None of us like the idea of going bankrupt. The whole notion of losing all of our money or being in a financial position where we tell ourselves we have to give up and wave the white flag can be a simply awful feeling. We’ve seen over the past decade some colossal meltdowns of investments that, at first glance, appear to be bullet proof until they turned out to be massive Ponzi schemes and frauds such as in the cases of Bernie Madoff and Allen Stanford. In the flick of a switch, those millions and millions of dollars in investments became a black hole of nothingness seemingly overnight. So what in the world do these guys and the world SALE have in common? In helping many people manage their budgets and family finances, words like SALE, FREE, and ZERO are some of the most dangerous words in the English language. If you’re not careful with how you make up your family-spending plan, the world SALE alone can put you in a situation where you might have to file bankruptcy one day. Let’s examine more in depth how these words can play a trick on our mind.
- FREE – Dan Ariely, the author of the book Predictably Irrational, is one of my favorite authors. He shares tremendous insight about our purchasing habits and how different words influence our overall behavior. The words FREE and ZERO pop up as two of the deadliest words. Although rationally we understand that there is nothing in life that is truly free, we are constantly drawn to purchasing offers such as ‘buy one get one FREE (BOGO)’ and things like ‘FREE French fries (with the purchase of a chicken sandwich)’ every single day. The subliminal use of the word FREE gets our brain tricked into thinking it is a good deal even though we may end up spending money that we cannot afford.
- ZERO- Just as dangerous as the word FREE is the concept around the word ZERO. Dan Ariely mentions in his book Predictably Irrational for instance, that when they set up a temporary candy stand and sold mouthwatering Lindt truffles (which usually cost around 50 cents) for 15 cents and run of the mill Hershey Kisses for 1 cent, 73% of the chocolate-lovers who stopped by made the rational decision and chose the superior and highly discounted Lindt truffles. But, when they lowered the price by 1 cent for each item—resulting in a cost of 14 cents and 0 cents respectively—suddenly demand reversed and 69% of consumers chose the free Kisses. Why are we so fooled even when something luxurious could be discounted in our favor?
- SALE- The most insidious word of all budget busters is the word SALE. A friend of mine used to say to me all the time, “Ted . . think about it . . you’ll save in the long term.” I’ve heard other people get convinced by telling themselves they are getting a deal because the item is on clearance or on SALE at a massive discount. The truth is you still need to ask yourself if the purchase in question was within your budget to begin with, and that this is not an ‘extra’ item you are now purchasing. We are so inundated with coupon and discount deals, I wonder if we can rationally decipher what is a good purchase and what’s not?
Many of the purchases that we make as families are based purely on our emotions and are hardly ever done with logic. From the end of the aisle deals at the grocery store to the clearance racks strategically positioned at department stores, we are bombarded with marketing that manipulates our emotions every day. The smart money move I would highly encourage you to put into motion is a 24-hour rule, especially when it comes to the word SALE. Ask yourself the tried and true acid test of do I want it, do I need it, and can I afford it? SALEs may not bankrupt you immediately like Madoff and Stanford did to many investors, but if you fall into the trap of thinking that SALE is always a deal, you just might end up bankrupt as well.
CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Editor in Chief of Your Smart Money Moves
Co-CEO and Founder of oXYGen Financial, Inc – The Leaders in Gen X & Y Financial Advice and Services
Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.
Find us on Facebook here – CLICK CLICK