As routine readers of Eliminate the Muda know, I often focus on opportunities to increase wealth by eliminating waste and wasteful activities. Friends and family routinely flush money down the toilet unnecessarily or fail to take advantage of opportunities to save. Reflecting on my own life I realize I have made the same mistakes. In my past, I have identified 5 major sources of this waste:
Ignorance – Lack of knowledge has probably been the greatest cause of wasted money in my life. I would start with my first 30 years of existence and roll them all up into one giant ball of financial failure! While many lay blame on their parents or schools for their lack of finance related skills I think this is a cop-out.
As a parent I do believe we have a responsibility to provide our children with guidance and education on all things related to money. Frugality to financing should be a part of every child’s upbringing. Schools too should see the societal benefits of educating our children to be financially competent.
But when our parents fail or our schools fail we have a responsibility to ourselves, our families and our country to take the necessary steps to learn what we must.
Stupidity – Even after you learned to ride a bike there were times that you experience momentary lapses of intelligence. You knew you should have been looking in front instead of that cute girl passing by in a car, but you slammed into the wall anyway!
Complete with an education and understanding of personal finance we may still make stupid mistakes. We may fall for a poor investment following the herd into technology or oil. We may misjudge the risks and rewards of a whole-life policy over a term life policy.
With every financial decision, be it an minor expense or major investment we should take time to be prudent. Avoid hasty decisions and make the effort to gather as much information as reasonably possible before moving forward.
Laziness – Not taking action may be as or more detrimental than taking the wrong action. Laziness when it comes to building wealth seems largely to fall upon us when we are younger. We have difficulty thinking long-term and envisioning a future where our only support may come from what we have saved ourselves.
Lucrative opportunities may fall into our laps that we let slide because we are already worn from a full work week.
Providing for our future is a job that must be done. You fundamentally have 3 choices:
1) Do nothing and pay for it big-time in the future.
2) Do it too late and be forced to work extra hard for smaller benefit.
3) Spend a lifetime of reasonable effort for what should be substantial return.
Impatience – The best explanation for this would be how we pay a convenience tax provided by fellow Yakezie member Engineer Your Finances. The very first time my wife and I began tracking our expenses we found we were spending over $800 per month on dining out! We paid huge profits to restaurants for the convenience of not having to cook, clean dishes or wait a little be longer while preparing our meals.
People pay vendors to replace a light switch or repair their leaky faucet because they are too impatient to take the time to learn how to do it themselves.
We are impatient often because of our perceptions that we lack time. We don’t lack time; there is no less time today than there was yesterday. We are simply not using the time we have effectively.
Consider what you do each day; everything. Then consider what it truly necessary to accomplish your goals and maintain a fulfilling life.
Materialism – At least as far back as the late 1700’s Adam Smith recognized the civilized man’s desire to accumulate at the rate with which his income increased. With the added advantage of debt and our ability to leverage what capital we have, our desire to consume and accumulate has only increased.
No sooner than we buy a new flat screen TV do we see a bigger and crisper picture on another. No sooner than we drive home in a new car might we begin dreaming of a faster or larger one for the next purchase. And if not large and expensive purchases many of us must have the name brand from the right store for fear that our friends will think differently of us.
Breaking down the concepts of what is needed as being unique and separate of what is wanted will provide significant opportunities to save.
I’m sure that you are not guilty of any of these mistakes ;-), but your neighbors on the left and on the right probably are. Certainly I have made each and every mistake.
Readers: Reflecting on your financial or spending decisions can you share how you overcame one of these habits of waste? Certainly this is not a definitive list, can you provide another common example of how people waste money?