One of the key realizations anybody who’s looking to save money should have is the idea that everybody is an economist. All of us are economists. Economics is the science of rationing scarce resources. Think about it. If money was in infinite supply and all the food and sustenance that we need is in infinite and can easily be accessed, there would be no need for economics. In fact, there would be no poor people. There would be no need to budget. Everybody would be rolling around in BMW. Unfortunately, that’s not the reality.
Resources are scarce and all of us casted in our personal way to act like economists. That is what economists do. They look at scarce resources and figure out plans on how to manage those scarce resources. A key element of this on a personal level is to understand that there are always substitutes. Substitution is one of the benchmark doctrines of basic economics. An economist doesn’t look at a particular situation and assume that there is only one way to fix a problem. The assumption in economics is that there are always substitutes.
For example, if you are a baker and you are going to bake goods and desserts, you can stick with sugar; you can try stevia or high-fructose corn syrup. Each of these substitutes has their own costs and advantages. That what an economist does. They have to assume that there is a substitute and they have to weigh each substitute to achieve an objective. Pay attention to the following discussion so you can fully understand that there are always substitutes:
Don’t Assume That There Is Only One Choice
One of the main reasons people end up racking up a lot of debt or being unable to save a lot of money is that they always feel that there is no choice. They either have to buy something or not buy it. In many cases, they buy into these advertising mindsets that if they don’t buy something, then they are depriving themselves. They feel that they’re not living life fully and keeping up with their neighbors or people that they respect if they don’t make this buying choice. This may sound pretty ridiculous, but this is actually the thinking pattern of most people.
Most people are really honest with themselves that the reality is they don’t really need that much. People need air, water, and shelter. That’s it. The basics are exactly that. They are very basic so everything else is a want; everything else is a luxury. This is the bedrock holding up this unstated assumption most people have: there is only one choice. So once they find themselves at the department store looking at a particular item that they have to buy, there are no two ways about it. There’s no way to get around the problem. There’s no way to get to the side of the problem.
They have to buy it. Don’t assume you’re only stuck with one choice. Subscribing to this assumption is a surety way to doom yourself into poverty. You’ll always feel that you’re living paycheck to paycheck. You’ll always feel that however much money you make, you’re never making enough. Why? Because of your mindset. The key to opening that gateway to thinking like a super saver is to always assume that there is more than one choice staring you at the face.
Understand Why You’re Tricked into Thinking the Way You Do
You have to understand that there is a constant war for your mindset. That’s right. You’re always being bombarded with signals to make you think a certain way. This is not a philosophical statement. This is not some theoretical argument. This is reality. Every single year, trillions of dollars are spent on advertising budgets. These companies are run by CEOs who make good money. They are not wasting their money. They know that advertising works.
That’s why there are a lot of influences being sent your way every single day. It’s impossible to avoid these influences; however, it is possible to be aware of them. As originally said by the great reformer, Martin Luther, “You can’t prevent birds flying over your head, but you can prevent birds from making a nest in your beard.” The same analysis goes with advertising consumption messages. You can’t prevent these messages being sent your way; however, you can watch yourself and be aware of yourself so you don’t buy into these instinctively.
This is the key step in understanding why you’re being tricked into thinking that there is only one choice. In fact, if you’re really honest with yourself and you’re a deep thinker, you would realize that a lot of advertising actually uses cheap tricks that you’d be embarrassed to admit that you fall for time and time again. One of the cheapest tricks being used is a concept called social proof. Social proof works this way: when you see a lot of people looking at a particular direction or looking at the sky, chances are, you will do the same thing. Social proof is all about getting people to do something because a lot of other people are doing it.
The reason people behave this way is because of evolution. Think of yourself as in a savanna 50,000 years ago. You’re walking in a small group of hunter gather friends and all of a sudden, 9 out of 10 people just started bolting; they just started running. Chances are you would start running too. If you didn’t, you probably exited the gene pool because the reason people ran is because there was a saber tooth tiger or there’s a predator somewhere. There was an evolutionary behavior in doing what everybody else is doing.
Now that we have tamed fire and we have mastered the industrial revolution, there’s really less evolutionary pressure to do what everybody else is doing. Unfortunately, that’s hard-wired into most people’s minds and they are always convinced by advertisers that there’s only one choice. Another common trick used by advertisers to trick consumers into thinking that there is no choice when it comes to buying decisions is the halo effect.
The halo effect really is stupid. I mean, anybody who went to college or has some type of education would see right through it, but unfortunately, even if you have a PHD, you will fall for it time and time and time again. Most common example of the halo effect is when you have a very good-looking model hawking a cosmetics product. The reality is that the cosmetic product did not make the model good-looking. The model was already good-looking to begin with.
However, the halo effect is so powerful that we reverse logic. We think that because this model is endorsing this product, this product made the model good-looking. The same goes with LeBron James endorsing a basketball sneaker. The same goes with a financial guru endorsing a mutual fund. Unfortunately, we don’t really break our thinking process when we see ads that employ the halo effect. As a result, we fall for these ads time and time again. By the time we need to make a decision, we feel that there is only one choice because of all these different advertising mind tricks.
Focus On Results with Different Processes Instead Of Limited Choices
Instead of looking at your buying decision as either you have to do something or not do it, look at the buying decision as a process. When you look at things as a process, you break them up into objectives, methods, and process. When you break things down that way, you are able to neutralize a lot of the bad advertising mind programming that you’ve been subjected to. When you look at the objective, you will realize that there are alternatives; there are substitutes.
This is why the economists of big banks make the big bucks. They are always able to emotionally divorce themselves from the situation. They don’t let themselves be put into a panic mode where they have to press a button and the button is the only option. Instead, they break things down rationally and logically in terms of final objectives. Once you are able to do that, you can then back track and see which other routes you can take to achieve the same objective.
Don’t Get Tricked By Seeming Scarcity
As mentioned above, human beings are all essentially economists. We may not all work for banks, we may not all work for government financial regulatory agencies, but we are all economists in our own private lives. We manage scarcity. The key to successful saving mentality, however, is to not get tricked by manufactured scarcity.
Once you assume that everything is scarce, this will give you some logical breathing room because you already assume that things are scarce and you are managing your resources. When a particular ad or a particular buying opportunity appears and you are being pushed by seeming scarcity, you would realize that this is a redundancy. Things are already scarce. Instead, I’m looking at different alternatives.
Being able to establish a mindset that sees substitutes and alternatives, you increase your ability to save money. Moreover, you increase your ability to fight off mental assumptions that tend to push you into spending money you don’t have trying to please people you don’t really like. In other words, pushing you towards a life of consumption that doesn’t really do you any favors.