5 Money Biases to Kick Out of Your Budget
Sometimes we miss out on good things because of bias. For example, if you hate cheese dip because of an attack of food poisoning from last year's Cinco de Mayo, you’re missing out on a delicious treat. That’s a queso bias.
Yes, it’s funny. But it’s also powerful.
Biases crop up in more than just our food choices. We have them toward people, politics and even our money! The good news is that you can recognize and change them pretty easily. Take control of your mind and your money by kicking these five budgeting biases out of your life for good.
1. Ostrich Effect. It can be challenging to find time in your daily life to budget. It’s much easier to put your head in the sand and hope everything turns out okay. In fact, two-thirds of Americans don’t make a detailed household budget at all, according to a Gallup poll.
Boot Your Bias: Sit down on the 25th (or pick your day) of every month and create the next month’s budget. Go to a coffee shop or make a cup of tea at home. Do something to signal “I’m about to make my budget now.” The hardest part is making the time. After that, it’s actually pretty fun to plan how much you’re going to spend at restaurants and shoe shops.
2. Confirmation Bias. Your in-laws are planning a ritzy Christmas vacation in the Rockies. You love going on trips, and you really want to go, but it’s way out of your family budget. Rather than refuse, you start listening to friends or family who tell you “it’s only money” and “you deserve this.” That’s confirmation bias. It’s hard to say no when others are openly affirming your wants.
Boot Your Bias: Instead of upsetting everyone (including yourself), offer an affordable alternative. Why not share the cost of a discounted cabin after the holidays are over? Or how about making the experience itself everyone’s Christmas gift instead of shelling out for presents as well? Smart budgeting gives you permission to enjoy what you want, within your means.
3. Bandwagon Effect. We’ve all heard this one: “Everyone has a car payment.” This is classic bandwagon mentality. You want a top-of-the-line car because everyone else has one. Plus, that new leather smell is only a loan signature away!
Boot Your Bias: Instead of making a $500 car payment for five years, save that amount for two years and snag a great, paid-for car that works just as well. If you continue paying yourself this amount each month, you’ll have enough for a debt-free dream car that’s truly interest-free!
Related: How to Get Rid of Your Car Payment
4. Zero-risk bias. The stock market has been compared to a roller coaster. If you don’t like roller coasters, the thought of sending your money on a stomach-churning theme park ride may not sound fun. In fact, you’d rather not take the risk at all. But there are smart ways to reduce your risk and maximize your earnings.
Boot Your Bias: Before you do anything else, budget enough to meet your company’s 401(k) match. Invest the rest in good growth stock mutual funds. Remember, the only people who get hurt on roller coasters are the ones who jump off. So when the market takes a dip, don’t bail! It will eventually level off.
5. Overconfidence bias. Pride can definitely be a good thing. In fact, Americans have an anthem about it. But when it comes to your budget, “I’m right and you’re wrong” won’t get you anywhere but in a money fight with your spouse.
Boot Your Bias: You can still be confident while asking for help. Even if you’re the money Nerd, your spouse needs to give his or her two-cents. When two people are doing the spending, two people should be doing the budgeting. That way, you’ll create a budget you can both be proud of.
This list could go on and on. There’s even a blind-spot bias—where you don’t recognize your own biases! Thankfully, you don’t have to let biases rule your mind or your money. Here’s your chance to kick them out today and keep them out forever.