When someone suggests becoming smarter with money, it’s tempting to think about spending less. That’s the simple answer. But being financially intelligent is about so much more than just cutting your spending and being a miser. Fundamentally, it boils down to a few simple questions:
How can I earn more?
How much should I save?
How can I get the most value out of what I save?
How can I get the most value out of what I spend?
How can I control my financial psychology?
Misers only consider the second question. That's a limited view. But what’s worse is that they obsessively focus on saving, hurting other aspects of their finances in the process. Over time, they can’t see past their one, harmful question – ‘How can I spend less money?’.
This is known as The Miser’s Trap.
The Miser’s Trap
Most good habits, when taken to extremes, can become dangerous. A desire for tidiness, for example, can lead to compulsive behaviour and a feeling that nothing is ever tidy enough. The same is true with spending less.
The miser doesn’t set out to be a miser, but this is what they become by going to extremes. To the person with a hammer, everything looks like a nail. And to the miser, every situation looks like a chance to spend less money. Being a miser becomes a defining personality trait. When you allow a negative mindset to grow in your brain, it becomes harder and harder to remove it.
The person with a good salary who never buys the round of drinks. The one wearing broken shoes and a torn shirt to the office. No-one wants to be around these people, so don’t become one yourself. Firstly, it won’t make you financially rich. And secondly, it will make you blind to opportunity and all that life has to offer. There are far better ways to run your financial life.
The Impact of a Negative Mindset
There is only so far you can cut your expenses. You can eliminate the wasteful spending. But before long you come to more difficult trade-offs, like whether your gym membership is worth it. These are subjective, personal decisions, which depend on your character.
Different people have different budgets, so the trade-offs they make will also be different. But the miser will not see a trade-off between spending money and the value it generates. They look blindly towards saving money in any way possible. Money becomes an end in itself, rather than a means to greater freedom to do whatever you want to do.
The irony, of course, is that even when the miser does have enough money saved to do whatever they want to do, they won’t spend it. After so many years of being miserly, the very act of spending will be painful to the character they've constructed, which saves at all costs. The miser ends up consumed by their own character, never free to live the life they wanted.
Think about your friends and family. Do you know a miser? Perhaps you would identify as one yourself, either now or in the past? Is that person pleasant to be around?
Now ask yourself another question – are the successful people you know misers, or do they seem to enjoy their lives? I would wager they are more likely to have a growth mindset – to prioritise how they can become happier not just how they can spend less. And they are likely spending more time discovering how to earn more and invest more than focusing on saving an extra £10/month.
The Big Questions vs the Small Questions
There is a common phrase in the English language which creates more problems than it solves. It is ‘the pennies make the pounds.’ On the one hand, it’s a truism – of course the pennies, added up over time, make the pounds. The small decisions you make have a major impact in the long-term. But on the other hand, it’s often easier to make one decision which makes you an extra pound, rather than one hundred smaller decisions to make one hundred pennies.
When it comes to money, some of the bigger questions are the ones we listed earlier on. As humans, we can only give a certain amount of attention to decision-making, before we reach decision fatigue. So make sure the decisions you do make are the ones with the most effect.
There’s no point saving £2 on a coffee you enjoy if you’re spending £150/week at the pub. And there’s no point skipping the meal out with friends to save £20 if you’re not investing your savings. Make the big decisions first, before you focus on the small ones: they have more impact.
The pennies do make the pounds. But if you can change a habit to save pennies, or change a habit to save pounds, save the pounds first. Same effort, more reward.
The Aim – Become the Best Version of You
Consider this question - does the person you want to become identify with the traits of a miser? If not, don’t be a miser.
The objective of being better with money is to unleash your potential. Indeed, those who are happiest with their financial position spend time forming new habits and mindsets, growing their personality. But with the miser, it’s a constant pressure. How can I spend less? How can I shrink further and further?
Ultimately, it’s not just about how much money you have. Money is a store of value. But the trick is not just in having more money, it’s in spending that money in a way that allows you to become a better version of yourself.
The miser sets out to have more money so they can have more choices. But the mindset is so negative and all-consuming that it becomes a major constraint.
Whenever you are thinking about personal finances, the more powerful guiding principle is not ‘how can I spend less?’, but rather ‘how can I become a better version of myself?’.
With this thought in mind, you’ll be less likely to focus on cutting costs to the extreme degree. And you’ll focus more on making more money, being sensible with your spending, and – most importantly - on being happy and living the best life you can.
After all, that’s what life is all about.