mental accounting
Mind's money categories
Mental accounting is the tendency to treat money differently depending on its source, intended use, or how it's categorized in one's mind—even though money is fungible.
Someone might refuse to dip into their vacation fund for an emergency while carrying credit card debt at high interest.
A windfall like a tax refund gets spent freely, while earned income is budgeted carefully: She won't touch her savings, but she blew through the bonus in a week.
The term comes from behavioral economics, describing how people create separate mental "accounts" that violate rational financial principles.
- budgetingAllocating funds systematically
- spendingOutlaying of funds
- spending moneyCash for incidentals
- pocket moneyPersonal spending funds
- play moneyImitation money for games
savings · rainy day fund · windfall · categories · compartments · pigeonhole · splurge · guilt · justify · rationalize · earmarking · fungible · bonus · wallet · envelope · separate buckets · frivolous · necessary
mental accountingcost-benefit analysis
Systematic comparison of advantages, disadvantages
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