Psychology

The Money Fog

I’m not thinking about my retirement savings. I’m not thinking about my debts. They’re lost in the fog right now. All I can think about is that I want a meal at that fancy restaurant or that I really want an iPhone. That’s what I see around me, with everything else greyed out and not …

From the Scarcity Mindset to the Abundance Mindset

Four years ago, I wrote a very brief article on the idea of scarcity and abundance mindsets. At the time, it was an idea that was pretty fresh in my head, and so I didn’t yet have the opportunity to really cover it with any depth. Instead, it became an idea that I regularly referred …

The Emotional Cycle of Change

As many of you know, I had a bit of a financial epiphany in April 2006. I came home from work one day, picked up the mail, and sat down to pay our bills, only to realize that we didn’t have enough in our checking account to pay all of those bills. Because neither of …

How to Switch to Collecting Experiences Instead of Things

In the old apartment Sarah and I used to live in, I had one whole wall filled with books. The bookshelf stretched from the floor to the ceiling and from wall to wall and, frankly, it was overstuffed. That bookshelf wasn’t too surprising, though. I’ve been a voracious reader since my early childhood, reading more …

Categories: Psychology, Shopping

The Single Most Important Financial Skill

Investing? Frugality? Entrepreneurship? The most valuable personal finance skill, in my opinion, lies under all of these things. It seems incredibly simple, but it’s also incredibly difficult to master. It’s simply control over your emotions and desires. Control over your emotions and desires keeps you from buying things just because you want them in the …

Hindsight Bias and Personal Finance

We’ve all heard the old nugget: hindsight is 20/20, right? From the perch we sit on right now, the mistakes of the past look obvious. Why couldn’t we have predicted it? At the same time, we often look back at our past successes and see them as practically inevitable. That’s just how the story goes, …

The Idea Behind Habits

Whenever I want to make a positive change appear in my life, I usually approach it in one of two ways. I either try to get rid of a bad habit or I try to establish a good habit. Habits are at the center of both of those ideas. It’s around that hinge of habits …

The Challenge of Rebooting Your Routines

No matter what change you want to introduce into your life, it involves removing, modifying, and replacing routines. For example, if you’re trying to spend less money, you’re probably trying to replace or eliminate routines that involve spending money each day. You’re trimming out visits to the coffee shop or cutting out your visits to …

Categories: Psychology

External and Internal Motivation

If you’ve read The Simple Dollar for very long, you know that my children play a major role in motivating me to make good financial choices. I want them to have childhood security and to have every educational opportunity that I can provide for them, at least up until their college education. I use them …

Categories: Psychology

An Unhealthy Dose of Optimism

It isn’t very hard to come across stories of people who thought they had everything planned out, only to see everything come apart at the seams. They lost their job. Their car fell apart. Their apartment building burned to the ground. They got sick. Their child or spouse got sick. Someone stole their identity. They …

Feeling Defeated? Here’s How to Rebound

Sometimes, no matter what you do, life will hand you some lemons. It’s really easy to respond to that with a trite “when life hands you lemons, make lemonade,” but sometimes that just doesn’t work. Things you’ve been preparing for and working on for years have blown up in your face. The big dreams you …

The Art and Psychology of Self-Control

One of the most difficult aspects of personal finance – for me, at least – is the art of self-control. I have always found it difficult to just say “no” to my spending temptations. For many years, I’ve found success in putting up barriers. This works, to a large extent. By making it more difficult …

“If Only I Had This Thing, I Would Be Happy”

Something has captured your imagination or your heart. Maybe it’s an expensive physical item, like a tablet computer or a shiny car. Maybe it’s something like a relationship with another person, either real or visualized. You get wrapped up in this thing that you want. You keep visualizing yourself with this thing in your life …

Financial Problems and the Three Ps

Recently, I found myself browsing through a book called Learned Optimism by Martin Seligman. The idea behind the book is that an optimistic approach is the best way to handle the problems that life throws at us. I was particularly struck by Seligman’s comparison of how optimists and pessimists handle problems. In Seligman’s view, pessimists …

Five Ways to Keep Good Money Choices in Mind All Day Long

This article first appeared at U.S. News and World Report Money. Personal finance rests on a bedrock of choices. Each day, we’re faced with thousands of little decisions, many of which have financial implications. Our ability to consistently make good decisions plays a huge role in whether or not we achieve financial success. For example, …

Categories: Psychology

The Focusing Illusion

Let’s say an advertisement or a news article points out some new gadget or new kitchen appliance or new restaurant that you haven’t experienced yet. This advertisement or news article makes this thing that you’ve not experienced sound like it’s positively incredible and that you’re missing out on something potentially life-changing by missing it. Over …

Categories: Psychology

Fuzzy-Trace Theory and Your Money?

Fuzzy-trace theory? Fuzzy-trace theory is just an odd-sounding name for a pretty simple idea. To put it simply, the idea is that people form two different types of memories. One type, called “verbatim,” is just like it sounds – it’s a very detailed and accurate representation of something experienced or learned in the past. For …

Categories: Psychology

Thinking Negative

We’ve all heard many, many things about the power of positive thinking. Some people (myself included) believe that a key part of being successful at anything is visualizing that success. In doing so, you picture the details of that success, which often helps you a great deal in formulating a plan to get there. It …

Categories: Psychology

Money and the Shrinking Attention Span

Since 2000, the average attention span has dropped by 33%. That’s an amazing little statistic. When I see statistics like that, I attempt to immediately translate them into what they mean from a money perspective. I often talk about the “ten second rule,” which is a simple idea for shopping that helps guide you away …

Categories: Psychology