5 ways your brain is trying to make you poor - and how to beat them

No matter how smart you think you are, you have underlying biases that, if you're not careful, could see you lose out on thousands a year – here are 5 of the biggest

Our brains don't always present the world as it is, they make short-cuts to speed things up, skip over bits we don't consider important and protect us from painful memories.
They have to, there's no way we could process everything from first principals every time.

But that can be a problem when it comes to dealing with clever companies that use our very minds against us to squeeze extra profits from us.

To help, we've outlined five of the most dangerous ways our brains could make us poor – and how to ensure you don't lose out.
  
1. Sunken cost bias

The more you spend, the easier it is to spend more (Photo: Getty)

You've shopped around, compared features and now decided to make a purchase. Then there's the delivery charge. And maybe an extended warrantee. Possibly an accessory to keep it safe. And then the “people who bought this also bought” section to think about.
Why is all this so tempting – it's thanks to something called “sunken cost bias”.

We don't want to risk, or discard, money we've already committed – so we end up spending more (and it can be a LOT more) to protect this cash.

And it's a problem for far more than the occasional online purchase. Imagine buying a football ticket on a whim, then spending hundreds on trains, food and accommodation to get there and back.

It's bad because we want to make our initial outlay worth the money, don't want to admit we made a mistake (ie bought a ticket to a game we can't easily see), become attached to our commitments and as a result lose sight of why we spent the money in the first place.

How to beat it? Think back to why you were prepared to spend cash in the fist place, how much you were prepared to spend and be prepared to – in the words of Elsa – let it go.

2. Terror management

We train ourselves to avoid bad thoughts too (Photo: Getty Images)

Your brain protects you from distress. Be that forgetting pain far faster than pleasure, or blanking out disturbing memories.

There's just one problem, because we're programmed to not think about things that upset us, we become incredibly vulnerable to the fallout of an unpleasant event in the case that one occurs.

Take dying. This is something that absolutely will happen - not just to you, but to everyone you care about. Worse, it can happen suddenly and without warning.

But millions and millions of us have no plans in place – either through life insurance or a will – because we just don't like thinking about it and put it off.

“It is common human behaviour to avoid thinking about mortality, but this can often contradict our instincts to protect those we care for the most: Our families,” said Simon McCulloch, director of insurance at comparethemarket.com.

How do you beat it? Confront it head on.
Sit down and discuss what would happen if you lost you job, were in an accident, the house burnt down or was burgled or other catastrophe and plan for them now – at the very least it means you'll not have to think about them again.

3. Fear of missing out

There might be a reason it's being sold so cheaply

“Limited edition”; “Final days of the sale”; “Last chance”; “Selling fast”; “Everyone's got one” - these are just some of the terms brands use to tip people over the edge from considering something to parting cash for it.

Worse are the cases of “all my friends have one” - where seeing others benefitting makes you far more likely to spend yourself.

Except for two things – firstly, you don't see the whole picture. The limited edition might be “limited” to 5million and only 4 of those have sold. The sale might be ending soon, but why was it even in the sale to begin with, and can you buy something similar for less somewhere else? Your friends might all have the latest gadget, but half of them might hate it.

Sometimes sales do offer genuine bargains, sometimes you would be missing out – but you need to make sure the prices and spending decisions work for you first and foremost – or you could end up missing out on something you actually want, because you've been tricked by marketing to spend money elsewhere instead.

4. Anchor effect

50% off what, exactly? (Photo: Getty)

Anchor effect is a simple coping mechanism most people use day to day - but one clever sales staff exploit to get us to hand over more money than we should.

When we look at everything from how long it takes to get to work, what a house costs to how long leftovers should be microwaved for, we very rarely work it out from first principles.

Instead, we take an existing figure (ie how long it took us to get to work yesterday) – the anchor – and make adjustments, such as likely traffic because of some roadworks you noticed on the way home.

When spending, that 'anchor' tends to be the first price you see. So if you see something for sale at £100, that's the 'anchor cost' your brain puts in place for that item. If the price is then knocked to £60, most people think it's a bargain – whether it is or isn't.

The best way to get round this is to make sure you compare prices from several retailers, the picnic blanket might be 75% off at £19.99 , but if you can get something similar for £6.50 elsewhere , it's still not a bargain.

5. Learned helplessness

Don't give up! (Photo: Getty)

Banks are all the same. There's no point switching, energy prices will just go up at the new place. Everyone's boss is awful.

None of these things are true, but a lot of the time they feel it – and that's because of something called learned helplessness.

If people are left in any prolonged, negative situation, learned helplessness kicks in. The feeling that everything's rubbish, so why bother. That runs from bad jobs to bad relationships to bad governments.

The thing is, you're not helpless.
Some 21 million people didn't swap a single financial product last year, figures from GoCompare show, with around 10 million people never having switched anything in their lives.

That's costing them each several hundred pounds a year.
So, how do you defeat this learned helplessness? Start by taking control of the small things. 

Take swapping energy provider - you can even do this in a few minutes with the right app, or get someone else to look after all your bills for you and handle the comparisons - and move on from there. 

Once you start succeeding in small things, the bigger ones seem easier to accomplish – and at very least, you'll have saved some money on your energy bill.