The Mind Game of Money

Money really is a mind game.

A University of Maryland study examined the “denomination effect”.

The study found that if you carry around big bills ($50s and $100s) you’ll spend them slower than smaller bills.

Would you break a $50 or $100 to buy a pack of gum or a cup of coffee? Even if you would, my guess is you’d think about it just a bit longer than if you had to break a $5 or $10. It might even “hurt” you to break a big bill.

And here is the most interesting part of the study: People who break big bills ultimately end up spending that money faster than people who started out spending smaller bills.


Merriam-Webster defines setpoint as: “the level or point at which a variable physiological state (as body temperature or weight) tends to stabilize.”

I would argue that there is a big psychological aspect to “setpoint” as well.

That 5’5” guy who has been 250lbs for many years will probably find a lot of success when he first gets serious about diet and exercise.

At some point though, his brain will point out to him that he USED to be 250lbs. “That one extra box of donuts won’t matter….it’ll be a nice reward for losing so much weight”

And before he knows it, his weight is creeping back up to where he was “comfortable”.

The same can be said for money and debt.

According to a Sports Illustrated story , 78% of former NFL players are bankrupt or under financial stress within two years of retirement, and 60 percent of former NBA players are broke within five years of retirement.

Many lottery winners are in a similar position just a few years after their big win.


Books have been written on the subject but part of the answer comes down to their psychological “setpoint” about money.

Years and years of carrying the same credit card debt can make someone very comfortable with a certain amount.

It’s the most common thing I hear from students. “I invested in “How To Own Your Paycheck Again!” and I was doing so well…”

You’ve chipped away at your debt and 40% is now gone. You’re justifiably proud of yourself. That big screen TV would only add 10% to your debt and your deserve a reward.

Since that 10% would keep you under your original debt “setpoint” you go for it. And before you know it, your debt has crept up back to your comfort level.

So how can you develop a new setpoint?

Prepare for challenges.

You’ve lived with yourself for awhile now. Where do you usually stumble?

Take a small percentage of the amount you were putting toward paying off your debt and start a couple savings accounts. One for long-term saving and one for that “reward” you so justifiably deserve….whatever that may be.

[warning]Think about the long-term repercussions of NOT lowering your debt setpoint. You can see them all around you these days. Debt-free people are weathering these financial times much better than the deeply in debt.[/warning]

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