Mental accounting

Mental accounting is like having different jars where you put your money. Imagine you have a piggy bank where you save your allowance money, and you have another jar where you save your birthday money. Even though it's all your money, you treat it differently because you think of it as coming from different places.

People do the same thing with their thoughts about money in their heads. They think of some money as being for certain things, like saving for a new toy or buying snacks at the store. This is called "accounting" because it's like you have a budget for different things.

Sometimes, people make mistakes with mental accounting. For example, they might go to a fancy restaurant and order an expensive meal, even if they can't really afford it, just because they think of the money as being for "special occasions." But really, it's still just money, and they shouldn't spend more than they can afford.

Mental accounting can be helpful when you want to save for something specific, but it's important to be aware of your overall budget and not spend more than you can afford, no matter which "jar" the money is in.