Penny wise but Pound foolish

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This is a good old saying that’s still very true and relevant today! Many people focus intently on managing their small expenses (the Pennies in the saying) but yet they’re oblivious to their large and wasteful expenses (the Pounds)

A real life example is a friend of mine who would rather park on the street when going to gym so that he could save the R5 parking fee, but he wouldn’t hesitate to spend R2,000 on on a designer label scarf. That doesn’t really make sense does it? Seems silly to sweat the small expenses and yet not worry about the large ones!

There are a lot of physiological things going on in the background though so let’s look at three areas.

It feels good to save

We all seem to know that we’re meant to be saving money so when we make small decisions that cause us to save even just R1 we feel good about it and we feel that we’re in control. We’re often faced with decisions where we can easily save a rand or two so making the right decision feels good.

You need to reward yourself

We work hard for our money and often need to make sacrifices so we need to reward ourselves too! Especially when we have been doing well at saving money in day-to-day situations.

In fact it is often depressing to acknowledge that we cannot afford something; especially after the long hard hours of work we put in everyday! Surely we deserve some sort of reward?

What will others think

What will others think about the clothes I’m wearing or the car I drive? Where I live and what work I do? We’re forever faced with the daunting thoughts of what others think about us. This goes even deeper and affects our self-esteem and can cause all sorts of behavioural difficulties as we wander the world trying to not be seen by the people who will think badly of us.

I am in no position to offer help in this area but I know that many large shopping splurges are simply to make other people think better of us.

It’s very sad to know that so many people get themselves into huge amounts of debt because they’re afraid of what other people may think of them. What’s worse is that the debt keeps growing and the financial problem keeps growing and it is a vicious circle! You can reverse that debt-spiral though.

So what can we do?

So now that we understand the problem a bit better let’s look at 3 very simply tactics to use to start becoming “Penny wise and Pound wise”.

Track what you’re sacrificing and where you’re saving money

Create a list where you track what you are giving up on every day in order to save little (or large) amounts of money. So think about all the decisions you made during the day that helped you save a little.

Where you parked, whether you consciously decided to not buy coffee or breakfast. Did you do a price comparison? Did you choose the cheaper brand of something?

Without getting too complicated or detailed on this list simply add an asterisk * to the items (or highlight) where it was a little “sacrifice” for you. If you generally buy the cheaper brand of coffee and it doesn’t bother you then that is great but if it does bother you and makes you feel something negative (eg inferior, poor, annoyed at your job, etc) then add the asterisk.

We’re looking for all the sacrifices you make as these pain points are what drive the rewards. And rewarding yourself is good, but we want to match things up so that we’re not overdoing it.

Track your daily expenses and little rewards

The list above is tracking the money we didn’t spend. So the money we saved based on decisions we made.

A second list to make now is the daily expenses list. Track every single transaction you make and this time we will be highlighting the “feel good” expenses. So track all expenses such as household rates and taxes, groceries, fuel, etc but then specifically highlight all the expenses that are really a self-reward. Expenses you made in order to:

  • cheer you up
  • make you feel better
  • make you feel valued
  • make you feel that you’re cool / hip / rich

These expenses may be small things such as chocolates and coffee or they could be larger items such as clothing, dining out or overseas holidays.

The point of the exercise is to try and identify how buying certain items (or not buying them) can make you feel. You can also compare the sacrifices to the rewards and see how they align.

Understand your values & priorities

Finally, we need to figure out our values and priorities are. You can get more details on on how your values relate to money here.

There are many things going on in our heads and it can be hard to align our values, priorities and money. However, doing that can bring about such a huge financial peace that it is worth the effort of getting to understand yourself better.

You see, firstly you have the cycle of sacrifices vs rewards going on. The first two exercises were looking at listing all the things we sacrifice versus all the rewards we give ourselves. Now that conflict is forever happening in our minds where we want to reward ourselves and we want to have better and nicer things. It’s a constant inner battle of being wise and making the right choice versus splurging and making us feel better.

Happy hiker on mountain

At the same time we have things that we really love in life and tings that bring us peace and joy. These could be family time, camping, being outdoors, travelling, sewing, reading, etc and often times we find that we’re unable to do these things because we either don’t have the timer the money or we’re too stressed about finances. Now that is quite a conflict!

In the perfect world we would have the time and money to do the things we love as that is what will bring us peace, joy, and all the good things. But as long as we’re not in a perfect world, we need to work towards aligning our values, priorities & money.

So if being outdoors really makes you feel wonderful, then that is where you should be focusing your money. Or if building puzzles with your kids is what brings you the most happiness then that should be a financial priority and should be reflected in your budget and expenses.

It is really not easy to find the balance but it certainly helps to make your finances transparent by listing sacrifices you’re making, listing expenses and rewards you’re giving yourself and listing what you value in life.

You may find that the designer label clothes give you short-term happiness but that you’re still losing for that hiking trip. Find what brings you joy and align your money to that.

In the end become Penny wise, Pound wise and life wise!