Tuesday, 19 November 2013

Penny wise, Pound Foolish

My dad is full of clichés - in fact I am pretty sure I once heard him use 3 of them to complete a whole sentence.  One of his favourite though is that "if you take care of the pennies and the dollars will look after themselves".  Unfortunately I think I fall within another common cliché - I am most definitely "penny wise and pound foolish"

I had always subscribed to the first one - I am very careful with my small expenditures and save quite a lot of money by doing things like bringing my breakfast and lunch from home and for looking for the best ways to save money on meals when I go out.  The problem is that, even though I look after the small stuff so much, I lose most of these savings by blowing a significant amount of money on large expenditures.

You can lose all the benefits of careful saving through a few big expenditures

I only realised that I operated in this way because I have been trying to keep to my expenditure goals (which I reset recently after not being able to keep to my first set of goals).  I was discussing it with a friend and he got me to walk him through where all of my money went to.  I rattled off all the items which were 'quasi compulsory' and I knew and accepted where a lot of that money went and where I was happy to pay a premium.

However I then started to think about bigger ticket one off items which do not reoccur and I realised that this is where I spend so much of my money.  I think very little of going away for a weekend with my girlfriend or of an overseas holiday for 2 weeks.  The former is expensive and the latter can really blow a budget quite easily because I hate backpacking and I love experiencing everything.  Further I love a night out on the town as well as nice dinners (which can easily come to $200 a night).

This is a lifestyle choice...and I need to change it

I have traditionally held the view that the solution to budgeting and investing is just to earn more.  I wrote about this a long time ago but I think this is something I need to change.  The further I get into my career, the more I realise that I want
a well rounded life.  Yes I do want to succeed in what I do and I do want to start my own business and make millions of dollars BUT I am not willing to give up my whole life to do so.  I did this when I was in investment banking and it is no way to live.

If you cannot earn (in the short run) unlimited amounts of money - to reach your financial goals therefore you need to keep track of what you spend and control this expenditure.  Making this decision is actually one of the things that I spent a fair while thinking about.

Spending wisely is not impossible - it is a choice

I know it may sound a little strange but I was under this impression that all people spent like this.  That people found saving hard because they went out for occasional big splurges.  If you are like me - know that this is not the case.

People that are good at saving just keep an eye on all of their expenses.  They know exactly what they are spending on and they tend to plan for the big and the small expenses.  I am going to try and transition to this kind of mindset though I think it will be quite a big change for me.

I'm interested in what people reading this blog think - do you have the same problem as I do?  Or do you find it that it is the small stuff that always seem to blow you up?  Or do you have a system that works for you?

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