Have you stopped and ever asked yourself if what you’re doing is penny wise, pound foolish?
This phrase refers to being overly concerned about the small things (the pennies) while overlooking and neglecting the real important things (the pounds).
We tend to overlook the bigger picture in many areas of our lives, not just related to our money.
In this post, we are going to look at 5 common mistakes of being sort-sighted when it comes to money, life, time, and risk management decisions.
Mistake 1: Focusing Only On Cost, Not Value
The most common mistake is making spending decisions only based on cost. The better way to spend your money is to look at the value of what you’re paying for.
“Price is what you pay. Value is what you get.”
Warren Buffet
“Value” not only considers cost, but also other important factors such as speed, reliability, and suitability.
Cheap things tend to be cheap for a reason. They might save you a few pennies now but cost you many more pounds (dollars) over the long term because they are low-value.
Don’t judge purchases solely by cost. Understand the specific qualities you care about and factor those in along with the price you’re paying to determine the value you can get:
- For food, it could be taste, nutrition, and quality
- For services, it could be speed, ease of use, and customer service
- For housing, it could be neighborhood, amenities, and lifestyle design
- For education, it could be job opportunities, network, and prestige
While cheap, low-value things are poor choices it doesn’t mean you’ll get the best value out of expensive things either. This is where suitability comes in. For high-ticket items especially, you get what you pay for and can benefit from.
Even if something is objectively better (could be faster, stronger, better features, etc.), it wouldn’t make sense if it’s not suitable for your needs. You end up paying more for unused benefits.
You do not need professional-level items if you are just starting out.
Stick to the basics and optimize the value of your spending. What may be good value for others, may not be good value for you.
Mistake 2: Not Investing In Yourself
You are your greatest asset.
The second mistake is not investing in your body, your mind, your skills, your relationships, and your life experiences.
Investing in ourselves unlocks the ability to live our lives to the fullest.
Understand that investing in yourself is a sacrifice, requiring you to trade time and effort now in exchange for a return down the road. If done consistently and for long enough, you are guaranteed to change your life.
- Invest in yourself financially by having a money system
- Invest in yourself physically by eating well and exercising early on
- Invest in yourself mentally by reducing the biggest enemy that contributes to all major health crises in our lives
Stopping yourself from becoming the best version you can be is a pound foolish decision.
Mistake 3: Not Betting On Yourself
On that same thought, since you are your greatest asset, the third mistake is not betting on yourself.
This isn’t a cliché. Not trusting and believing in yourself is a simple problem that can limit your life forever.
Your success and failure in practically every aspect of life revolves around your belief system and the choice to bet on yourself to beat each level in your life.
Early on, if you can beat a few easy levels by believing in yourself, you will set the building blocks of confidence and gain momentum for the harder levels throughout the rest of your life.
By consistently betting on yourself, you will begin to realize that whatever your next goal or achievement may be, if they are just as hard or seem harder than past levels, deep down you already have the 3 cheat codes to beat the next level:
- Cheat code 1: Quick action
- Cheat code 2: Maximizing your reps
- Cheat code 3: Staying in the game
One day you will experience a flood of improvements in multiple areas of your life simultaneously, the result of all the times you’ve believed and invested in yourself compounded into “overnight success.”
As soon as you understand and accept the rules of the game, a lightbulb will go off in your head.
You already have the cheat codes to go after anything you want in life.
The pound foolish decision is to not believe in yourself and not bet on your own capabilities. That’s a guaranteed way to lose in the game of life.
Mistake 4: Not Understanding The Value Of Your Time
Everyone is equal in the eyes of Father Time.
We are all bound by our limited time, the 24 hours in a day, and a few short decades of life on this planet.
While we are able to increase the value of our time by investing in ourselves, we are still limited at the end of the day by the finite grains of sand in our hourglasses.
The higher the value of your time and the more limited your amount of “free time,” the less you can afford to use it.
“In guarding their fortune men are often closefisted, yet, when it comes to the matter of wasting time, in the case of the one thing in which it is right to be miserly, they show themselves most extravagant.”
Seneca
At a certain point on your financial journey, you will need to begin buying back your time.
We can always make more money, but we cannot create more time. Knowing this, the pound foolish decision would be to not trade an infinite resource (money) for a finite one (your time) when the trade makes sense for you.
Mistake 5: Taking Unaffordable Risks
Unaffordable risks are things that have an extremely small chance of happening but can have catastrophic consequences.
“Never work for the same money twice.”
The Rich Henry
While you shouldn’t lose sleep worrying if these catastrophes will happen, you should absolutely understand that they can happen.
Once you understand that these “rare” catastrophes happen all the time in life and know there are ways to eliminate those risks with money, why wouldn’t you take action to protect yourself?
The pound foolish decision is to not spend the effort and money to properly protect yourself against risks you cannot afford.
Remember you only need to win the game of financial freedom once.
Then it’s on to winning other parts of your life in order to live the richest life possible. That’s the bigger picture.
Don’t Shortchange Yourself
Don’t shortchange yourself by focusing on the pennies in your life.
The bright side is we have full control of any of these short-sighted decisions and can learn to avoid the pound foolish ones.
By understanding these 5 common mistakes, I hope you might be able to avoid some of these mistakes in your life.
So before you go around saving pennies, ask yourself if you are really saving anything at all.