Bottom-Dollar Effect – How You Can Spend Money More Reasonably

Bottom-Dollar Effect

Even couples of years ago, I was regular at a shopping mall with a pack of my friends. I used to be driven by habit of impulsive buying. Fortunately, I was quick to discover that satisfaction gained from spending on new buys was getting lower with diminishing penny supply. In other words, I was getting diminishing marginal return from every penny spent. The soft pretzel or a pair of bangles that I purchased with my left-over money never seemed worth the money spent on them.

Bottom-Dollar Effect

A new study suggests that this consumer behavioral pattern is very common and known as bottom-dollar effect. According to this psychological phenomenon, we get much less satisfaction with last of money spent on an item.

Here I have discussed bottom-dollar effect in terms of two factors. You will also get to know how to make a better purchasing decision with this effect.

Pain of Paying

Majority of us never like to part ways with our monetary resources. According to research, people suffer from psychological discomfort while spending money. However, we always obtain happiness from consumption. As long as pleasure from gaining outweighs pain of spending, we have a feel of satisfaction.

However, that pain reaches a bitter feeling when all of your resources are used up. When you are carrying $100 in cash, spending $10 won’t be a big issue but it becomes a blow when you have only $10 in wallet.

So parting company with ‘bottom dollar’ is always painful.

Opportunity Cost

This is another reason that leaves me dissatisfied after spending the last few dollars in my wallet. Opportunity cost is in relation with the reality that when an individual spends money on a particular item, he/she will not be able to use the spent amount for another purpose.

Buyers are in habit of ignoring opportunity cost when they have a good amount of money at their disposal. Spending only $5 on glittering earrings means I could not use that $5 elsewhere; still it was not a matter for me as I was left with pretty good amount of cash.

When you reach the last of your money, you tend to consider everything that can be done with those left-out resources other than making that particular purchase.

A sense of opportunity cost will leave you less satisfied as it will make you realize loss of other possible alternatives.

How to cope with bottom-dollar effect

Once you realize that you are getting less satisfaction from a product that you have bought with the last of your resources, it is better not to spend cash out of your wallet. This is one of several reasons why you should carry cash while shopping. With credit cards, you are less likely to feel pain of payment that will prohibit you from spending more and force you to think before a buy.

Bottom-Dollar Effect




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DollarBreeders is a personal finance blog dedicated to people who want to take control of their finances and secure their future. Here you will find personal stories to inspire you to make better and more informed financial decisions. We aim to help people understand personal finances better and meet the challenge of living comfortably within the budget.