Follow Basic Monetary Rules, but Keep an Eye on the Big Picture
It sounds crazy, but yes, personal finance can be exciting. Not like “we’re going to Disney World!” exciting, but more like “how great, I was finally able to control my debt.” The problem is that sometimes we are so excited about the opportunity to take control of our monetary situation that too strict adherence to the rules can backfire.
Some of the best personal finance habits can backfire , and this is especially true when saving money turns into hoarding money. Research published in the journals of the American Marketing Association found that we are so obsessed with saving that we’d rather go into debt than spend our savings on an emergency. The people in the study were presented with an emergency: a $ 5,000 oven repair. They had a choice: either use their savings to pay for this, or put the expense on a high-interest credit card. Oddly enough, they chose a credit card:
In six studies, we found that people’s propensity to save in favor of borrowing from a high-interest rate loan option varied depending on the intended use of savings. Paradoxically, people are more likely to turn to loans with high interest rates, believing that this is a responsible option.
Of course, using a credit card for a reward and then paying it off is a completely different story, but the study indicates that subjects will borrow money.
This is another reminder that the main thing in money is the way of thinking. Sometimes the fear that you won’t have enough money or the desire to control your finances can cloud your judgment. This happens all the time. This is why the rules of money are important, but ingenuity is better . Bottom Line: Remember to keep the big picture in mind when making financial decisions. LearnVest is evaluating this from the link below, and you can check out this research yourself too.
Knowing When to Spend: The Unanticipated Financial Impact of Allocating Funds to Stimulate Savings | AMA Magazines via LearnVest