How to Use Money Psychology to Pay Big Bills Painlessly

Big bills hurt, but they don’t have to. All it takes is a little organization.

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The pain of paying

Unexpected bills hurt us in more than just our pockets. If a little car rattle turns out to be an $800 repair or your partner insists on spending $3000 on a holiday instead of the $500 you had in mind, it hurts. If a tax bill comes in way higher than we’d thought and we have to use our savings, it stings.

It hurts so much, in fact, that psychologists have given it a name — the pain of paying.

Pain and disgust

When we have to make a big payment, research shows that the part of the brain that lights up under a neuroimaging machine is the same part that’s associated with pain and disgust.

If things get out of hand, we can really be affected. Money worries affect our mental health and mental health issues can make managing money harder — it’s a spiral we really don’t want to go down.

It doesn’t have to be that way. Not as long as this half psychological, half organizational system is up and running. It’s worked for years, and now in 2020, it’s easier than ever.

Painful losses

How we relate to money is as important as how much we have, as long as we have enough to live.

If we don’t organize our money and our mindset, however much we have in the bank, a hit to that number can feel painful.

Losses to our money also feel far more painful than the equivalent pleasure we get from gains. If we receive a paycheck with $100 more than we expected it’s nice — but getting home to find we’ve dropped $100 on the way home hurts far more. Losses really hurt. So we need a system to take away that sting.

So how can we arrange our money and our minds so that an $800 repair bill doesn’t hurt one bit, or that when Christmas rolls around we’re not left begrudging it because it’s taken all our spare money away?

The answer lies in the psychology of money, and how we can take that psychology and build an equivalent in the real world with our real dollars, pounds, and pesos.

If we align our psychology to our personal money systems, we’ll very rarely feel a sting or sense of loss even when that unexpected big bill comes in.

It’s all done by understanding and utilizing this realization:

Pain from losing money does not come from losing it, but from losing it to something other than what we had intended to spend it on.

We mentally pre-allocate our money all the time but do it in such a vague and disorganized way that we often have to use the money for something we hadn’t mentally planned to, and it hurts.

Here’s how it all works.

The psychology of mental money pots

Imagine you know you owe $50 to someone, who’ll knock on your door sometime and collect it.

When you get paid, you put a $50 note on your desk and when the knock inevitably comes, you hand over the note and it’s done. It’s painless. In your mind, the money was spent even before you’d been paid. Handing over that $50 is expected and accepted.

Now imagine you had a $50 note there which you were keeping back for a new shirt you like. Then someone turns up with an unexpected invoice. Goodbye $50. Goodbye shirt. Hello pain.

Same action, very different feeling. The pain and disgust part of the brain lights up.

This is the above rule in action — you’d intended to spend the money on one thing, and were forced to spend it on another, and it’s therefore perceived as a loss. If the money was always intended to pay the invoice, it’s no loss.

You wouldn’t have minded handing over the $50 to a cashier for the shirt, because that was the plan since before payday.

There’s an old technique you can use called the envelope technique, where you put your money in a selection of envelopes, each envelope with the intended use of that money written on it.

If you want to order pizza, you take the money painlessly from the take-out envelope and don’t have to check your balance and weigh up what you can afford. The decisions get made on or before payday, with how much to put in each envelope. In buying the pizza, you’re not also watching a new coat slip away. You’re just buying a pizza.

In 2020, that’s not really feasible. Cash is on the way out to a degree, and things are getting so expensive that the envelopes would be bulging with money. Our money lives are more complicated and you’d need a lot of envelopes.

Mental accounting

The envelopes are a physical manifestation of what’s called mental accounting, where we have pots of money in our minds, and are happy to spend that money on its intended purposes.

If a bill comes in and you have a full envelope with that bill’s name on it, then paying the bill will be painless. In your mind, it was already spent the moment you put in the envelope, and spent on its intended purpose — and therefore painless.

So that’s what we need to do with anything that might give us big expenses, expected or otherwise.

Organizing this without a whole load of envelopes and bundles of cash is easy in 2020.

Like anything else these days, there’s an app for that.

Using online envelopes

For many years people have used a very basic form of these envelopes — by having a current account and a savings account.

The pain here comes when you have to dip into your savings to pay for something unexpected. Your savings weren’t for that, so it hurts.

Whatever comes in, you need to have money put aside for specifically that, so it doesn’t hurt.

So of course, start with the basic pots of a current account and a savings account. By using this method you shouldn’t have to dip into your savings account because you’ll have money put aside for whatever costs come in.

Beyond that, you can set up metaphorical envelopes for whatever you need, and use an online banking app that allows you to split money into sections. My app labels them as ‘spaces,’ and I have spaces for various things such as car bills, travel money and Christmas.

You know very roughly how much all the essential things cost you per year, so you can divide them by 12 and pay that much into those sections per month. The more optional things like travel, you can just pay into when you have some spare money.

Psychologically, once it’s in a space or envelope, you’ll be happy to spend it on that and it’ll be painful to have to spend on something else.

I’d advise letting all incoming money first go into your current account and then divide up from there — it’s simpler for you, an accountant if you have one, and the taxman.

Divide up the essentials by 12 and put that amount into those sections first, keeping enough in your current account to live on until the next payday. Then divide up the optional stuff how you see fit.

After a few months, the money will have built up enough to significantly reduce the pain of any bill coming in. After a couple of years, there may be so much there that as any bill that comes in, you have designated money to pay it already… painlessly.

The added bonus

There’s a lovely added bonus to this, and that’s that it helps you to save. If you have sections for saving or investing, then in order for you to dip into those savings on a whim that isn’t sensible, you’ll have to use that money for a purpose other than for which it was intended — which is painful and is therefore a psychological deterrent to do that.

You’re more likely to stick to your savings plan, with zero willpower required.

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Photo by Aleksei Tertychnyi on Unsplash

My money example

My metaphorical envelopes look like this:

Current account

Incoming earnings and general living including food, fuel, house and utility bills.

Savings account

Money I don’t intend to touch for a long time goes here. It has no intended purpose beyond safety and flexibility later on.

Mobile banking app

I have the following spaces, each with definite purposes:

  • Car: I pay in $100/month. Car bills are covered and in a few years there should be a big chunk there to put towards a replacement car. If I get an unexpected bill for $600, it doesn’t hurt. The money feels already spent the moment I add it to the space in the app.
  • Christmas: I pay in enough every month that Christmas won’t hurt. In January I’ll start again.
  • Tax: My tax percentage goes here as each invoice comes in, so at tax time, I have all I need. The tax bill is painless as the money is spent as soon as it lands in this section. I never have to raid my current account or savings to pay tax.
  • Travel: I pay a lot of spare money into this section as I’m looking to travel soon. That way even a $700 plane ticket won’t hurt — the money feels already spent on that too.
  • Book fees: I’m writing a book! But publishing won’t be cheap. Rather than weighing up whether I can afford an editor or promotion when the time comes, I’m making sure I can, and that paying for it doesn’t hurt.
  • Safety $10: I put a painless monthly $10 into this space in case anything is lost, stolen or broken. It’s like insurance, but I’m not giving it to anyone else.
  • Wildcard: This one is fun, as much as finance can be anyway. If an invoice comes in at $78.50, for example, I put the $8.50 here. Then I can spend it frivolously on whatever I want. Absolutely anything, and not feel guilty. That’s what it’s for.

Your money

Your envelopes will look different and your amounts will look different. Even if your amounts are small to start with, it’s a good habit to get into anyway.

The sooner you can start, the sooner the pain of paying can end.

If you get stung with a big bill in the first few months, then you probably won’t yet have enough to cover it and you still feel the pain of dipping into your current account or savings — but the pain will be reduced as you’ll be able to part-pay from your envelope.

If you’re on low earnings and can’t afford as many sections, start with fewer, broader sections that still have a list of specific uses. That’ll keep you a bit more flexible while you’re getting started. When I started doing this I was earning under $1000 a month. By living cheap, it worked fine.

Also, if you need money for something urgently it’s better you can borrow it from an envelope marked tax than have to spend your food money. Start however you can and build on that.

The sooner you start, the sooner it’ll be up and running, good habits will form and paying bills will be painless — making life go smoother and helping keep our mental health where it should be.

Here’s a quick step by step summary guide

  1. Get all your money paid into a current account and a separate one for savings.
  2. Get a mobile banking app that allows you to separate the money into labeled sections.
  3. List your essential expensive ongoing sources of bills such as a car, and divide a realistic year total by 12.
  4. Create spaces for those essential outgoings and other essentials (mine are car, Christmas and tax) and add the amounts needed as paychecks arrive.
  5. Anything that’s likely to be expensive such as a holiday, wedding or new TV, create a space and add spare cash as you get it.
  6. Create a further space that will act as additional insurance in the long term with a painless monthly payment of $5–20.
  7. Every payday, consistently pay into those sections and leave it there. Make sure the sections are labeled. This will discourage you to dip into them for anything else.
  8. Decide if you want an extra section to build up some money for fun, frivolous spending and decide how much to pay into it. I just use it to round up odd figures and over a few months, I’ll have a couple of hundred dollars. A section for reserves is also useful.
  9. Be consistent and make sure you split the money as soon as your money comes in. Enjoy watching the figures grow but know that it’s already as good as spent, and that’s ok.

There are several choices of app with such spaces available.

You’ll find yourself better organized, saving more, and most importantly, worrying less.

And with a bit of luck, you’ll never feel the pain of paying again.

Alexander M. Combstrong is an actor, screenwriter and film producer writing under a pen name mostly in mental health, personal growth and psychology.

Long-Term Perspective

Small daily improvements are the key to staggering long-term results.

Alexander M. Combstrong

Written by

Breakthrough therapy advocate/mental health progressive. Psychology fanatic. Actor/screenwriter. Forge, Better Humans, PS I Love You, The Ascent, Mind Cafe

Long-Term Perspective

Consistency is key. We tell stories about the process it takes to lead a successful lifestyle.

Alexander M. Combstrong

Written by

Breakthrough therapy advocate/mental health progressive. Psychology fanatic. Actor/screenwriter. Forge, Better Humans, PS I Love You, The Ascent, Mind Cafe

Long-Term Perspective

Consistency is key. We tell stories about the process it takes to lead a successful lifestyle.

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