Money Saving Tips

Don’t Sweat the Little Stuff

I don’t know that I’ll ever remember where I read it but there was a great book that discussed why we shouldn’t sweat the little things.

In the book there was a story about a carpenter that sweated the small stuff. He would have employees go around the job site at the end of the day after framing walls and pick up all the nail and screws that got dropped. He thought that he was saving money by not wasting all those nails and screws.

I oversimplified the story as it has been a long time since I’ve read it and I can’t remember all of details. But the lesson that it was intending to be learned was that by spending even an hour of labor to pick up nails he was losing money. I think a lot of us may understand the concept but we have difficulty applying it to our lives.

Simple is Often Better

Occam’s Razor is a philosophy principle that states that the most simple solution is often the right one. Again I’ve simplified Occam’s Razor but we really should apply it to not only problems of thought but financial solutions as well.

For example: should one invest in actively manage mutual funds with long winded investment statements that attempt to beat the market or should one just try to match the market performance through index funds. My preference is for index funds for a number of reason but one of them is that it’s easy to understand.

We can apply this to almost any financial decision. Why bother chasing the latest checking account bonus? It’s it worth all the time and effort for a $25 bonus? I don’t think so.

Over and over again, as human beings we don’t make good decisions naturally. We tend to look past the simple solution and try to make the solution harder than it needs to be. Want to save money? There are no tricks, simply spend less than you make. Don’t make enough to cover bills? Make more or cut bills.

Want to retire? You need savings that return more than you spend.

I can go on and on but my point is to try and simplify every decision including financial ones. Sometimes there will be multiple points to consider and in those cases, you can rank them from most to least important and normally you will find that by doing that, you’ve made the decision for yourself.

Analysis Paralysis

Another application where I sometimes think about keeping things simple comes from one of project management classes.

A lot of times when we get overloaded with complex information we tend to just not make a decision. We’re so consumed with trying to make the perfect decision that we don’t make any decision at all. This can be worse than making the wrong decision!

Don’t wait for the perfect investment to start saving! Don’t debate about whether you should be in a target retirement account or split you investment allocation amongst 12 different index funds, or any other number of decisions that you “need”. Just start allocating money somewhere! Start investing today!

If you delayed in making the decision for too long you would have missed out on a lot of gains. The difference between the different funds was most likely very minor compared to what the delay would have cost you. That analysis paralysis could have cost you a lot of money.

 

Summary

I know this bounced a little bit around but the point is this: Keep it simple and don’t overthink it!

You can waste money by trying to make that perfect decision rather than just making a good enough decision.

Leave a Reply