The psychology of money traps!

Updated: Jan 30 2014, 17:34pm hrs
Money trapWhen it comes to money management, a majority of people don?t live up to the level required for becoming rational and logical thinkers. (Thinkstock)
When it comes to money management, a majority of people dont live up to the level required for becoming rational and logical thinkers. Some decisions are taken with the flow and often leave people wondering about what they were thinking at that moment. Money is certainly capable of playing tricks with the human brain. Most monetary decisions, made by individuals, are based on several psychological factors and do not take rational and logical thinking into consideration.

With the ever increasing percentage of dependency on the psychological factors for making financial decisions, it becomes important to understand the money traps which are actually based on human emotions. Luckily, in todays world, there are entirely different fields like behavioural economics and neuroeconomics that are fully dedicated to how and why humans behave in different ways when it comes to money. And this brings the good news that the researchers have been able to pinpoint some ways in which humans tend to outsmart their brains when taking money-related decisions. People simply need to understand these typical, psychological-financial traps and alter the manner in which they take purchasing or investing decisions.

Price Comparison

This is perhaps one of the most common traps that the buyers fall prey to. They tend to compare the price tag figures of two or more comparable things and end up purchasing the one with the lower price tag. In some cases, buyers are likely to make the price of the item they actually want to purchase as the base price for comparison. In others, they just stick to the first quote of the product they come across in both, the online as well as the physical market, as the comparison price. One thing that should be kept in such a scenario is that no matter how cheap an item is priced, it doesnt necessarily make it of a better quality. It is the quality that requires comparison instead of prices to make a non-regrettable decision at the end.

What is FREE might not be good for your pocket

The word FREE has something magical about it. It gives birth to an irresistible feeling in humans that drives them to make totally irrational decisions. This phrase is just another typical, old-school sales trick that tends to allure the buyers into spending money on things they do not really need and would have avoided buying otherwise. This is the reason why the word FREE should always be considered as a warning to spare some time and give a second thought before purchasing anything. Items that come for free can often be the items that are priced higher than the rates at which they can actually be acquired for. By considering the need aspect, one will be able to do the simple math and make the correct decision at the end.

Instant Gratification

Most of us want to visit a foreign country for vacations. However, living the dream comes at a cost that one must save for. There are some people who cannot control the craving and proceed to seek instant pleasure by purchasing a tour package and not saving anything for the future. They simply dont want to sacrifice the present-day happiness for something that might or might not come 10-20 years down the line. However, one needs to try and attach instant emotions to their future goals. The aim should be to make the future as secured as possible. Making flexible, long-term money spending goals is an even better idea for avoiding being influenced by irresistible emotions.

Habit of Conserving

When it comes to doing the right thing with the unexpected riches gained from ones ancestors or any other windfall gain, people tend to have a soft corner for this money and prefer not locking it in any kind of risky propositions. They fear that they will lose their PRECIOUS money and, as a result, keep them in accounts that have lesser chances of growing in due course of time. One needs to utilise such unexpected gains as normal income and invest it in stocks, real estate or any other mode of investment for better gains in the long run.

In the end, it is not about how much one earns. It is all about how one treats the money in due course. Keeping these psychological traps in mind and being wary of them definitely aids in proper money management and better utilisation of money.