Money Help 411

Your emotions can affect your spending decisions in unexpected ways. Read on for the tricks that will help you prevent your feelings from ruling your finances.

Sometimes your emotions torpedo your intellect. Weren't you the one singing along to that Ke$ha song before you remembered you really don't like Ke$ha? Or tearing up during the commercial you know is cheesy, where the father finally hands off the car keys to his teenage daughter? Happens to everyone, no big deal—but when your emotions run roughshod over your financial smarts, your personal finances can get battered.

How we feel often stops us from being cold-hearted about cash. These scientific studies, however, can help you react more with your brain and less by your moods when it comes to money.

Sold to the Nicest Person!
The Lesson: You lose money when you insist that valuable objects go to buyers who plan to use them.

People want to sell beloved items to those who will cherish them. Marketing professors Aaron Brough, Ph.D., of Pepperdine University, and Mathew Isaac, Ph.D., of Seattle University, found that nine out of 10 people would pick bidders who planned to hang a painting they inherited from their grandparents or play the piano they adored as a child over potential buyers who wanted the objects only as investments. But by doing so, the sellers lost money, the study found. To get an item into the hands of a person they thought would love it, they parted with it for hundreds of dollars less than another buyer offered.

Take Control: Before you place an ad for an object that has sentimental value, get an appraisal, says Brough. "When you have a reference price, it usually has an effect on your judgment," he says. If the item isn't expensive enough for a professional valuation, check out eBay and see how much similar items have sold for.

Open Hearts and Wallets
The Lesson: Shelling out for "special" occasions costs more than you think.

The last time a friend had a birthday, you spent big. After all, she has only one birthday a year, for which she deserves a nice present. But this sort of generosity can add up to out-of-control emptying of your checking account. Adam Alter, Ph.D., an assistant professor of marketing at New York University's Stern School of Business, found that people tend to overspend repeatedly on the kind of events that seem to come along rarely, such as birthdays. "They seem like one-off things," he says, "but when you put them all together, you're really breaking the budget."

Take Control: Write down how much you spend on each celebratory buy (use a budgeting website like "This turns your spending into something much more mechanical," says Alter. The budget line should be "gifts and entertainment," not "miscellaneous," so that you're tracking exactly where your money is going.


Issue date: December 2012