What you think something should cost and believe other people are spending on it can lead to you spending more than you need to. Learn to ignore anchor prices to reap huge savings.
Photo by f3nd1.
We all walk around with a self-compiled index of costs in our heads. Whether it's how much a car, wedding, or even a nice bottle of wine is supposed to cost, our mental price list can lead us to overspend. Over at financial blog The Simple Dollar they highlight the effect of this using the amount spent on weddings:
According to CostofWedding.com, the average American couple spends $US20,398 on their wedding, and that's not too far from the mental anchor of the cost of a wedding averaged across all economic levels.
The problem, of course, appears when people begin to truly use the $US20,000 figure as a mental anchor for their wedding. "We have to spend that much in order to have even an ‘average' wedding?" people ask themselves. Then, in order to have their day be 'special' or ‘exceptional,' they spend an amount that's far over the top, putting them into debt for quite a while.
I've witnessed at least two couples do this with their wedding – they invent a mental anchor of what it should cost, chase that mental anchor, and wind up with a gratuitously expensive wedding that ceases to actually make either the bride or groom all that happy in the end.
How do you get away from the sway of the anchor prices? Work from what you want from something or want something to do and work forward only allowing the price to rise if you find an accompanying rise in satisfaction from the purchase. You may readily find that an economical car with some extras tacked on is just as enjoyable as a luxury car that has those features as stock but costs 30% more.
Check out the full article at the link below for additional information. If you have your own way of avoiding falling into the trap of anchor prices and saving a buck or two, we want to hear about it in the comments.
The Mythology of Spending and Mental Anchors [The Simple Dollar]