How Our Perception Keep Us Poor

by David Ning · 10 comments

As the national average of gas prices drop back to the $3.50 a gallon range, no one seems to worry about the ultra high gas price anymore.  It’s vanished from the nightly news, missing from blog articles and forgotten over lunchroom conversations.  After all, gas is not $4 a gallon anymore so no problems right?

Same thing is happening with the housing prices.  Emma and I looked at a house that cost $729,000 to buy before.  When it went down to $599,000 recently, it seemed such a bargain.  If we buy now, we saved $130,000 in a year and a half.

What about that sales event at your favorite department store?  That pair of sunglasses looks great on you and instead of the original price of $350, it’s discounted to be $200.  Wow.

Sometimes, our perception seems to trick us into thinking the wrong way about savings and spending.  We seem to forget that gas prices used to be $2.80 a gallon 12 months ago, that comparable homes used to cost $300,000 and buying sunglasses is spending money and not saving money.  We fall into the trap of brilliant marketers who understand human behavior.  We end up spending money and not saving.  We end up depleting our emergency funds, taking loans from our retirement funds and spending it on flat screen TVs and home remodeling.  We end up delaying the one thing we wanted most, financial freedom.

Our perception

What Should We Do?

In order to save more money, we first have to acknowledge that it is natural for our perception to work against us.  Once we recognize this, we can better spot the situation.  We can then start focusing on telling ourselves that we are actually spending more money when we buy that pair of sunglasses, and that it’s nowhere near the point where we can splurge again when gas prices dropped to $3.50.

It is at these critical moments of our lives where our decisions can make a huge difference to our financial health.  It is these times where the frugal ones can truly distinguish themselves from the rest of us.  It is at these times where good decisions will lead to much faster wealth accumulation than would otherwise be possible.

It is at this time that you should decide what you should do.  The answer should be obvious.

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{ read the comments below or add one }

  • Brown says:

    Reason title in subjunctive?

  • David Wilson says:

    Thanks for the post, great information. People forget that making small changes can make a huge difference in their overall financial status.

  • Dave says:

    I have this whole “frugal” thing beaten. I invest nearly 40 percent of my net pay on collectible coins from the National Collector’s Mint. My latest acquisition is nearly $750 worth of “Forgotten Heroes” 9/11 commemorative proof coins–the ones entirely clad in 15 mg. of .999 pure silver actually recovered from vaults beneath the ashes of Ground Zero. And, to make them even more special, the Twin Towers on the coins can be flipped up so the stand proudly as a tribute to our fallen heroes. When the shrinking supply of silver from Ground Zero is finished, these coins will no longer be available. So I’ve go that going for me. That and a vast collection of die-cast collectible automobiles from the Franklin Mint. I’m gonna be rich. Yay.

  • MoneyBeagle says:

    Great article. I take note of this type of thinking all the time. Grocery stores are notorious for raising prices only to then run a ‘sale’ to make people think they’re getting a deal.

  • Don McDaniel says:

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  • Great post Money Ning.

    My wife and I were just talking about this over the Sunday paper… all those ads where you can save $500 on your purchase of $5,000. Well, you get the idea, but marketer’s have long used these perceptions to separate fools from their money, all the while those people never stop to think if they really need 3 extra 12 packs of coke to get that 1 free…

  • Jon Kepler says:

    I sometimes try to guess what a company’s profit margin is on a product, and then ask myself if I’m okay with giving them that much money. However, if I get an item on sale for less than cost, it still may not be a good deal if it’s less than cost due to company inefficiency (ex. another store may have it even cheaper AND still make money on it).

  • marci says:

    Here at the edge of the world (Pacific Coast) gas is at $3.99…. little mental trick there to make us feel better? Someone asked what I was doing with the money I was saving on gas now – I said, “What savings? Last year it was $2 cheaper, so it is still an extra expense, not a savings.”

    I feel we are in a ‘correction’ – not a recession. Why was there no uproar when property ‘values’ were rising so fast last year? It was so unrealistic. It was rather obvious it was all going to come to a screeching halt and fall drastically back down. I think the bottom of the turnaround won’t be til next March or so.

    In the meantime, I just go my usual way – saving, not spending 🙂 Works for me.

    And when one buys something at a lesser price, I believe that saying you ‘saved’ money is incorrect – only that you Spent Less. “Saved” is one of those mind-trip words to make you feel better about letting go of your money 🙂

  • Miranda says:

    Thank you for this great post. It is true that often we think that just because something costs “less” than it did before it is a great deal. Really, we should be focusing on whether we really need to buy the item. After all, spending money is still spending money.

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