Anatomy of Saving and Spending

On September 30, 2012
Sometimes, we make a conscious effort to save. At other times we spend needlessly on possessions we couldn’t care less about. So it is simply a matter of choice, or is there more to our spending and saving habits than just personal preference?
Studies show that there are subconscious interactions occurring within our brains that influence our financial choices. By understanding these influences we can learn to train our brains to spend less painfully, or to save more successfully.
Dissecting Spending Habits
Most people have experiences that feeling of being in two minds, torn between making or not making a purchase. The explanation may lie in the complex interaction of various parts of our brain.
Mesial Prefrontal Cortex: Choose Wisely
Before prices come into play, we are always making subconscious decisions around what we like best. This is down to our Mesial Prefrontal Cortex. When you decide you want orange juice over apple juice, your Mesial Prefrontal Cortex is activated.
Insular Cortex: The Pain Of Spending
Spending doesn’t just hurt your wallet. Studies show that it actualy causes psychological pain. When you are exposed to the price of a product, your Insular Cortex activates. This is the part of your brain associated with pain perception. In this case, it hurts more to buy your favourite orange juice. Which, in turn will have an impact on your choice to consume it or not.
Nucleus Accumbens: Your Gambling Guru
Despite the pain caused by spending, sometimes we have the urge to gamble if we believe the potential gains will outweigh the losses. This is down to our Nucleus Accumbens, which activates when we take financial risks.
Mesial Prefrontal Cortex: It’s Not The Taking Part… It’s The Winning
It’s all well and good when we win big at Monopoly, but it is a whole different feeling when we win cash for real. This is due to our Mesial Prefrontal Cortex again, which activates when we receive actual rewards.
Take The Sting Out Of The Spend
We can reduce the pain we feel as a result of spending by minimising the actual feeling of spending. But always remember that pain serves a purpose – never spend what you can’t afford, and always stay in control of your credit.
Credit Cards – By separating when we purchase goods and when we pay for them, we reduce the feeling of spending.
Token Prepayment System – The costs of casino chips are absorbed the moment they are bought, so it is much easier to spend.
Mental Prepayment – A mental budget allocates a fixed amount of spends to a particular purpose. So if you plan your spends of your night out to the cinema in advance, you won’t feel the pain when you actually do!
Gifts – Presents liberate purchases fom the feeling of paying. But buying unwanted gifts wastes precious money!
Online Shopping – The click of a download button reduces the ache of paying, and don’t even need to look in your wallet.
Pay For the Experience In Advance – By paying for a holiday before hand, you ensure that you don’t feel the pain of spending while lay on the beach (as long as you are willing to wait for it!).
Fixed Rate Paying – If you hear a taxi meter ticking, it reminds you of each penny you are paying. And this, of course, is painful. On the other hand, fixed rate paying allows you to pay a set amount upfront, independent of your usage.
Save Your Spends
By embracing the pain that pinches when you spend, you can save your pennies.
Carry Cash – Spending money in its physical form hurts. So carrying it around will make you think twice about spending freely!
Pay As You Go – Paying for what you use may hurt more, but if you’re trying to save will minimise your usage.
Insular Cortex Versus Nucleus Accumbens – When you feel the urge to gamble, look at the cost and count the cash before you spend. This will help your pain inducing insular cortex to overwhelm those risk taking inclinations.
To Spend Or Not To Spend
Next time you get that painful feeling that you shouldn’t be spending, stop and think about what you truly want. Save, or spend? If you chose to save, feel the pain, and carry cash as a reminder. If you want to spend, there are a variety of ways to separate yourself from that painful feeling of paying, allowing you to consume more pleasantly!

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