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6 Money Habits That Keep You Broke


Chances are that the majority of you reading this article never once had a class in high school where you were taught some of the concepts that we explore here.

Heck, I bet even through college, unless you majored in economics, no one has truly taught you how to properly manage your money.

Thankfully for you, And best of all, you don’t have to waste 4 years of your lives and take huge loans that you won’t be able to repay, ever… I’ve boiled down everything I have learned over the years in just a short article:

#1: Scarcity Mindset

What comes to mind when you hear the phrase scarcity mindset?

Perhaps you think of grandpa, traumatized by the great depression, who still keeps a jar of pennies on his bedside that one day will be your inheritance…

You know… perhaps we shouldn't joke about grandpa, after all the economic turmoil we millennials have endured, we might not be as far off when we enter our senior years.

Don’t get me wrong, a scarcity mindset can be great in certain situations.

Maybe you’re in debt, or stuck financially in one way or another, being able to scrape every single dollar at your disposal goes a long way in these situations.

However, this mindset becomes a problem when it becomes an obsession.

It can give you tunnel vision that prevents you from achieving your long-term goals.

There are plenty of social experiments out there that proves without a doubt that when someone is perceived as having some sort of emotional/financial constraint, they tend to perform worse on cognitive tests.

Take a look at this experiment where Princeton psychologist, Eldar Shafir proved that scarcity has an enormous impact on people’s cognitive capacity.

For this experiment, a group of graduate students went to a mall in New Jersey where they asked people to complete tests that measured their cognitive control & fluid intelligence, both components of IQ.

They had them complete these tests while contemplating 2 different financial scenarios.

One that was relatively manageable, a simple car fix that would cost $150.

The other scenario was much more demanding, a car fix that would cost 10 times more, $1,500.

They divided the contestants by household income and found an interesting pattern.

Those who were middle class and above did well regardless of which of the scenarios they were presented with.

In contrast, people who were considered “poor” did equally well in these cognitive tests as those in the upper class in scenario #1, a simple $150 car fix.

Scenario #2 however, where they contemplated a $1,500 expense, their scores took a massive dive.

Proving that being worried by a financial challenge has negative cognitive consequences if you’re struggling financially.

This is why you need to be careful with this mindset.

Scarcity can lead to extreme anxiety, and this in turn can lead you to make decisions that will negatively impact your finances.

While understandable, if you can keep your head cool in a tough financial situation, you will see opportunities that others fail to see.

#2: Opportunity Cost

Opportunity costs is the hidden price for every financial decision you make.

And not knowing or acknowledging these hidden costs, is perhaps one of the biggest financial mistakes people make without even knowing!

Perhaps an example could help me better explain this.

Let’s say you have 500 bucks in your pocket, and you say to yourself, “I’ve been good this year, I deserve a treat”

So, you decide to buy the biggest 4k tv those 500 bucks could get you.

And sure, at first, you’re happy, and you think that TV was worth every single penny.

But what you hadn’t considered is ALL the other things you could have done with those 500 dollars.

You could have gone on a vacation, you could have donated to charity, bought yourself some tools for your job, bought a book to improve your skillsets, or perhaps you could have bought yourself I don’t know….

some Gamer Girl Bathwater.... whatever! I am not here to judge.

Now that those 500 bucks were spent on that TV.

They’re gone, they’re no longer in your possession, and all those opportunities that that money had opened are now closed.

To put things into perspective, if you had invested those 500 bucks in stocks with an average annual return of 8%, those 500 dollars would be worth over 10,000 dollars in 40 years!

Is that TV going to be worth 10K in 40 years?

I don’t think so!

This is why it's so important to understand the hidden costs to everything you purchase and the power of compound interests.

And why I’ve dedicated this entire site to teach you all these sneaky secrets makreters use to extract your hard earned dollars from your wallet.

However, though you need to be aware of all the opportunities that are gone once you make a financial decision, you also need to keep in mind that investing in something that is going nowhere can have dire consequences…

#3: The Sunk-Cost Fallacy

I think better than most, we can intuitively understand this concept better than the rest.

The Sunk-Cost fallacy.

You know, it’s that infamous experiment where someone waiting for a bus, will wait longer, the longer they’ve already waited for it.

I know it’s a mouthful, perhaps this study conducted in 1985 will help us understand it a bit better.

In this study, researchers found that customers who had paid for a season subscription to a theater attended more plays during the following 6 months than those who did not pay for a seasonal subscription.

This is a well-known psychological trick the mind plays on us.

The more we invest in something, the more time and effort we spend in that certain activity; creating a cycle of rinse and repeat.

Of course, this does not only apply to economics.

It can apply to your personal lives as well, perhaps in the past, you’ve invested in a relationship or a friendship where, in hindsight, it was clear that they were knowing nowhere.

But because you had already spent the time and effort to build that bond from scratch, you thought that not following through… would mean you would have wasted months, if not years of your lives.

The devil you know is better than the devil you don’t know.

This is one of the biggest mistakes people make when it comes to their finances.

Imagine you’re at your job.

Perhaps it's in a nice office, you get a decent bonus at the end, and you get to drink all the coffee you want for free.

But one day, you’re sitting on your office chair and you feel empty, you feel like something inside you is missing…

You’re thinking that perhaps you made the wrong decision, and this job is making you miserable.

What are most people likely to do in this situation?

Do they just say, screw it and start from scratch in another career elsewhere?

Probably not.

And the reason they don’t is because of the sunk cost fallacy.

In their mind they have already invested years and money on their education in the career they already have.

They probably think that in a few more years, perhaps they can move up the ladder, rather than completely start from the beginning.

This fallacy can ultimately kill your dreams, it’s like an invisible anchor is making you drown.

It can completely warp your perception of value, this is why you need to be aware of the dirty little tricks our minds play against ourselves.

#4: Transaction Utility

Transaction Utility sounds like academic jibber-jabber, but it’s really not.

It’s quite simple.

It’s just putting a huge red sign in front of something that says “On sale”.

No kidding, that’s how transaction utility works.

It’s a psychological trick that salespeople have used for hundreds of years to lure you into wasting your precious dollars.

Think of a sales event, like Black Friday here in America.

Where the Friday after Thanksgiving, nearly every single store has a huge sale and every year hundreds of greedy Americans push, shove and pummel one another for a discounted toaster.

I love my country.

It’s all about YOUR perception of a good deal, if you believe that you’re saving some money when you want to purchase something, you’re much more likely to go ahead with the purchase.

And sometimes that is the case, but most likely than not, you might fall prey to this trick stores uses to make you purchase things that you never really needed in the first place.

Let’s say you walk into a convenience store like Target or Walmart.

You just wanna get some cleaning supplies, but on your way to that aisle, you see a huge sign with a brand new home theater that is 30% off!

Wouldn’t you be tempted to at least go to the electronics section and see what the fuzz is all about?


You might even buy it and completely forget why you went to the store in the first place.

This is how these stores can drain you out of your money without you even realizing it.

In fact, more likely than not, you went home feeling like the man, thinking that you just saved yourself a good chunk of money.

But in reality… you just wasted it into something that you really didn’t even need.

Keeping a tight budget might help with these impulses, but there are times when those constraints can get a little too tight.

#5: Mental Accounting

Mental accounting is perhaps the mistake on this list that is the most difficult to understand.

So I will try to use a famous study conducted by Tversky and Kahneman to get a better understanding of this concept.

In this study, researchers found that when people are presented with two scenarios where they either had to replace a $10 dollar ticket they have lost, or buy a $10 ticket after losing 10 dollars.

The ones that had lost $10 dollars were 88% likely to buy the ticket, while only 46% of people who lost the ticket bought another.

At first, these researchers were baffled, it did not make sense to see such a huge gap in numbers, after all.

It was all the same amount of money.

This is how they discovered mental accounting, which is a way we subconsciously place money in our heads in different categories with different values.

For instance, perhaps a simpler example would be something like this:

Let’s imagine you wanna take a well-earned vacation to Hawaii.

However, you’re short $100 dollars.

Where would you be more likely to get the money from?

The money you’ve allocated for your rent?

Or would you rather borrow from a friend?

Well, I think we all know the answer, we wouldn’t want to touch the rent money, but at the end of the day it’s all the same, isn’t it?

Then why are we adding more value to one category of money over the other?

Although this can be helpful if you’re on a tight budget, it can hinder your financial growth if you’re overvaluing or undervaluing different categories in your mind.

For instance, studies have shown that when a group of employees receives a work bonus, about 8% of them use that as “Fun cash” and they blow out that money for a silly purchase.

They automatically have categorized that money as a separate thing from their income, and they give it a completely different value than their regular paychecks.

#6: Delayed Gratification

Last but not least, the mistake that is rooted in all other mistakes in this list:

Delayed Gratification.

If you’re somewhat interested in psychology you have likely come across the marshmallow experiment.

It’s that infamous experiment where researchers tell toddlers that they have 2 options:

They can eat the marshmallow they have in front of them,

or if they wait until the researcher comes back, they will give them another marshmallow.

This test has shown over the years that the children who were able to delay their gratification in this test, were far more likely to be successful in their adult lives.

But what about the kids who ate the marshmallow as soon as the door close?

Are they doomed to a life of poverty?

Well, I don’t necessarily think so.

Perhaps they are a bit predisposed to be impulsive but that does not mean that they can’t build some discipline that will let them overcome those impulses.

Delayed gratification is at the root of all these issues.

Once you’re able to master this,

I guarantee that all other aspects of your personal and financial lives will improve tremendously.

All it takes is a little bit of practice and a few tricks to overcome those impulses.

In the meantime, why don’t you take the time to check out this video where we explore how we have been conditioned to be poor.


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