We all know how it feels when you’re reaching a month’s end and there’s little money left in the account. If only the pay day could come earlier, right? While immediately after getting your salary you might be spending generously, in the last days of the month when money is running scarce, you pay more attention to how you’re spending and you’re not happy at all. That’s partially due to the bottom dollar effect (besides being out of money).
The bottom dollar effect states that when an investment exhausts our budget, our perception of that investment will be negatively affected. You can read the full study here (3 pages). The effect is amplified if that money was earned with a great deal of effort. It’s even more amplified if the budget will not be replenished (imagine a one-time investment budget).
Previous research from 1985 also indicated that we perceive our earnings into different “mental accounts”: salary, prize, bonus, money-back program. Studies from 1998 were showing that parting with our money is emotionally painful. Paying with cash also creates more awareness.
Therefore, the timing and remaining budget of an investment has an influence on how you will perceive that investment.
The bottom dollar effect in personal life
The business part is straightforward. But what if we extrapolate this principle to our personal life?
Let’s say you get in a relationship while you are emotionally exhausted and spend your last “resources” to keep things working. The effect is that you will perceive more negatively anything that’s “not working as expected” in the new relationship. That’s a perception that may not be accurate at all, interpreting things worse than they are. By exhausting the available “budget” for emotional investments, the emotional pain felt is disproportionate. As with a material spending you start wondering: “was it worth it?”. So you end up rating negatively a relationship that might’ve worked, if you would’ve had the resources to invest in it.
How to use the bottom dollar effect in your favour
From a business perspective, for the reasons exposed above:
- People with full accounts are more likely to make a spending they don’t really need or pay an overprice.
- A campaign requiring personal spendings will be more successful towards the beginning of a month (when most people get their pay) or right before their pay (to create awareness first).
- Promotional offers will be more effective towards month end (aka end of budget). And yes, those offers will consume that bottom dollar that the consumer still has. Had.
- You need to understand your target audience. The more information you have about their budget and replenishing dates, the more efficient your campaigns will be.
- Asking for reviews when budgets have been exhausted will increase the number of negative reviews. Most requests for reviews are simply sent automatically, “x days after date of purchase”.
From a personal point of view:
- When you’re in a positive state of mind (your energy is at full level), you will have a more positive perception about a relationship you’re starting.
- You will have a more positive perception about people coming “to the rescue” when you’re down. That will not be proportional to the help they provide.
- Understand yourself before anyone else.
- Don’t start analysing your relationship or getting into a fight with your partner when you are already exhausted, emotionally drained. Nothing good can come out of it. Literally, nothing.
Specific situations
Let’s say you’re attracted to someone who’s going through a rough patch. Lending a helping hand will create a positive effect. Trying to get romantic and having expectations from that person will not yield the results you expect.
When you’re exhausted (tired, upset) and someone is having an argument with you, consuming that little energy you’ve got left in your emotional budget will result into a negative perception. Therefore, it will not lead to a constructive solution. Don’t fight with someone who is exhausted. That’s just harassment. If you’re pulled into such a conversation, ask to discuss it after a good night sleep or at a later time.
Admit that at some points in your life you’re simply not in the position to get involved in a relationship (feelings‘ budget is exhausted). At the same time learn to make reserves. We have a natural tendency to overcompensate when something is not working out in our lives. Some overcompensate through work, other through gym, alcohol, spendings and so on. The problem is that these mechanisms consume our reserves and we may not be able to pull back from these behaviours as fast as we want. The whole point is to not reach your “bottom dollar”. Keep some resources intact. It’s what investors do. They always have a reserve for emergency investments. Project managers keep a contingency reserve to save the project when things go bad. Learn to apply the same principles in your personal life.
Conclusion
To not reach the bottom dollar, from an emotional point of view: don’t overwork yourself, don’t consume all your energy. The unforeseen does happen sooner or later. Be smart. Recharge your batteries and always keep an eye on their energy level.
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