Example of Mental Accounting: Imagine a person receives a year-end bonus of $5,000. Instead of saving or investing the entire amount, they mentally allocate $3,000 for a vacation fund, $1,000 for home improvements, and $1,000 for their child's education. Despite having the same $5,000, they treat each portion differently, making it harder to use the money for any other purpose. This illustrates how mental accounting can influence spending and saving decisions.