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Have you heard of anchoring? Anchoring is a phenomenon that’s been mentioned in several of the books I’ve read lately, including Predictably Irrational.

Basically, anchoring is a tendency to evaluate one thing based on our perceptions about another thing (the “anchor”). This anchor can be completely unrelated to the item being evaluated, but we still unconsciously take it into consideration when making a decision about or evaluating the price we’re willing to pay for an item.

In Predictably Irrational, the author describes a study where participants wrote down part of their social security numbers, and then were asked questions about how much they were willing to pay for an item.

The amount they were willing to pay correlated with having a higher or lower social security number. So the participants were using a completely unrelated number to determine the monetary value of an item.

Unfortunately, we do this all the time, often without realizing it.

It’s as if the need to compare is built into our brains, and we find something to compare with whether it makes sense or not.

Companies often use this phenomenon to their advantage when pricing products. For example, we’re probably more likely to think an item is a good value if it has a crossed out higher price listed as well.

You almost never see things for sale at  MSRP (manufacturer’s suggested retail price), but rather you see the MSRP listed and then the actual price. The is especially common in car sales — and we determine how good of a “deal” we got based on how much “under sticker” we paid, instead of evaluating our purchase based on things like what we can afford, how reliable the car is likely to be, etc.

It’s also a common way to encourage someone to purchase in the first place. Being aware of our natural human tendency to use anchoring can help us make more logical purchasing decisions.

Had I not gone hog wild with spending this month, my net worth report would have been better.

But as it stands I’m happy with what I spent on and I’ve hopefully finally gotten that little spending-more-than-planned bug out of my system. I’m stopping that before it turns into a trend!

My investment accounts went up, but that was mostly due to contributions. As far as an actual increase due to the investments themselves goes, things were pretty flat.

(Which is a whole heck of a lot better than all of those months when I contributed like crazy and the accounts went down down down, eating up my contributions and then some.)

Savings barely increased, because I somehow got so focused on investing that I forgot about it. So I quickly sent $50 to savings as a better-than-nothing gesture.

Compared to this same time a year ago, I’m slightly ahead of the game. (By less than $1,500.) Considering that encompasses some of the very worst months of 2008, I’ll take it.

I updated my car value this month as well, figuring it would result in a decrease. Surprisingly, the value stayed the same. Probably that means it’s worth so little that it hit its minimum value, although the wishful thinking part of me prefers to believe that it has become a classic car.

But to sum up, here are the numbers for June:

Assets: Up $1268.38
Liabilities: Down $972.22
Change in net worth over previous month: Up $2240.60

I heard a story that I’ll probably completely mangle in the re-telling, but I can’t find the source. My remembered version of the story goes like this:

Two (non vegetarian) people are stranded (separately) on an island with no food and very little water. They each have a knife and a cute little bunny rabbit with them.

One person kills & eats the rabbit after a few days. They survive and are rescued.

The other person holds out as long as they can, until they are weak with hunger and exhaustion. By that time, they’re in too bad of shape to do anything, let alone kill & eat the rabbit. They don’t make it long enough to be rescued.

Neither one of them wanted to kill and eat the rabbit, but one of them did it anyway, sooner rather than later.

The moral of the story is that sometimes we have to do some unpleasant things in order to make it through ok, and that it’s generally better to get the unpleasant stuff over with before it’s too late to be effective.

This means facing up to our actual situation, evaluating it thoroughly and exploring options, but then doing what needs to be done as soon as possible instead of avoiding something unpleasant or burying our head in the sand.

When it comes to finances, eating the rabbit could mean anything from stopping all unnecessary expenses so that we can pay off debt or fund retirement, to getting a second job, to asking for help, etc.

The point is to do enough, soon enough, rather than too little too late.