Those ridiculous and fairly hilarious #GirlMath videos are all over my TikTok feed right now. And, I admit, I’ve watched quite a few of them. But, hear me out: there’s actually more to these comedic little takes than you might think. Everyone suffers from some form of behavioral bias that impacts the way they save, spend, and invest – and these videos hit on quite a few. So I decided to dive into this TikTok trend to see what can be learned from a little #GirlMath.

What is #GirlMath?

It’s a viral trend, started on TikTok, where people (young women, generally) explain their worst money habits or spending choices with preposterous rationalizations that make no mathematical sense. It's all tongue-in-cheek, really, and not meant to be taken seriously. And if you did start to see logic in these rationalizations or start to use them to justify spending beyond your means, well, that’d be the point when #GirlMath would stop being fun and start being something else.

Now, let me say up front that the term “Girl Math” – while intended to be lighthearted – does women a disservice. After all, even though women are still less likely to invest than men, research shows that as a group, they do a better job of it. According to Fidelity’s analysis of more than five million customers over the past decade, women’s portfolios outperformed men’s by 0.4%.

So, in honor of those savvy sisters, let’s take a look at that #GirlMath. Sure, it may all be intended for a laugh, but it can teach everyone a thing or two about spending, investing, and the way the brain works. Here are a few of the mental biases that pop up with #GirlMath:

#GirlMath 1: Anything under $5 is free.

The logic behind this rule is that you shouldn’t sweat the small stuff. It says, basically, don’t waste your time contemplating a purchase decision that’s under $5 – it’s “free” anyway.

It won’t take you too long to spot the flaw in this logic, particularly when it comes to investing. See, small amounts do matter. Take dividends, for example. A 3% dividend yield may not seem like much – amounting to $0.30 on a stock worth $10. But if you're smart and reinvest those dividends by buying more of that same stock, you'll be raking in way more cash over time. The chart below shows the effects of compounding on a $100,000 portfolio with a 3% dividend yield and a 7% dividend growth rate over 40 years. If you’d reinvested your dividends, you’d have made close to four times more in returns than if you hadn’t.

The effect of dividend compounding over time. Source: TheCollegeInvestor.

And if that isn’t enough to convince you, consider this other thought experiment: what would you choose if I were to offer you $2 million at the end of 30 days, or a penny now that will double every day for 30 days? If you picked the two million bucks upfront, you'd have a whopping $3,368,709 less than if you’d gone for the doubling penny. The lesson here is clear: it’s not the amount that matters, it’s what you do with it that counts.

Don’t get me wrong: I love stuff that’s free. That’s why I maximize my corporate retirement savings top-up – it’s free money when your employer matches what you contribute up to a certain amount. But there are other tricks to score some free money too, like using gift-matching schemes when you donate to a charity, investing through tax-advantaged accounts, or snagging tax offsets when you boost your retirement savings.

#GirlMath 2: If you save more money than you spent on an item due to it being on sale, it’s “free”.

Who doesn’t love a discount? And now that we’ve addressed what “free” really means, we can move on to more important matters. There’s loads to learn from this rule. Of course, we’re talking about things that you actually need to buy. When you buy winter clothes in summer at a discount, you aren’t too far off from practicing what Warren Buffett espouses – investing when everyone else is fearful. You’re zigging, when others are zagging. It’s the same logic as buying the dip. Cyclicality is part of the market, and the stock market tends to trend upward over the long term. So over the long term, market declines (discounts) are valuable opportunities for you to pick up quality companies at good prices.

And Buffett’s a fan of this math. "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down," – those are Buffett words to live by.

#GirlMath 3: If I buy a $300 purse, but I use it every day, it will cost me less than a dollar a day, which is basically free.

It's a clever way to make big purchases seem less daunting. And it's all about breaking down the cost into smaller chunks using something called "cost-per-wear". Basically, you take the total cost of an item and divide it by how often you'll use it. The more you use it, the cheaper each wear becomes, and the smarter the buy seems.

Assuming you can comfortably afford to purchase the item, cost-per-wear is a helpful way of evaluating your purchases, especially when you’re comparing different items. It's all thanks to a couple of tricks our minds play on us. First, there's "framing" - that's when our choices are influenced by the way the information is presented. Then, there's "anchoring," a fancy term for the way our brains latch onto the first piece of info they get.

When you break down the cost of an item by calculating its cost-per-wear, you’re framing the price in an entirely new way – one that is bite-sized and more manageable. And that's where anchoring comes in: you compare the price-per-wear to the big, scary price tag, and suddenly, it feels like a total steal.

This approach doesn’t stray too far from investing. It's a bit like portfolio theory, where you pick investments to maximize returns and minimize risk. In fact, that’s why investors use a price-to-earnings ratio or other suitable valuation metrics to compare companies and gain a better understanding of the value of what they’re paying for.

#GirlMath 4: When you spend on things like an expensive handbag, pricey fitness classes, or jewelry, you’re making an investment.

OK, no one needs these things, but if you’re going to choose to spend on them, then it’s good to have a long-term outlook. Splurging on those handbags, fitness classes, or jewelry pieces might not show immediate benefits, but down the road, you could end up with better health, more confidence, and an improved self-image. It's kind of like investing in yourself, or so the logic goes. In investing, you invest in a company because you see the value the company will offer in the long-term, and having a long-term outlook gives your money potentially more time to grow.

Of course, there are times when luxury items themselves can be a good investment. The chart below shows the Knight Frank Luxury Investment Index, which tracks the performance of ten investments of passion by high net-worth individuals globally, ranging from art, cars, and wine, to whiskey and handbags. In 2022 alone, the top three performing asset categories were art, cars, and watches. Naturally, you’ll need to know which products might retain their value (or even appreciate) over time.

Now, not every benefit of these luxuries can be measured right away, but as Buffett once wisely said, the best investment you can make is in yourself. So, the idea here is: whether you're pampering yourself or investing in stocks, it's about the long game.

Returns, by asset, from 2013 to 2022 (pink bars), and in 2022 alone, (blue bars). Source: KnightFrank.

#GirlMath 5: If you can pay with a gift card, it's free.

This whole idea is about money you took out and stashed away, in Venmo, say, or on a gift card. When you use it later, it feels like it's "free" because, well, you'd already spent that money in your mind. And maybe that sounds true, since money paid to gift cards can’t be recovered easily, it’s also symbolic of a bias that people face – mental accounting.

Mental accounting is how we all put our own spin on money. We give it different values depending on where it came from, what we plan to do with it, and how it makes us feel. But here's the thing: money is money, no matter where it came from or how it's used. It's got the same value, whether you earned it at work or found it on the street.

Ever wonder why companies love pushing gift cards on customers? Or why they prefer to refund money onto store cards, rather than giving cash back? It's because they know that people tend to fall for this mental accounting trick. The best way to sidestep this bias is to have a budget and to treat all spending and money equally, regardless of where it comes from.