Have you ever sat through a bad movie just because you didn’t want to “waste” the money you spent on the ticket? What about a dud of a car that you refused to give up on despite multiple trips to the mechanic? If so, you’re not alone. This behavior is a mental money trap economists and psychologists call the sunk cost fallacy or the escalation of commitment, and it can cost us money, time and unnecessary emotional stress.

Why do we so often stubbornly refuse to count our losses and move on? Let’s expound a little on what the sunk cost fallacy looks like.

Most of us have an instinctual aversion to loss. In many situations, the prospect of losing money becomes more powerful than any other reasoning — even the possibility of coming out ahead. This is easily illustrated by gambling habits. Based on behavioral studies, most people refuse to bet on anything if the promised payoff is less than double their investment.
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How to Ask for a Raise

by Miranda Marquit · 3 comments

At some point in your career, you probably look at your situation and wonder if it’s time you were paid more.

We all get there.

However, it can be difficult to actually ask for a raise.

If you are ready to ask for more money, here are some things to keep in mind:

Timing Matters

First of all, when you ask can make a big difference. Pay attention to your boss. When is he or she usually in a better mood?

You don’t want to ask for a raise on a Friday afternoon when all anyone wants to do is wrap up a few loose ends and get on with the weekend.

Instead, pay attention to when your boss is likely to have free time, and energy to have a discussion about your pay.
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The phrase “dollars to doughnuts” first appeared in the mid-19th century as a catchy way to describe something considered a safe bet. Dollars obviously hold value, whereas doughnuts are essentially worthless (unless you’re a big fan of doughnuts, maybe). So, what does this mean to you, as a consumer, and how can it become a money trap? The answer is best illustrated by setting up an analogy.

Imagine that you’ve had your eye on an item that’s $100, and it’s suddenly being advertised as 50% off. Would you be willing to go out of your way to purchase this item at $50 (and save $50 in the process)? Probably. Pit this against another scenario where you’re considering a more expensive purchase — for instance, a household appliance. Let’s say it retails for $3,000 but it’s marked down to $2,950. Regardless of your budget, would you feel like you got a better deal on the $100 item marked down to $50 versus the $3,000 item marked down to $2950? Probably.

The reality is that both these deals represent a savings of $50, but the first is a saving of 50% while the second is a saving of something like 1%. If you’re like most people, it feels like saving 50% off is way better than saving 1%, regardless of the dollar amount.
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If you have student loans, I’m sure you’ve dreamed of just not paying them back. You imagine what else you could be doing with that money and think how much easier life would be without the relentless payments.

I’ve totally been there. Although I’ve dreamed of not paying back my debt, I know it’s my responsibility, both morally and legally, to do so.

Aside from my thoughts on the price of higher education, signing up for student loans is still something I did myself. I signed on the dotted line and agreed to pay back my debt, which I’m working hard to do.

Recently, an op-ed was published in The New York Times about the author’s experience defaulting on his student loans. He went so far as to practically encourage others to do the same, in the name of student loan reform.
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Dealing with a dishonest salesman or falling for a sneaky marketing ploy are experiences we can learn to identify and avoid, but there are other kinds of money traps many of us fall for – and they start in our own minds.

A common scenario that illustrates the first of these mental traps is shopping for a used car. After negotiating back and forth with the owner, you manage to agree on a price that’s several hundred dollars less than the list price and sign the title feeling like you got a great deal. Later down the road, you discover the car is worth even less than the discounted sale price. If this example doesn’t apply, perhaps you’ve fallen for this trap while purchasing a new television, an expensive piece of jewelry, or a home in a new area.

The tendency to use the first piece of information we hear or see as our “anchor” for making subsequent spending decisions is called the anchor price comparison trap (some also refer to it as the relativity trap or focalism). This happens most frequently in categories that are new to us, where we have nothing to compare to the prices we encounter.

Whatever you choose to call this behavior, it’s a verifiable bias built into our mental wiring, and it can cost us a lot. The good news is that you can outsmart your own tendency to create pricing anchors with a few simple strategies.
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Gratitude often comes up when we talk about living a better life.

In fact, most of us know that an “attitude of gratitude” can help us reduce stress and allow us to feel better about life in general. It can also help our relationships with those around us.

But did you know that gratitude can also help our finances?

That’s right. Being thankful can help you improve your financial situation too.
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