Are You Guilty of Irrational Money Decisions?

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The following post is by MPFJ staff writer, Melissa Batai. Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.
Many of us operate based on irrational money decisions.  These decisions can cause us to chase a bad deal or make unwise money decisions.  If our irrational money decisions win out too often, we can find ourselves in debt or short on cash at the end of the month.

Are you guilty of irrational money decisions?

Our Biggest Irrational Money Decision

We are guilty of many irrational money decisions, but the biggest one happened after our first son was born 8 years ago.  My husband and I traveled frequently to my mom’s house, which was three hours away. Climbing into our little Toyota Echo with our son and his car seat as well as our cat in the cat carrier and all of the extra equipment a newborn required plus our packed bags when we stayed at my mom’s for several days or a week at Christmas got difficult. 

We entertained the thought of getting a minivan because, after all, we knew we’d be having more kids.  When we learned my husband’s family was coming from Japan to visit, and we’d have to rent an 8 person van to transport all of us, we pulled the trigger early and bought the van. 

Yes, having the van was helpful when his family was here, but we didn’t actually have our second child until 4.5 years after our first.  Buying the van early because it would save us money by not having to rent an 8 person van for a week was one of our biggest irrational money decisions.  Liz Weston, author of There Are No Dumb Questions about Money, calls this type of irrational money decision “‘recency bias,’ where we believe that whatever has been happening recently will continue happening into the foreseeable future.” Simply put, the Echo would’ve sufficed just fine after the newborn stage. 

We are all subject to irrational money decisions, whether they be as large as purchasing a new vehicle before it is truly needed or something smaller. 

Spending Big Bucks at a Restaurant and Balking at Grocery Store Prices

According to Pew Research, 66% of Americans eat out at least once a week. 

When we were just a family of 3, we used to go out to eat at least once or twice a week.  We would spend $40 to $50 for our meals, yet when I went to the grocery store, I tried to buy everything as cheaply as possible. 

Thankfully, I’ve since recognized this irrational money decision, and now we go out to eat infrequently and instead spend a little more money at the grocery store to buy quality ingredients and occasionally treat ourselves to a nice shrimp or steak dinner at home.  Overall, our food budget is equal to what it was back then, and now we are a family of 5 eating better.

Chasing the Lowest Gas Price

If there is one irrational money decision that many Americans are guilty of, it is chasing the lowest gas price. 
I have a friend who has a small vehicle that holds 10 gallons.  She is constantly in search of the lowest gas price, and if a friend calls her to tell her gas is two cents cheaper somewhere 5 to 10 miles away, she’ll go out of her way to get gas at that location even though the nearest gas station to her house is less than 2 miles away.  She spends 20 minutes of her time each way and goes 10 to 20 miles out of her way to save .20 on gas.  Yet she is victorious that she bought gas for the cheapest price.

How to Combat Your Irrational Money Decisions

The first step is to recognize your irrational money decisions.  You may be able to recognize them yourself, but if you can’t, ask your spouse or a close family member or friend for their opinion.  They may be able to point out some irrational money decisions that you’re blind to.

The next step is to use an emotional pause button.  Liz Weston has her own system for pausing her spending.  If she sees something she would like to purchase, rather than purchasing it right then, she puts it in the notes feature of her phone.  She states, “A lot of the stuff that appeals to me initially seems a lot less important after a few days have passed.”

Finally, be conscious of your spending and strive to create experiences rather than accumulating more stuff.  We don’t usually remember purchasing the stuff after a few weeks or months (except when we go to the basement and see it cluttering up our space), but we remember experiences because they often create lasting memories.

How about you all? What irrational money decisions do you frequently have or have you made in the past?

    ***Photo courtesy of


    1. I had a roommate who did the gas thing. They spent 10x what they saved in gas to get to the other gas station easily.

    2. David@SkepticFinance says:

      I tend to buy basic food stuff like milk, bread, etc when the remaining amount is still sufficient for a week. Then the new gallon (or loaf) of what I bought goes bad sooner and I end up throwing part of it out.
      My recent post How Important Are Mutual Fund Expense Ratios?

      • We have to be careful about this with vegetables. We often have good intentions, but don't eat as much as we think we will and they go bad.
        My recent post Gazelle Intensity at One Year and a Break

    3. justin@thefrugalpath says:

      The gas thing drives me crazy. I have a coworker who warns me to buy gas because it just went up and it “might” go up again. So she buys gas whenever it goes up, thus paying more, and when the gas goes back down she ends up loosing out. I put gas when I need it period.
      My recent post Don’t Allow Procrastination to Turn Your Financial Future to Dust

    4. Shannon-RFZ says:

      I do a similar thing to Liz Weston, only instead of notes I take a picture of something I want. More often than not I forget to even look at the pictures until months later so that definitely helps. Otherwise, I’d make irrational book, clothing, and jewelry decisions all the time :). So glad I finally broke those habits!

    5. Yes, probably 80 to 90% of those impulse buys or wants are unnecessary.

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