Mental Accounting

The other day, my daughter was upset. It was about 9pm and she had to cancel her Cult class the next day morning. (Cult is a fitness chain in India that for various fitness workout classes that one can book on an App). I enquired her reason for being upset. So she explained that for all such last minute cancellations, if the slot vacated by her, is not filled up eventually (which looked unlikely due to the short period left), they will reduce her membership period by a day. Then I asked her that’s ok, its 1 day in what time period. She replied her membership is for 6 months. So I explained – In a span of 6 months, you have 180+ days to use the membership. So if u miss a day, its not a big deal. In fact, set a number, maybe 15-20 days in this case. Till u don’t lose that many days, you do not bother or don’t see it as ‘something to feel sad about’.

The concept is not my own. This concept is called ‘Mental Accounting’ and I read it in Rolf Dudeli’s life changing book ‘ The Art of Good Life‘ a long while back, but the learning has stayed with me for ever. And guess what, its amazing how often one can apply the concept. Let’s look at a few more:

Losing Money:

1. You lose a 50Rs note. – reason to get upset ? – Maybe, Maybe Not.
2. You lose a 100Rs note. – reason to get upset ? – Maybe, Maybe Not.
3. You lose a 500Rs note. – reason to get upset ? – Maybe, Maybe Not.
4. You lose a 2000Rs note. – reason to get upset ? – Maybe, Maybe Not.

Now, which of these instance does one need to worry and feel sad, depends not on the amount lost, but on what is the wallet size and accordingly, what is the ‘affordable’ level of loss one is willing to bear, before the mercury rises in the thermometer of their mind.

• If your wallet ‘net average value’ is 100 then (1) is a huge concern. 
• If your wallet ‘net average value’ is 1000 then (1) is a concern. 
• If your wallet ‘net average value’ is 5000 then (1) is a concern. 
• If your wallet ‘net average value’ is 1000 then (1) is a concern. 

The loss in first instance is much bigger- 20%, hence I termed it as HUGE. You need to look around frantically and even consider if someone has stolen it. Even big enough to file a FIR at the nearest police station! (just kidding)

For the other instances, its important to  go through the sequence of events and understand how and when u might have actually lost it, and see how to avoid the error in future.

Exams and Tests:

Another area where we end up feeling miserable over a trivial matter is exams and tests. If there are 100 questions to be answered, we can have varying approaches, but the end goal is for everyone to answer all 100 questions. The degree of correctness is a separate matter. To answer all 100, its matter of time management and one needs to be cognisant of time taken for each question, etc. In terms of correctness, its important to be ‘realist’ and have a broad %  score which will be ‘acceptable’ and not shoot oneself to death on missing a few marks. 

Tasks and To Do List:

We all have the same amount of time in the day. Some are more efficient and some are less. Some have tougher tasks and some get away with easy ones. And most important, we all operate at a different energy levels. Our own energy levels on two consecutive days cannot be the same. Then how can we expect to be ultra-efficient in predicting what all we will be able to do? We can’t ! So its important to have mental accounting on what would be the ‘reasonable completion rate’ – 70%? 80%?, etc.

Happy And Sad:

Life (and micro components of life, i.e. time, or day/week/month/year, etc is categorised as good or bad or happy or sad. While we all strive for the good and happy moments, we know they all come few and far in between. And between those happy moments, are the sad and not so good moments, which have the potential to bring DOWN our morale and energy levels. The Mental Accounting principle is to just let you minimise the damage of such sad moments, so you can have a lot more balance, be ambivalent when faced with such situations, and ensure that your BP remains in control.

Do share your instances of mental accounting and would love feedback on the article, as always!!