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Studies noticed that individuals’ cognitive, psychological, and behavioral limitations always have some influence in their everyday decision making. And the financial decisions are no exceptions. Perhaps it can be affirmed that individual financial decisions do have cognitive influence. This is also true with the Indian households. This study has briefly identified one such component i.e. mental accounting system and has explored the presence of mental accounting influence in households’ financial decisions. The study also establishes mental accounting as a second-order construct by using a hierarchical latent variable model. Partial Least Square Structural Equation Model (PLS-SEM) has been used to analyze and validate the scales. The analysis has been done with 452 responses collected using a survey method through a structured questionnaire given to Indian households. The study essentially analyses the influence of mental accounting in the financial decisions of households. This study aims at extending the knowledge of behavioral finance among the scholars of consumer behavior and personal finance, as well as the financial service providers.