This may seem obvious, but how we think about money impacts how we spend it. A classic thought experiment repeated many times over proves the theory that as human beings, we mentally separate money into different “accounts” by what we intend to use it for. And the way we do this makes it more or less likely that we will spend the money.

This is important to understand because as human beings, we don’t always make rational decisions. Sometimes we spend when we should have saved. Sometimes we spend it on one thing when we should have spent it on another.

By understanding how we think about money, maybe we can make better financial decisions. For the thought experiment and supporting theories, read this article.

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