Ever feel there’s an angel on your left shoulder and a devil on your right when it comes to budgeting and saving? Sure, you go through periods where you’re hitting your goals, watching your bank balance increase and you’re not splurging beyond your means. However, other times you seem to be giving into temptation and forgetting the “is this a want vs need?” internal conversation, slipping further from your savings goals.
When it comes to spending your hard-earned funds, there are a lot of tricks your brain can play on you to convince you to sway from your budget. We’ve listed 3 of them below.
- Spotlight effect
The spotlight effect, also known as visibility bias, is where you make a special effort to impress people with your spending, items or lifestyle. The term was coined by Thomas Gilovich and Kenneth Savitsky in 1999, and refers to when you feel people are observing you “in the spotlight.” It can be positive, such as when you achieve something and overestimate how impressed everyone is, or negative, such as when you make a huge mistake and feel everyone is laughing or talking about you. This is just one example of a cognitive distortion known as egocentric biases, where we rely too heavily on our own perception.
One way to combat the spotlight effect is cognitive restructuring, a method often used for managing feelings of anxiety. It’s helpful to consider the evidence that supports your thought and the evidence that disproves it, allowing you to find a more balanced version. For example, say to yourself: “People may be impressed by the luxury items I’m purchasing, but are unlikely to think badly of me if I discontinue this way of spending as logically they have their own finances as priority.”
- Consumption effect
Social media is one reason that consumption activity is so visible to others, directly influencing your personal purchase habits. Not dissimilar to FOMO (fear of missing out), there’s a domino effect when someone posts on social media about their lifestyle spends or material goods that then influences others to do the same. This is why the marketing technique of ‘social media influencers’ is so successful for brands. It doesn’t necessarily mean you’re feeling peer pressured, however you may adopt similar behaviours just via consuming social media, even if you’re unaware of it. For example, if you saw multiple people you follow on Instagram sporting the same new brand of handbag, you’d more than likely feel a higher-than-usual urge to purchase it. You may not need a new handbag, but by consuming social media and witnessing this behaviour, you too are then affected.
One way to combat this is to continuously remind yourself of your goals and ask yourself the golden budgeting question ‘is this a want or a need?’ You could also limit your time on social media, if your consumption is leading to continual derailing purchases, but this requires some self-analysing and honesty with yourself.
- Decoy effect
The decoy effect is one used by many retailers to influence a consumer to purchase a more expensive item choice when presented with options. The effect was first described by academics Joel Huber, John Payne and Christopher Puto, demonstrated through university student experiments. In these scenarios, the students were asked to make choices around beer, cars, restaurants, lottery tickets, movies and televisions. They were required to choose between two options, before being presented a third, which was a decoy designed to nudge them to pick one over the other.
For example, if there are two models priced at $300 and $600, someone with savings goals is far more likely to decide on the more cost effective one at $300. When a third item is introduced at $450, with less features than the $600 product, people will be more likely to purchase the $450 priced item and therefore spend $150 more.
One way to combat this is to first be aware of the marketing techniques that companies use to influence buying. Secondly, do your research on the benefits of each model or option and decide whether it offers you more value or whether it’s perceived value.
These are merely 3 biases that could be influencing you to spend more, but the common theme is your willpower. If you continually remind yourself of the goal ahead that you’re saving for and are vigilant with your spending, you can still make wise choices that don’t knock you off your path to wealth.
