Awareness of our biases
But when we are aware of these biases, we can use the opportunity for self-agency.
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One factor that will determine how we behave is where we fall on the cold or hot state of the spectrum.
A hot state is when our emotions like fear or exhaustion take over. We are so eager for something that we will grab it the moment it becomes possible. Over the last year, an enormous amount of pressure has been built up. We are about to enter a massive hot state as the pandemic shifts.
After a year of holding back on festivals, plays, or going out without concern about a deadly virus, many of us will spend beyond our limits if we don't prepare for the powerful emotions that will sweep through us.
Our minds are not just based on mathematical equations but mixed up with feelings, reactions, and mental shortcuts. Behavioural economics identified over 100 ways people from all walks of life fail to think straight when it comes to money.
Pay attention to the moral licensing words, "I deserve it because..." The permission-giving has some truth to it, but then there's future you that also deserves the good.
Our cold, higher thinking is slow thinking, and hot thinking is fast thinking.
As humans, we struggle to balance the two thinking processes. In a hot state, we have an enormous desire to want. We want to buy impulsively with no concern for our future selves. As countries reopen, the hot states will strike intensely and be very dangerous for our budgets.
Take a hard look at how much you are spending day to day. Every time you spend money, write it down as it happens in a little notebook or log it into an app.
Alternatively, use the envelope method. Make an envelope for each of your non-fixed expenses, like groceries, clothes, entertainment and budget a certain amount of money for each envelope. When an envelope is empty, you have no more money to spend until the following month.
Knowing these and other biases is not enough. We need a framework for making decisions.
It refers to how we predict our future emotions and how certain life events will affect them.
We’re generally pretty bad at it—and that impacts our productivity, our goal setting, and our overall happiness
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