Investing Mistakes: Prioritising Saving over Living

Part of my article series on investing mistakes.

I should start by saying that this article simply shares some points of view on a very subjective topic. This is a very different type of article to the rest of the content on Financial Expert as it relates to life priorities and goals.

I can speak only from my experiences, and I hope that you find my thoughts helpful.

Some people make the mistake of prioritising saving over the quality of their life, and realise this only after it’s too late.

The purpose of this article is to prod and poke at your latest thoughts and encourage some internal debate about spending and saving. This may help us to be more conscious of this important financial decision.

Please leave a comment below to explain where you believe you’v found a good balance between saving and spending.

In defence of frugality

Like any pursuit, saving and investing can be taken to extremes.

I could point to many Financial Independence/Retire Early (FIRE) blogs which document the frugal lifestyles followed by their author.

Frugality is not a sin. After all, being resourceful and wanting to reduce waste are very positive aims. You’d struggle to fault anyone for wanting to repair their old things rather than throw objects out, or plan carefully ahead to avoid the need to buy unnecessary items.

Frugality is also not new. As a society, we survived through tough periods because of frugal principles. It’s only in recent decades that machinery, digital technology and stable economical/political systems have emerged to enable so many of us to earn more than we need.

In fact, I’m a big fan of modest frugality. As I explain in my guide to retiring by the age of 50, saving a high proportion of your income is the only proven way to cut down your working years. Living well within your means is almost the definition of frugality.

Frugality taken to extremes

Where I begin to feel uncomfortable with frugality is when it imposes real hardship and meaningful sacrifice on the individual.

Some examples of extreme frugality include:

  • Moving out of a property and into a camper van or caravan
  • Selling the household vehicle, leaving only short distance means of transport (such as a bicycle).
  • Living on a very limited diet of rice and beans (or similar)

With lifestyle changes and creativity, you can mitigate the impact of the sacrifices above, but in a piecemeal fashion, your options and experiences in life will begin to shrink.

  • The lack of a permanent residence may impact your ability to apply for a job or claim government benefits or spend time with guests.
  • It will become more difficult to see friends and family without an easy way to visit them, and therefore all else being equal, you may see less of them.
  • A restrictive diet could boost your bank account but it could also have a negative impact on your health.

While you may be able to square each individual lifestyle change, you should give serious consideration to the aggregate effect of all of these changes at once.

The bigger picture

It is helpful to keep a firm eye on your overall objective in life. Why are you pursuing frugality?

  1. Is it to enable you to leave employment?
  2. Is it to reduce your impact upon the environment?
  3. Is it to increase your mental and physical wellbeing through a more mindful existence?
  4. Is it to accumulate wealth and security?

The list of goals continues on, which shows the diverse array of reasons why people adopt extreme frugality.

The question I suggest you keep answering is: am I happier now as a result?

This might sound like a silly question. You might be thinking ‘Well, of course, I’m not happier. The general principle to give up the things I want now so that I can have more of the things I want later.

But is that a sensible trade-off?

Which would be better:

A) An impoverished life during your young years, followed by luxury in your elder years; or

B) Having the important things you most want and need throughout your life?

I ask because we have all learned from personal experience that the satisfaction brought by expensive things is fleeting. You may still find yourself wanting more later in life, having grown accustomed to the excellent quality of life your savings have provided.

Yet the deprivation and frustration of restricting yourself of more necessary things in the short term may not be as fleeting. You may find that living frugally is a continual test of willpower because you begin to resist the austerity.

The law of diminishing returns is where each additional thing added contributes less and less value. While hungry, you might be prepared to pay £5 for a burger and fries, but once full, how much would you value a second burger?

Applying this rule to general spending, we can draw the conclusion that we will see far more benefit from our spending if we ensure we’re always comfortable, than by depriving ourselves of useful stuff, to be able to afford less necessary luxury items at a later date.

At the end of the day

Do you worry that you may reach your later years, and feel regret that you cut yourself off from exciting opportunities purely to save money?

After all, you may currently be a perfect picture of health, but what if this changes in ten years time? Would you wish you had done things differently while you had the ability to follow your pursuits and travel?

Again, your personal philosophy is your own. This isn’t something that an investing book or an investing course will be able to dictate to you. I am sure that there are many folks living very happily under frugal conditions.

I just wanted to use this article to challenge your mindset. To check that you aren’t simply some happiness today into the future without any overall benefit.

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