Manage Your Money Like a F*cking Grownup


Do you understand your own behaviour when it comes to dealing with or managing your spending?

Our finance minister, Malusi Gigaba, has just announced in his budget speech that VAT is going up in April to 15%. 

It's more important than ever now to make better financial decisions.

In her new book, Sam Beckbessinger forces us to take a long and hard look at the psychology behind the stupid things we say or do when we try (but often fail) to save money:

Published by Jonathan Ball publishers and available from all leading bookstores right now.

Dumb biases we all have and how they make you do stupid shit with your money

One of the best things we can do to beat our dumb brain is to understand its weaknesses. Here are some you should know about and their fancy behavioural psychology names.

But I want it NOW (temporal discounting)

This is the classic: put a marshmallow in front of a child or a 30-year-old woman named Sam, and tell them that, if they can resist eating the marshmallow for ten minutes, they can have two marshmallows.

Many of those children or Sams would eat the damn marshmallow now because one marshmallow now is worth twice as much as a hypothetical future marshmallow.

We are hard-wired to value things more now than in the future. This costs us dearly, all the time.

Whenever we spend R100 now, that’s R100 we could have invested. That R100 could be worth much more in the future if we had just left it alone.

READ MORE: 5 ways to make money by doing virtually nothing

Yeah, that sounds about right (anchoring and priming)

You have no internal, preset idea of what most things should cost, so the first number that you happen to hear is normally the one that will set your idea of normal.

Sometimes, restaurants even put a particularly expensive item on the menu that they don’t expect anyone ever to buy – it’s just there to make everything else seem reasonable by comparison.

Anchoring also makes us forget to assess a purchase in terms of its opportunity cost. Say you’re taking out a new gym contract and you’re comparing two different monthly subscriptions – for R500 and R800 per month.

You get so caught up trying to decide whether the saunas at gym #2 are worth the extra R300 a month that you lose track of the fact that you shouldn’t just be comparing these options to each other but also to everything else you could be doing with that money every month.

Irrational fears (risk estimation)

What do you think is more common: being killed by a shark, or being struck by lightning?

Every year in South Africa, there’s an average of one serious shark attack, and about two hundred lightning-related deaths.
So, you should feel more nervous if I suggest you go outside during a storm than if I suggest you go swimming among some sharks, right?

But then again, they both pale in comparison when you learn that about eighty thousand people die every year  of heart disease, so your real concern should be walking into a fast food restaurant.

In general, human brains don’t naturally understand probability and statistics.

We’re especially bad at understanding how dangerous certain things are and aren’t in our life. We’re far more worried about getting on an aeroplane than into a car, despite the fact that we’re far more likely to die in a car crash than a plane.

We systematically overestimate the chances of big, sensational things happening to us, like terrorist attacks or home break-ins, and underestimate the chances of the boring but very common things, like heart disease and diabetes.

This is really important when it comes to deciding what insurance you need.

READ MORE: Here are some shopping tricks to help you spend less

Lucky streaks (gambler’s fallacy)

It’s a natural human tendency to believe in luck: this magical force that balances the good and bad stuff that happens to us.

When we’re on a winning streak, we tell ourselves we’re on a roll. When we’ve been on a losing streak, we tell ourselves we’re owed a win.

This sort of thinking makes for really bad investment decisions. Sorry guys, the universe doesn’t play fair.

READ MORE: These 5 millennials tried ‘funemployment’ - this is what they learned

Leave it as it is (defaults and post hoc rationalisation)

Germany and Austria are pretty similar countries. Both of them require people to consent to donating their organs after their death.

The organ donor consent rate in Germany is 12%. In Austria, it’s 99%. Why such a big difference?

In Germany (as in South Africa) you have to opt in explicitly to being an organ donor, and if you don’t do anything, it’s assumed that you don’t consent. In Austria, you have to opt out explicitly, and if you do nothing it’s assumed that you do consent.

You think of yourself as a person who makes rational decisions about stuff – especially important decisions like organ donation that can save other people’s lives.

But it turns out that, surprisingly often, we’re just going along with the defaults.

Funnily, we’re surprisingly good at making up stories for ourselves about why we’ve made decisions, when in fact we haven’t made a decision at all.

If you ask someone why they did something (when actually they were just doing the default) they will often be able to give you a whole explanation of a thought process that never happened. Humans are seldom rational, but we’re excellent rationalisers.

Different types of money (fungibility vs mental accounting)

Money, by definition, is fungible – which means that a rand is a rand is a rand, no matter where you got it from or what you were planning to do with it.
But we treat money like it isn’t fungible: we think of some money as ‘special’ or earmarked for a specific purpose.

This can lead to illogical behaviour. For instance, we treat windfall money (lottery winnings, birthday money, annual bonuses, money we find on the street) as magical money and we’re more likely to spend it on fun shit like clothes and holidays than on buying groceries.

In more extreme situations, this mental accounting is why so many people have really expensive debt but also have a pile of savings stashed away somewhere.

Logically, we should use savings to pay off debt, but that feels like violating very lovely special money that we like (our savings) for something not very exciting (getting rid of debt).

READ MORE: STDs: Why are we not more careful about who we get into financial bed with?

WATCH: Fin24 - 5 tips for saving

What can you do about it?

It can be helpful to imagine that you actually have two different brains. One of them is rational and sensible and thinks things through.

This is your Adult Brain, and it can make tough decisions (known to scientists as system 2 thinking). Another one makes snap judgements, and is all gut instinct and desires. This is your Monkey Brain (system 1 thinking).

We all have a little Monkey Brain in us and, actually, that brain is the one that makes most of our decisions.

It’s an important brain, mind you, because it makes decisions really quickly, which is of great help when you’re in a forest trying not to get eaten by sabre- toothed tigers. It’s not, however, the brain that we want making our money decisions for us.

How do we get our Adult Brain to make most of our money decisions? By automating shit. By removing the temptations from our dumb little Monkey Brains in the first place.

How do you get a kid to eat fewer doughnuts? You make sure there are never doughnuts in the house in the first place. That’s what you’ve got to do to your brain.

You’ve got to use those rare moments when Adult Brain is in charge to throw all the doughnuts out. Because Adult Brain, friends, is never in charge for very long.

What are some of your best money-saving tips? Share with us and we could feature it in a future article.

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