IndiaP2P Blog
Responsible content on personal finance & economics that makes you smarter about money.
Mental Accounting & Why you may be thinking about money all wrong.
Mar-28-2022
The different values we as people put on the same amount of money based on subjective or emotional criteria is our personal mental accounting. This type of accounting may seem useful or in the very least harmless but it is simply bad for us.
Mental Accounting has been studied and popularised by behavioral economist Richard Thaler. He says that we tend to ‘mentally classify’ money even though money is just money (i.e. its fungible), leading to both irrational spending and irrational investments.
For most of us, money received unexpectedly is always considered more spendable or put in the ‘can afford to risk’ category. In reality, money categorised as ‘can afford to risk’ and money categorised otherwise/for safekeeping/monthly budget etc. should be treated the with the same diligence.
For example: I had planned to wait until the end of the year to buy new clothes because I already have too many, but since I received some money as a Diwali bonus, I feel free to do it now. Now, the logic for not spending on clothes remains intact but since I treat bonus money differently and not as regular money, I end up making an irrational spending decision.
Having just read nearly an entire article on mental accounting, you no doubt realise that each scenario has the same outcome: a loss of Rs. 200 i.e. it really does not matter (financially speaking) whether you watch the movie or not!
The bottom line being, whether we like to believe it or not, money is money. It’s not salary money or cashback money or Rakhi money. It is all the same thing and should be thought of as such. A simple way to correct mental accounting is to think of your money minus any categorisations.
Author: Neha Juneja
Other Blogs
Is P2P lending safe in india?
Mar-24-2023
1.png)
What is P2P lending? Peer-to-peer (P2P) lending has emerged as a viable alternative to traditional banking services in India. This financial model enables borrowers and lenders to connect with each other directly, without the intervention of a financial institution. P2P lending platforms offer investors higher returns than traditional investments, such as fixed deposits, while also providing borrowers with flexible repayment terms and lower interest rates. However, like any other investment, P2P lending comes with risks that investors must be aware of to protect their investments. Top risks associated with P2P lending in India are as follows: Platform Risk: The platform risk is the risk of the P2P lending platform defaulting, either due to a shutdown or bankruptcy. This risk can result in investors losing their investments. To protect oneself from platform risk, it is crucial to choose a reputable P2P lending platform with a good track record. Credit Risk: Credit risk is the...
Making Wise Investment Decisions in India: CAPEX vs OPEX
Mar-20-2023
Making Wise Investment Decisions in India: CAPEX vs OPEX When it comes to making investments in India, the decision you make between Capital Expenditure (CAPEX) and Operating Expenditure (OPEX) can have a huge impact on your returns. Knowing the difference between these two investment strategies and how they are used is essential for anyone looking to make smart decisions about investing their hard-earned money. Let’s take a closer look at CAPEX vs OPEX in India and explore which option may be best for your unique needs. What Is CAPEX? CAPEX is an investment that involves long-term purchases made by businesses or investors. These purchases are typically large assets such as real estate or equipment, which must be paid off over time. In addition to purchasing the asset upfront, there are often additional costs associated with CAPEX investments such as maintenance fees, insurance costs, and taxes. What Is OPEX? OPEX is an investment strategy that involves...
Maximizing Your Savings: The Ultimate Guide for Salaried Individuals in 2023
Mar-10-2023
2.png)
Maximizing Your Savings: The Ultimate Guide for Salaried Individuals in 2023 Are you tired of living paycheck to paycheck? Do you wish you had more savings in the bank but don't know where to start? Look no further! The Ultimate Guide for Salaried Individuals in 2023 is here to help. In this comprehensive and easy-to-follow guide, we will show you how to maximize your savings and take control of your finances. From budgeting tips to investment strategies, we'll cover everything you need to know about saving money in today's economy. Let's dive in and start building your financial future today! Introduction to Personal Finances There is no one-size-fits-all answer when it comes to maximizing your savings as a salaried individual. However, there are certain best practices that can help you make the most of your hard-earned money. One of the key things to remember is to start saving early. The sooner you begin setting aside money, the more time it has to grow through compound...
News & Announcements
Have more questions? Click here to schedule a quick call with our investments team
CHAT WITH US
