{"id":3813,"date":"2021-05-24T08:00:23","date_gmt":"2021-05-24T06:00:23","guid":{"rendered":"http:\/\/contattoblogs.timslatter.co.za\/?p=3805"},"modified":"2021-05-24T08:00:23","modified_gmt":"2021-05-24T06:00:23","slug":"are-you-money-mental","status":"publish","type":"post","link":"https:\/\/zcp.co.za\/main\/are-you-money-mental\/","title":{"rendered":"Are you money-mental?"},"content":{"rendered":"<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">The simple answer is: Yes, we all are!<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">In a recent blog, we looked at five financial trip-wires and glanced over the term \u2018mental accounting.\u2019 Introduced in 1999, it\u2019s a concept that refers to the different values we place on money. These values are often based on subjective criteria; sometimes, this subjectivity benefits us, and sometimes it doesn\u2019t!<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Mental accounting enables us to create emotional connections with our financial plan. When we consider investment strategies or risk cover, an emotional connection to the outcome, or the goal, is established and we are more likely to continue contributing money to that account.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">The perceived importance of the outcome causes us to view the money involved differently. However, money is the same, no matter where we put it or how we spend it. There is a technical term for this universality of money; it\u2019s called fungibility. Fungibility essentially speaks to the equal value of assets.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">We learn about this very early in life &#8211; just think about kids in the sandpit who are learning to share. If one has the spade and bucket, and the other has the castle mould, they will very quickly figure out that swapping the mould for only the bucket, or only the spade, is not a fair value exchange. A fair trade would be both the bucket and the spade for the mould.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">As we grow up and start to trade with money, we conform to the commercial conventions of our society. We exchange money for products or services, and if we pay one price for an item in one place, we expect it to be similarly priced everywhere else. If it\u2019s more expensive, we would expect to receive more value for that item.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">This is where it gets more complicated, and we learn that value is highly subjective. Something that I consider valuable may not be something that you consider valuable. Mental accounting comes into play, and we assign a different value to inherently fungible items.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">In an episode of the hit series Friends, Monica discovers that Chandler (her fiance) has a large amount of money invested that could pay for her dream wedding. Chandler initially refuses to spend all that money on one event because he had other plans for the money, long-term plans that included a family and a home. After sharing these thoughts with Monica, she understands his perspective, and they make a new plan together.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">According to Investopedia, mental accounting often leads people to make irrational investment decisions and behave in financially counterproductive or detrimental ways, such as funding a low-interest savings account while carrying large credit card balances.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">To avoid the mental accounting bias, individuals should treat money as perfectly fungible when they allocate among different accounts, be it a budget account (everyday living expenses), a discretionary spending account, or a wealth account (savings and investments).<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Mental accounting also affects our approach to long-term investing and our risk cover. When we are young, it\u2019s harder to invest for retirement &#8211; but as we get older, this becomes a higher priority. When we are healthy and strong, it\u2019s harder to pay for life cover or income insurance because we can\u2019t emotionally connect to the possibility that we will need those products.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">There are many other areas where mental accounting skews our perspective, like when we receive a windfall (an inheritance, a tax refund or an unexpected gift) or finish paying off a large debt. The sudden availability of money that \u2018we didn\u2019t have to work\u2019 for seems to have a different value than the money we receive through our salary, wages or investment payouts.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">It\u2019s not easy to simply say &#8211; it\u2019s just money. When we are emotionally engaged in our finances, we need to have the space to talk about our options (like Chandler and Monica and the kids in the sandpit) and have a third party (your financial planner) to help us find a healthy balance.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">A rational approach doesn\u2019t mean we don\u2019t enjoy our wealth; it means we can be more intentional with our wealth. If you\u2019re feeling a little money-mental, maybe it\u2019s time we had a chat.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The simple answer is: Yes, we all are! In a recent blog, we looked at five financial trip-wires and glanced over the term \u2018mental accounting.\u2019 Introduced in 1999, it\u2019s a concept that refers to the different values we place on money. These values are often based on subjective criteria; sometimes, this subjectivity benefits us, and [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":3814,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,28],"tags":[],"class_list":{"0":"post-3813","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","6":"hentry","7":"category-blog","8":"category-market","10":"post-with-thumbnail","11":"post-with-thumbnail-large"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Are you money-mental? - ZC PRETORIUS<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/zcp.co.za\/main\/are-you-money-mental\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Are you money-mental? - ZC PRETORIUS\" \/>\n<meta property=\"og:description\" content=\"The simple answer is: Yes, we all are! 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