Bucketing, your resources till you, kick the bucket?
Can you win Wimbledon by losing in pre-qualifying rounds?
Why do winners put all, what have they got & then they win?
Why focused approach gives you satisfaction & success, whilst division gives you dejection?
“Most People don’t want the Truth. They want constant reassurance that, what they believe is the truth.”
Human beings are social animals, more than social they are emotional.
A simple illustration of it is a list of ten events that have happened in one’s life since birth, amongst millions of moments, the ones; one remembers are the ones that have left an emotional impact, deep in one’s subconscious mind.
Behind the event or moment lies the memory of the strong emotion with a vivid picture of time, place, and sequence of events. These memories are not the ones of earning a big paycheck or big bonus, but they may include the moments of the first paycheck not because it made one richer, but it made one independent. Being richer is logical whilst being independent is a state of mind linked with emotions.
These emotions on one side give us strength to put force, push, strive hard beyond imagination, to be driven to something which heart desires but at times, make the same heart vulnerable and thus exploitable.
The best pitches in the start-up world are made in less than 3 minutes. The decisions that capitalists, Venture funds, angel investors take to invest chunks of money is based on conversations that may last for hours, days, or months with due diligence, negotiations, board seat, stake however the meeting of minds, agreement on the opportunity, assenting of ideas happen within a few minutes which is predominantly based on the pitching person’s personal journey in the 180-second pitch. Rest is the matter of detailing.
Neither the person who is pitching nor the person who is listening has any idea or methodology to assess, predict or forecast the possibility of success, however, once the Subconscious mind has taken an emotional decision basis trust which has emerged between two individuals, the conscious mind is finding tools to justify one’s decision. This is also known as Confirmation bias, where the mind and thus senses including, eyes, ears find data points to justify the thesis to build upon, ignoring all antithesis labeling it as fake, biased, or non — qualified.
Another emotional behavior humans display is known as bucketing.
How often one decides that the special piece of clothing one wears is for special occasions?
Does that mean on other days, one does not wish to appear smart or look good? Or does one wishes to look beautiful or handsome on some special days only?
When we are signing a big cheque or when we are signing an important document, why do we use the Special expensive pen, while making notes the cheaper one is used?
Why do we not have a problem when we blow up bonus money or tax refund money, freely, whilst we feel an inner sense of guilt when we spend salary money on useless, exorbitant things which have rather less utility but are desirable, like an expensive watch or a special bag for to be used on select few occasions?
Why does one find it easy to pay large bills or do binge shopping via credit card, than by giving away cash (hard currency)?
Why do we open an account for a minor kid and leave money in there, who is not earning and is completely dependent on his or her parents for living expenses and not utilizing it even if the need arises, and going ahead borrowing money at higher costs?
All this seems irrational but everyone does it and it happens because of a cognitive bias is known as Mental Accounting Bias.
We all know that money is fungible, but we still bucket money into different kinds, categories, and sometimes into accounts.
Mental accounting or psychological accounting bias is the process whereby people code, categorize and evaluate economic outcomes and allocate resources or money into various buckets. The concept was first named by the famous behavioral economist Richard Thaler.
People save and then invest for various causes, Child’s education, purchase of a home, retirement believing one form of savings (bucketing them under various heads with specified targets) will work with higher efficiency versus others. However when one sees one’s investment resulting in a lesser return compared to other allocated for another cause, one tends to change towards the higher returns option. In the process, the precious time, opportunity, and most important transaction costs and taxes get wasted diminishing the overall growth of the Consolidated Wealth created thus far.
Thus Psychological accounting in the real-world prompts and dissuades one to depart from logical thinking of Risk-adjusted Value and monetary maximization.
The phenomenon by which one is willing to pay a sizeable sum of money, maybe two to two and half times using credit card as compared to paying via hard currency for an imprudent need (for example — buying a seat for the World cup match or any such thing which elates the mind and brings out the human emotion) is known as transaction decoupling.
In other words, paying from one’s own pocket a note of even INR 500 may look steep to buy a movie ticket, whilst paying INR 1200 for a ticket via credit card seems affordable.
Mental accounting also jeopardizes the Investment Management or Wealth Creation Journey. Most investors who invest in a bunch of stocks, keep booking profits from the stocks which are in green and keep accumulating the losers. Losers eventually bucket themselves in a Long term portfolio whilst the legs of the fastest horses are cut so rapidly that they are unable to create wealth for the Investor.
Investor, on the other hand, keeps imagining that money is made on the winners, ignoring the losses which are being generated by laggards. After some time averaging starts. Averaging of losers either via fresh capital or via the profits generated earlier by cutting legs of fastest horses. It is the single biggest reason why traders (short-term trading investors) in general remain impoverished whilst brokers drive the swankiest unleveraged vehicles on the street.
Bucketing also increases the un-necessary, unproductive, inefficient paperwork and monitoring. It not only chokes the bandwidth but leads to a downward spiral of over-work. People often get confused, with, “Does doing more mean more work is getting done?” Whether it’s words, whether it's life, whether it’s investment decisions, less is always more.
Why the understanding of psychological accounting bias is important in life?
Observing, espying, recognizing this shortcoming enables one to pool resources, find the best-optimized plan from the available resources and achieve goal by goal on a sequential basis with unwavering consistency meeting them all before one kicks the bucket out.
