You probably try to be a money-conscious shopper. Maybe you check prices, do your research, try your best to catch a good deal when you can. But at the end of the month, do you still wonder where it all goes? Even with the best intentions, any one of us might pore over our monthly transactions and be surprised to see exactly where we spend our money, from coffees and lunches to big ticket splurges.

You’d love to up your savings rate, but where will the money come from?

Good news: You don’t have to blame your willpower or your paycheque for cash-flow woes. It could be your brain that is sabotaging you. There are many tricks our brains can play on us to keep us spending and make it hard to find a nice cushion to put away for future goals, like retirement. Behavioural economists, the experts who study the psychology of how we make financial decisions, have termed these blind spots “biases,” the word for an illogical assumption that encourages us to behave a certain way.

“It comes from a good place,” says Kristen Duke, assistant professor at Behavioural Economics in Action at Rotman, at the University of Toronto. “Your brain is wired to reduce the energy required to make everyday decisions, so you may use mental shortcuts, or ‘heuristics’ — a method of problem-solving that’s not always optimal or rational. Problems can arise when you rely overly on those mental heuristics and are not mindful enough about what you are doing, or in this case, what you are spending.”

What’s more, what may seem like chump-change to you could be pretty substantial down the line. Consider that if you are able to cut your spending by $27 a day, in a year it would add up to $10,000. “Even saving a modest $100 a month at age 35 could inject almost $70,000 into your Registered Retirement Savings Plan (RRSP) by the time you are 65,” says Sandra Bussey, a High Net Worth Planner with TD Wealth. Packing a lunch and bringing coffee from home can help, but the decisions you make on big ticket items can make a big dent in your overall budget, too.

Here are four scenerios where our behavioural blind spots may cause us to spend more than we intend to, as well as some thoughts on how you might kick your brain into gear and outsmart them.

Opportunity Cost Neglect

After attending a party at a colleague’s beautiful home, you start to feel like maybe your own home could use some updating. You estimate that a renovation might cost upwards of $50,000. What do you do?

  • Head to the bank to see if you can extend your home equity line of credit to fund the reno.
  • Consider that $50,000 in an RRSP or TFSA could turn into $100,000 in 20 years.
  • Call the contractor. You’ll figure it all out later.

According to Duke, Opportunity Cost Neglect refers to our failure to consider alternative uses for our money, particularly ones that may have more obvious potential for gains. “People often don’t think about what alternatives they have if they aren’t right in front of them,” she says. “While you ultimately may decide that your house needs a renovation, and the imminent increase in your home’s value might trump the savings contribution and return down the road, you can at least ask yourself what else this money could buy you.”

Compromise Effect

It’s time to buy a new car, and you’ve decided to go with this year’s model of Brand X SUV. The dealer offers you the choice of three trims: a no-frills basic model, a slightly more expensive package with shiny alloy wheels and enhanced GPS capabilities, and a top-of-the-line option that comes with a bigger engine, leather seats, and an in-car satellite entertainment system. What do you do?

  • Pick the middle package. It just feels like the right balance of cost and luxury.
  • Weigh the options carefully and assess the extra costs associated with each luxury upgrade.
  • Pick the most expensive option. You couldn’t be seen in anything less!

Behavioural economists use Compromise Effect to describe our tendency to choose the middle option when presented with a selection of levels or sizes. As Duke puts it, “the middle trim of the new SUV can seem like a safe choice: You don’t have to sacrifice too much on money or on features, and you don’t have to feel guilty for choosing the extreme or supersized option.” In the case of a car purchase, the dealer may even be banking on this tendency to upsell you from a basic model. But if you take some time to assess your options and do a cost-benefit analysis, the money you save could grow in an RRSP or TFSA if you are able to come in under your car budget.

Be a better spender (and sock away the extra)

Distinction Bias

As you work with the builder on your new house, you are presented with some options for upgrades. In the showroom, you look at flooring, crown moldings and granite countertops. Next to the standard finishes, they look so much nicer! What do you do?

  • Go for the upgrades. After seeing them next to the standard finishes, you could never live with the lesser option.
  • Take home some samples. You can weigh your options independently over the course of a few days.
  • Stick with the standard finishes. If you hate them, you can replace them later.

Distinction Bias refers to the tendency to over-value small differences when comparing options. “Comparing two things side-by-side often highlights small differences that don’t really matter,” says Duke. “In the case of the upgrades on your house, it might be better to take some time to weigh each upgrade option independently of each other. Ask yourself questions like, ‘What will add value to your home down the road? What will add better function in your home?’ And of course, ‘What suits your taste?'” Upgrades can add tens of thousands to the total cost of a new home, money that may be saved for other goals.


It’s been a brutal winter and you want to book a sunny getaway. The last time you went away was over five years ago and you paid about $1,500 for the trip to Barbados. This time you are thinking Mexico. What do you do?

  • Research prices on the internet to discover what a week in Mexico might cost.
  • Budget $1,500 for the week, since that’s what you paid last time.
  • Book the cheapest trip you can find to anywhere around the equator.

Believe it or not, your mind is generally anchored to a price, and you are willing to pay it, even if the value of an item is much less. “When you are making a purchasing decision, your brain may focus on the first information you think of, or encounter, and your later decisions are made as adjustments based on that original anchor,” says Duke. “The problem arises when that initial piece of information doesn’t accurately reflect the actual value of the item.” In the case of a vacation, you might assume the cost of the last trip you took is a reasonable starting point when the actual fair price for a trip to Mexico, at this time of year and five years later, could be much different. It may be a good idea to research the value and going price of your purchases before you set a budget or decide what you are willing to pay.

What will you do with all the money you find?

If you start to recognize your mental heuristics when it comes to spending and begin to be more mindful of how you make purchasing decisions, big and small, you may find there’s more money left over at the end of the month. It could have an impact on your overall cash flow and even free up more money for savings.

“Finding some extra money and using automatic deposits to contribute monthly to an RSP is a low-maintenance way to help you reach your retirement goals,” says Bussey. In fact, making your contributions automatic are a great way to help your brain create a good “default” that will help to build your net worth down the road.