have a back-up plan for when your best laid get derailed, you’re far less likely to do yourself damage.

One study used an anagram task to put some students in a bad mood. Half the participants were told the task was easy and would only take them five minutes to complete. It was a trick. Three of the anagrams were unsolvable putting those participants in a grumpy mood. The other participants were told the truth, so no bad mood. Then all the participants were asked to describe how they would behave in three imaginary scenarios:

• whether to drive an old car with brake problems,
• whether to disclose a secret to a room-mate, and
• whether to return deliberately damaged shoes to a shop for a refund.

Those students where had no hard and fast plan for dealing with a setback were prepared to take more risk – to hell with it! – while those who had a solid back-up plan were inoculated from the self-defeating behaviour.

Thomas Webb and his team at the University of Sheffield believes that if you come up with plans that state “if a certain situation occurs, then I will respond in a pre-specified way” you won’t be at risk of doing yourself in with a stupid decision. Called the “if-then” decision, the pre-formulated backup assuages your need to shoot yourself in the foot.

How concrete? Not all that concrete. It’s more a matter of acknowledging that a downside is possible and that you’re prepared to deal with it. So simply having a plan to breathe deeply when a setback occurs, or look for ways in which you’ve successfully dealt with setbacks in the past, are enough to keep you from going off half-cocked.

To think that crap will never happen because you have carefully thought out your plans is delusional. Crap always happens. If you don’t have a back-up plan, To Hell With It! will drive you down the wrong path. But if you accept that even the best-laid plans can be sent awry by things beyond your control, and have a plan for dealing with a set-back, you’re far less likely to dig your misery hole even deeper.

As Mike Tyson once said, “Everyone has a plan ‘till they get punched in the mouth.” To survive you need a plan for after you take the punch!

Then there are the people who fled Hurricane Rita and Houston, experiencing the nightmare of panic only to watch as the hurricane barely grazed the city.  A Good Decision that ended up being a much more uncomfortable experience that the Bad Decision (to stay) would have been.

Can Bad Decisions that turn out well be “smart?” How about Good Decisions that turn out badly; does that make them “dumb?”

This is the same kind of quandary people face when they make investment decisions. Sometime things work out right; sometimes they don’t. And we get all bent out of shape, beating ourselves up for making a dumb decision even though it was the right thing to do at the time.

When you make a decision, a whole bunch of things come into play: the possible outcomes, how likely it is that each outcome will happen, and the consequences of each of those outcomes. If you really think the hurricane will hit, and you may be killed, getting in the car and driving away makes perfect sense no matter how arduous a journey it may be.  But what if you’re delusional enough to think that you will never be caught driving without insurance, or worse, that you’ll never have an accident. Or what if you truly believe – despite all the evidence to the contrary – that you can beat the casino.

This is where “outcome bias” grabs us.  It’s an example of how our brains are wired to make bad decisions and why you must be conscious and logical about your choices. If you were one of the fools that stayed in Huston to face the hurricane because you were too stupid to know better, outcome bias will keep you there the next time a hurricane comes barreling down on you. And if you were one of the ones who left, only to watch your Good Decision turn into a dumb one, you’ll stay too.

This is exactly the problem with insurance and how some people perceive it. Those that never have to make a claim are ticked at how much money they “wasted” buying something they never needed to use. Others skip buying insurance because, like my Princess, they think they’ll never get caught needing it. But if you’ve every claimed on your insurance, you know just how happy you were to have it in place. And if you didn’t have any, you sure wish you had.

The same applies to how some people invest. They take a shot, make a big win, and then spend the rest of their lives trying to duplicate their success with no real focus or strategy for achieving a particular goal. Oy! Then they complain that investing is like gambling. Only for the fools!

Our badly wired brain is one reason you need to understand the rules of sound money management. Like baking, if you don’t follow the rules, the soufflé won’t come out. While you can always throw an extra teaspoon of salt into your soup or stew, baking demands accuracy. A cup of dry ingredients is different than a cup of liquid. If you whip egg whites that are at room temperature, you’ll get more volume. If you bake at a temperature that’s too high or too low… well… yuk!

Managing money is a lot like baking: follow the rules and your recipe will turn out. Sure, there will be times when something doesn’t work out just the way you planned. Maybe there was a little grease in your bowl and those whites wouldn’t whip. Or the market corrects and there’s a slide in your net worth. Don’t knee-jerk react and throw the bowl at the wall. Just assess where you are and where you want to be and get back on track.

And work on your mindset. Attitude counts as much as following the rules. Whenever I buy insurance I feel like I’m getting twice the value for the money I’m spending: if something goes wrong, thank goodness I had insurance. If nothing goes wrong, that’s because I had insurance. Either way I win!

There’s actually a name for this seeing-a-clear-picture-looking-back phenomenon. It’s called “hindsight bias” and it walks hand in hand with another bias: confirmation bias.

If you believe that something that happened was totally predictable after the event actually occurred, you’ve got hindsight bias. In our desire to find order in the world, we want to believe with all our hearts that things are predictable. That’s why you have all The Spurts coming out of the woodwork AFTER a major market event saying things like, “The signs were all there.” Really? Signs. Hmmm.

Hindsight bias leads to overconfidence. That’s its major downfall. After all, if you believe that you could actually have predicted the last two market run-ups and downturns, you’ll also believe that you can predict the next one.  You can guess. And you might be right some of the time. But guessing is no good when it comes to money you’ve busted your butt for, and hindsight bias isn’t your friend.

Confirmation bias is the idea that we make a decision and then look for information that supports that decision, completely ignoring information that runs counter to what we want to believe. See all the people who believe that real estate values can only go up, jump in with little down, and then watch their lives climb on a rollercoaster to hell. Prices drop, their downpayments evaporate, and they have nowhere to go but back to the beginning.

This happens all the time in the world of investing. You get a hot tip from someone on TV, in the newspaper or at a cocktail party and then set about doing your research to prove the tip is correct. You cheer for all the green lights. You barely brake for the red ones. Yup, you’ve been bitten by confirmation bias.

I recently worked with some folks who were suffering confirmation bias to such an extent that they actually ignored the numbers. The decision was whether they could afford to keep their home or should sell and pay off their debt. Since the house was more than they could manage – they were spending upwards of 60% of their income carrying the sucker. It wasn’t just about the existing debt. It was also about the rate at which that debt would grow if they didn’t do something.

The numbers clearly showed that if they sold, they’d be debt free and could then begin rebuilding a downpayment for their next home. But that’s not what they saw. They believed that they’d lose money on the sale of the house, so there was no point to selling and starting over.

The solution to hindsight bias and confirmation bias is PERSPICACITY. That’s the ability to see things clearly. You might have someone like this in your life: the person who looks at the situation and knows exactly where all the pieces are. They don’t juggle them to make a picture: they see the picture the pieces actually present. Instead of looking for proof that a particular decision is right, these people tend to look at the downsides of all the positions and then choose the least offensive.

They end up being the person everyone goes to for advice, or the person everyone avoids because they can’t stand the bad news. Find your person with perspicacity and you’re well on your way to making better decisions.

You see, even if you’re aware of confirmation bias, that’s not enough to stop you from falling into it’s sticky clutches. You need to find someone you trust to help you by being the voice of reason. Their job is to look at the facts and, because they have no vested interest in the outcome, tell you what they see. Your job is to take their advice seriously.

From Stanford comes a new set of studies that talk about how shopping can lead to more shopping. It seems that buying that fateful first item may open the shopping floodgates.

People were given the opportunity to buy discounted items from the researchers as compensation for their participation in the study. Some people were offered a light bulb, others received something more relevant to their needs like an educational CD. This was to vary how likely people were to buy the first item. It came as no surprise that people who received a light bulb were less likely to buy it compared to those who received the CD. Then folks had the chance to buy a second item: a keychain.

Turns out, the people who bought the CD – something they wanted — were more likely to buy the keychain even though the second item was completely unrelated to the first. Turns out shopping is a two-stage process:

1. People deliberate about a purchase, weighing cost and benefits, the degree to which they need the item, and so on.
2. Once the deliberation is over and the buying begins, a subtle psychological mechanism comes into play and a roller coaster of shopping can begin.

That first buy creates what the researchers call “shopping momentum.”

Most people don’t have a clue that this is happening to them. Outside of stores, people think rationally. Inside stores, a whole different dynamic comes into play and people may be triggered to shop MORE by the sheer act of shopping. That’s why smart stores put momentum starters at the front of the store; you know, those small items it’s easy to pick up, which don’t require a lot of deliberation. Those little buys get you on a shopping roll. It’s also why smart retailers use “loss leaders” or products they sell at a deep discount to get you into the store. They know that when you pick up those 24 rolls of toilet paper for a buck fifty, you’re going to have opened your shopping floodgates and buy all the other stuff at full price.

So are there ways to slow down your shopping momentum? Indeed there may be. It seems that when you must open two separate wallets, envelopes or other containers for your money, you’re more likely to think twice before jumping on the shopping bandwagon. That’d make a good case for not filling your basket and checking out all at once, but buying smaller loads of stuff at a time. It also could help your case if you put the cash you intend to spend into an envelope (and write your list on the front) before heading off to the store. You’re less likely to dip back into your wallet for impulse purchases.

So why do we believe we should do one thing yet do something completely different? Why do we fail to exercise self-control or skip following through with a plan when we really know we should?

Robert Kurzban is an evolutionary psychologist, and associate professor at the University of Pennsylvania. He believes that instead of “one mind”, we actually have a ton of different pieces and sometimes those pieces can be in conflict with each other.

His idea that the mind is modular is somewhat new and a little controversial. He likens it to a smart phone that has lots of great applications.

Not all the modules co-exist peacefully. Sometimes they have to fight it out to get you to behave in a way that best suits their agendas. That’s why you end up turning into  McDonald to buy a Big Mac and two blueberry and maple pies; the modules in your brain which require highly caloric rich foods win over against the modules that are set on you losing that last five pounds.

Much the same theory can be applied to buying stuff on credit when you know you should really be working at paying off your debt; the pleasure centres which derive satisfaction from the acquisition of something new win out against the planning centres that want you to stop shopping on credit.

This conflict between modules in our brains can be frustrating, but they are also what make us so flexible and such good learners. And it is this very conflict that defines our humanity.

Self-deception takes many forms. There are the folks who consider themselves to be infinitely more attractive than are. Think of some of the Princesses I’ve worked with. Or the people who think they are better drivers than they actually are. Or the folks who consider themselves to be good with money, but don’t have a nickel saved for the future.

As a rule, we also like to divert blame for our bad decisions to some external source, while we are very willing to accept responsibility for the things that turn out well. Kurzban says, “I think people are making use of what I would call psychological propaganda. So if I can claim credit for whatever it is that’s good that’s just happened, and someone else believes me, well that’s good for me, because it’s good to be held in high esteem and to be the bringer-about of good outcomes. That makes you popular and being popular is useful.”

Taking charge of the context of our lives may be the key to doing what’s right, instead of doing something that’s in conflict with what we’re thinking we should be doing. It’s the old, “Don’t go grocery shopping when you’re hungry” rule.  When you’re hungry, your fat and sugar and salt modules are running the show and so you’re that much more likely to pull all the wrong things off the shelf. But eat before you go, and shop for only the things that are on your list – so control your context – and you’re that much more likely to behave in line with your thinking.

If you’re thinking that the mind’s conflicting modules can let you use the old “The devil-module made me do it” excuse, think again. While your mind’s conflicting modules exert a strong influence on you, you’re still responsible for the action you take. So if you have a couple of drinks and get into the car and have an accident, you chose to do it. And if you’re feeling a little blue so you grab your cards and head to the mall, you can’t blame your conflicting module for the debt you ring up.

Knowing that there is conflict is the key to not letting the wrong module win the battle. As Kurzban says, “Changing our contexts can enable us to give some modules an advantage over others, particularly the ones that we want to have the advantages.”

The idea that what you smell can influence your emotions and your behaviour isn’t new. Lavender helps you sleep. Mint wakes your brain up and makes you more aware. And no matter how good your diet intentions, if you get a whiff of fresh-baked bread you can watch your self-control go out the window. These are just some of the truths in the aromatherapy domain.

It seems that fresh-baked bread can also cause drivers to speed. So say some researchers at the West Virginia Wheeling Jesuit University, who link the hunger that the smell generates to drivers’ hurrying to quell their appetites.

In 2004, Richard Axel and Linda Buck were awarded a Nobel Prize in Physiology or Medicine for their pioneering research on our sense of smell. They found that we humans have some 1,000 olfactory genes, and for the first time they clarified how our olfactory system works. So now there’s support for all that aromatherapy mumbo jumbo: cinnamon can improve your concentration; coffee can clarify your thinking; sweet smells can increase your tolerance for pain.

Marketers are taking advantage of all the new research and using “ambient scenting” to leave you with a good feeling about their products. Do you think that if they spray a certain scent in your direction, you’ll be more likely to buy?

An article in Business Week says, “Researchers believe that ambient scenting allows consumers to make a deeper brand connection, and data has led many other non-scent-related companies to join the fray.” Research has shown that there is evidence of a powerful relationship between the olfactory bulb and the brain’s limbic system, which is the part of the brain that handles memories and emotion.

Did you know that when a facial tissue is imbued with a scent, consumers’ recall of the brand’s other attributes increase significantly… up to two weeks? Could this be why laundry detergent, which used to come in lemony fresh, now comes in a b’zillion different scents?

Not only can your nose be pulled into the buying decision, so can your ears. A research study done at Penn State showed that when ambient scent and music dovetail, consumers rate the environment significantly more positive and are more likely to impulse shop.

Research projects are popping up everywhere to try and fine-tune the use of scent and music to manipulate consumers. So if you see me walking around the mall with a clothes pin on my nose, I’m probably trying to compensate for all the smells those wily marketers are throwing at me. And if you call to me and I don’t answer, I’m not ignoring you. It’s just my earplugs.

What most folks don’t realize is that it is that very level of noise that is being used to drive up the bar tab. What?!

In a couple of experiments, it’s been shown that when the level of noise in a bar goes up, the beers go down even faster. Turn up the music and you turn up the consumption. Wow!

Is it because you’re dry-mouthed from having to shout over the cacophony? Is it because you can’t talk to your friends anymore, so you focus on the glass in your hand? No one is quite sure. What the psychologists do know is that louder equals more drinking equals higher tabs.

A study done by French psychologists in 2004 showed that higher sound levels lead to more drinking. Another study in 2008 back up the original findings. Researchers went to a local bar and watched customers consuming their beverages. Over three Saturday nights and in two different bars they found that when the noise in the bar went from street traffic level to lawnmower level it took folks only 11.5 minutes to finished an 8 oz glass of beer, compared to the 14.5 minutes in the less noisy circumstances.

Did you think you were doing all that drinking because you were thirsty? Or was it just to be companionable? No. You were doing it because someone was pulling your strings. Yup, you were being manipulated.

The kind of music you listen to will also affect how much you drink. Would it really surprise you to learn that country music contributes to greater consumption of beer? How about the fact that rock music makes you drink more overall, and definitely makes you drink more of the hard stuff?

But the bar isn’t the only place where sound is used to make you do things you may not realize you’re doing. Music volume is also shown to affect your shopping behaviour. People in grocery stores playing loud music make more purchases per minute than those in stores playing quiet music.

Loud isn’t the only way to open your wallet. Both supermarkets and restaurants use slower music to create a relaxed atmosphere. In the supermarket this has the effect of slowing the traffic flow so that you end up shopping for longer and spend more. In a restaurant, you relax, taking more time to eat and drink and hiking your bill.

Not all manipulation is used for greed and profit. In nursing homes for people with Alzheimer’s, health care professionals are challenged to get their patients to eat enough. So researchers set up an experiment to see if music could be used to decreasing agitation among cognitively impaired nursing home resident. What they found is encouraging. Alzheimer’s patients ate 20% more calories when familiar background music was played compared to an eating in a music-free environment.

Hey, you can do this experiment at home. If you have kids who just won’t sit still long enough for a meal, trying putting on some relaxing and familiar music. And if you want them to drink more, turn up the volume.

Earplugs might not go with a nice evening out. But just being aware of how your environment is being manipulate to, in turn, manipulate you may be enough.

Recently I had a request to do a piece on the psychology of collecting. I’ve been a collector myself: stamps when I was small, books, hippos, house-plants. The idea intrigued me… I love writing about new things and I hadn’t thought about this before, so I set to doing some research to see what’s what.

People have been collecting all sorts of things forEVER, from precious stones to baseball cards. There are even names for collectors: lepidopterists collect butterflies; philatelists collect stamps; arctophiles collect teddy bears. I once new a couple who topped their wet-bar with matchbooks from all the restaurants they had been to. Some people collect stuff that seems quite odd to other folks. A guy named Graham Barker has the world’s largest collection of navel fluff. And if you’re into moist towelettes, Michael Lewis is your man.

While most people collect the “normal” stuff like hockey cards or coins, people can make almost anything into a collection: empty perfume bottles, salt and pepper shakers, old postcards. I new a girl who never threw away a rubber band: she kept adding them to her ball. I know another who did the same with her tinfoil. When it got too big to handle, she’d start another one.

So why this compulsion to collect? And how far will we go to extend or complete a collection?

Some people like the hunt. When I collected hippos, half the fun was finding one I didn’t yet have that fit with the type of hippos I collected (whimsical hippos). Some psychologists suppose that people are trying to fill a void, create a sense of self. Some collectors get a real thrill out of arranging and rearranging their collections. And some folks get really excited when they come close to completing a collection.

Freud believed we collect to make up for our sense of loss over watching our poopies go bye-bye. Hey, Freud had an obsession with poop. And one does have to scratch one’s head when some people take “collecting” to the extreme we’ve seen on those “hoarder” TV shows.

Since collecting is often most associated with positive emotions – the pleasure of adding a new treasure, the excitement of seeking an addition to the collection – some people can take their collecting to an extreme, even putting themselves at financial risk (never mind all the dusting required) in order to get another pleasure jolt.

Some people collect to learn: they use their stamps, their coins, or whatever history pieces they are focused on to learn more about something they’ve very interested in: geography, flowers, a specific period of time. Some people collect to say (in a sing-song voice), “mine’s bigger than yours.” Some people collect because they’ve been convinced by smart marketers that their “collections” will be worth big money one day. Remember Beanie Babies? How about Precious Moments? And some folks collect because the very act brings order and predictability to their world. Their collections make them feel safe because no matter how out of control the rest of the world is, at home among their collection, they’re in charge.

Sometimes we outgrow our collections. Sometimes we carry our collections around with us long after we’ve stopped acquiring new piece because we invested so much time, effort and money in the collection. And sometimes we divest: we let go of the stuff because we realize that actually doesn’t mean what we thought it did. But sometimes out collections have such memories attached that we hold tight to them, using them to bring us a sense of continuity.

I started Alex on a collection musical boxes and snow globes when she was a babe. I’d give her a new one for each birthday and Christmas. The early ones broke quickly because I never admonished her for playing with them and, well, things break. But she still has quite a few of them. I was surprised when I went to visit her at university to see one of the musical snowglobes a friend of mine had given her on her desk. She wound it up for me. A little bit of home.

I said to her, “So, you’re standing in a bookstore looking at a book that costs $12. The woman beside you says, ‘That books on sale a ten-minute walk from here for six bucks.’ Do you walk the ten minutes to save $6?

She said, resoundingly, “Yes.”

So then I said, “You’re looking at big-screen TVs. The sticker says $999. The guy beside you says, ‘That TV is on sale a ten-minute walk from here for $993.’ Do you walk the ten minutes to save $6?

She says, unequivocally, “No.”

Her husband looks at her like she’s just pooped in public. I smile.

“Why not?” asked I. “It’s the same $6. You had to bust your ass just as much for the money you’ll save on the book as for the money you’ll save on the TV. “

People are weird when it comes to money. They make all kinds of judgements, go through all kinds of gyrations. I know where that woman’s mind went. She thought, “It would be worth it to go ten minutes out of my way to save 50%. But no way am I going ten minutes out of my way to save a piddly little whatever” (because she probably couldn’t do the math fast enough to know it was .6%).

Six bucks is six bucks.

It’s this same desire to qualify worthwhileness that gets in the way of some people’s savings. They think to themselves, “if I can only save $1, that’s just not worth it.” Hey, a dollar is a dollar. And given enough time, that dollar can become ten dollars.

Save one dollar a day ($30 a month) at just 5% and in ten years you’ll have set aside $3,600. Hey, that’s $3,600 you wouldn’t have if you didn’t save that dollar a day. Better still, you’ll have earned $1078 in interest, so you’ll actually have $4,578. All for a dollar a day.

Do it for twenty years and your dollar a day will grow to $12,382.

Do it for thirty years and your dollar a day will grow to $25,072.

Yah, Gail, but what’s $25K going to buy in 30 years? Really, what’s the point?

Are you kidding me? It’s $25K more than you’d have if you didn’t bother to save your dollar a day. In my book, it’s better to have $25K than not, so using the argument that it won’t make much of a difference so there’s just no point is like not being willing to walk down the street to save that six bucks on that TV.

And who says you have to stick to a dollar a day. That’s just how easy it is to get started.

I can just hear your minds rumbling.

But Gail how will I know how much I need to save overall?

Ah, that’s another question entirely, and you should buy a copy of Never Too Late to find out! It’s available now at Amazon.ca and it’s worth every penny!

Here’a a study that proves doing things the way that most suits YOU is crucial to your success. According to a study from Northwestern, people are motivated by one of two fundamental needs:

• they are “promotion-focused,” looking for things that will help them achieve hopes and dreams, or
• they are “prevention-focused,” looking for items that help them feel safe and secure.

In other words, some of us want to win and some of us want to avoid losing.

In order to make any kind of strategy work for you, you must first figure out which of these two pools of people you fall into and then design your approach accordingly.

It seems that promotion-focused folks do well when they adopt strategies that strive toward gains, but not so well when they adopt strategies that guard against losses. On the flip side, prevention-focused individuals will find their strategies working when they make ‘em feel safe, not when they necessarily gain something.

It’s a matter of mindset. If you belong to the first group, you’ll want your money management strategies to answer the question: What are some things I can do to make sure everything goes right?

• You’ll work towards a target of achievement: Look I have my first $5,000 saved.
• You’ll want to get to debt free to beat your lender at his game.
• You’ll research your shopping purchases to make sure you get the best deal.
• You’ll track your spending so that you know how much you have to spend.

If you belong to the second, you’ll want your strategies to address the question, What are some of the things I can do to avoid anything that could go wrong?

• You’ll track your spending to avoid having your bank account overdrawn.
• You’ll research your shopping purchases to make sure you don’t get gypped.
• You’ll want to move from debt ridden to debt free so you can experience a sense of security.
• You’ll work towards a target of avoidance: I have $5,000 saved so I don’t have to worry about the next emergency that crops up.

Yup, it’s all about your ‘tude! If you don’t understand how to frame what you’re trying to achieve, don’t be surprised if you keep falling off the rails. Find the phrasing — the context — that works for you and you’ll find your motivation and your self-control.

Sure, there’s a lot of anticipation, and that feels good. And there’s the hunt to get the best option and the best price, and that feels good. But having bagged your treasure, it seems like not very much time passes before your excitement over whatever it is you bought fades, even turning to disappointment as a newer model with more bells and whistles arrives on the market. And my personal peeve: the price that changes right after I’ve shopped. I have noticed that I tend not to experience as much regret when what I’ve bought is an experience. It’s the stuff that seems to be loaded with baggage.

Maybe one reason is it’s much easier to do a like-for-like comparison on stuff than it is on experience. After all, each of us does a vacation or a concert in our own unique way, while, well, a camera is a camera. So if we really liked that camera and shopped hard for it, but our cousin ended up with one we think we like more and she paid less, we feel regret.

Another reason we may feel regret when we finally plunk down our money for stuff is something psychologists call “maximizing”. Then is when we compare all the possible options. Since there are usually lotsnlotsa things to think about, this takes hard work, so we end up irritated and unsatisfied by the very experience of having to sift through all the choices to come up with the best buying decision.

It’s interesting that we don’t suffer  “maximizing” regrets when what we’re buying is an experience. That’s because we buy experiences differently. Instead of wanting to count everything, we set a minimum standard and when we find the first thing that works for us, we buy. That leads us to be less worried about the existence of better options cos we’re happy with what we got.

While maximizing would seem to equate to “smarter shopping”, it leaves us less satisfied than choosing what we want and then “settling” for the first thing that meets our needs.

It doesn’t help our satisfaction levels any that it’s way too easy to re-evaluate a thing we purchased with 20/20 hindsight. Having paid $1200 for that gorgeous flat-screen TV, you continue to look at the fliers and read the product review to prove to yourself how smart you were. Instead, you find yourself becoming more and more disappointed with your choice. It seems that re-evaluation of stuff-purchases is an automatic thing for many people.  Yet we don’t do it for our experiences.

And then, of course, there’s the frustration of buying something brand-spanking new, only to watch it become obsolete 90 seconds later when the newer, improved version comes out. Apple is the king of this phenomenon, followed very closely by every cell phone company out there.  It is almost as if these companies are banking on your disappointment to motivate you to spend some more money. And don’t even get me started on things that fall in price right after you’ve bought them. This is one of the regrets that’s helped me to apply my experiential shopping strategies to my stuff: I don’t buy right away (I’m not an early adopter), I set a minimum standard for what I need, and I never look back. I am now content to know that what I have given myself is what I wanted, and I don’t second-guess myself.

This “thinking experientially” can be a good way to offset the vagaries of regret when it comes to acquiring new stuff.

In a series of studies published in the Journal of Personality and Social Psychology researches wanted to see if thinking experientially leads to less disappointment. So  Travis Carter and Thomas Gilovich encouraged half their participants to think of music as a material purchase and the other half as an experiential purchase. They were then told the price had been reduced.

Those who were thinking in experiential terms were less bothered by missing out on a bargain and happier with their buy, which suggests that thinking of stuff in experiential terms could leaving you happier with your decision.

Your ip-od isn’t a new device, it’s a way to have the music that makes you happy. Those new kitchen knives aren’t new tools, they’re the way of making your cooking experience more enjoyable. And those jeans… well, they’re not about style, they’re about how you feel when you’re wearing them.

Try exchanging your stuff purchases for experiential purchases. After all, that’s the point in buying stuff: what it can do for you. If you’re just buying stuff to have more stuff, well, you’re always going to be disappointed.

One of the things I scratch my head over is how much people are willing to shell out for their stuff. Is an $800 pair of shoes twenty times better than the shoes I buy for $39.99? Are the $250 pair of jeans four times better than the $60 jeans? Is that $60 bottle of wine six times better than the stuff you can get for ten bucks a bottle?

Inevitably, when I challenge people on why they spend so much on their stuff they site “quality.” But is it real quality, or is it perceived quality they’re getting?

Most shoppers believe higher prices are a sign of higher quality. Repeated studies have shown that we expect more expensive products to be better. The question is, are those higher prices affecting our experience of quality? Maybe.

Researchers from CalTech and Stanford told subjects that they were drinking five different varieties of wine. Then they told them the prices for each as they drank. Here’s the hitch: the subjects were only consuming three different wines since two were offered twice: a $5 wine described as costing $5 and $45, and a $90 bottle presented as $90 and $10. (There was also a $35 wine with the accurate price.)

People rated identical wines as tasting better when they were priced higher AND their brain scans showed greater activity in the pleasure regions. It seems we genuinely experience more pleasure when we think something is more expensive. Hmmm.

Y’all know about the placebo effect: when sugar pills work just as well as real meds. How about this to make your scratch your heads:

Folks were given a placebo, which they were told would provide pain relief before experiencing the second of two identical sets of electric shocks. Eight-five percent of the people who thought the pills cost $2.50 reported feeling significantly less pain compared to only 61% of the subjects who thought the pills cost just ten cents each. Hey, is that why people hang on to their brand-name drugs instead of switching to less expensive generic equivalents?

While it is no doubt true that often quality and price are related, when we take that relationship for granted, we may end up paying for something of lower quality simply because we’ve convinced ourselves that more expensive must mean better.

So how do you correct for this? Maybe you do your own blind testing, just like on those commercials, to see if you’re responding to true quality or perceived quality. ‘ Course this will be easy for things like foods and drinks. Some other stuff? Not so much.

Not everyone will want to break free of their delusions. If you buy $60 wine occasionally as a special treat because you really enjoy it, and then you do a blind taste test against your everyday $15 wine and discover they both taste equally good, have you now lost the ability to get increased pleasure from the $60 wine? Or would you develop a greater appreciation for the cheaper option?

When have you experienced a perception of higher quality related to higher price that turned out to be a delusion? How do you keep a handle on the way prices affect your perception of quality?