One concept which I think to be particularly helpful is mental accounting.
I first came across the concept in Daniel Kahneman’s “Thinking Fast and Slow” where it is introduced as a cognitive illusion. It was Richard Thaler, the co-author of “Nudge”, and widely considered the father of behavioural economics, who first propounded the idea. The concept is very simple.
Let me illustrate with an example. Suppose you were going to a movie, for which you had already booked tickets. On the way to the movie say you lose the tickets. Will you decide to watch the movie or not? Behavioural Economists say that majority of people will not see the movie anymore. This is because in our minds we account for different items seperately. There is a movie account, eating-out account, charity account etc. in our mind. If you think about it, it doesn’t make sense to have these separate accounts, because all of them ultimately results in you spending your money. Kahneman, therefore is elaborating on this concept, so that you can keep a watch about it.
However, I have found that this fallacy/illusion can be harnessed to much utility if you implement a proper system based on this. I now have a separate account which I maintain for traffic challans, another for gifts, yet another for unforeseen expenses etc. Even though I have listed them out, many of them form the part of the same account. For example, traffic challan and gifts are part of the same account (These are mental accounts, not separate bank accounts that I maintain). So, if I get fined for speeding, I don’t sweat it and readily pay. Same goes for unforeseen repairs for my gadgets , or having to shell out some money for a hostel party. It all gets taken care by this mental accounting.
Rolf Dobelli, in his new book, The Art of the Good Life, also advocates utilising this method to your advantage. I couldn’t agree more. It saves you the trouble of unnecessary worry over petty stuff.