Pennywise and Pound-Foolish

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There’s a tendency on the part of humans to think in terms of proportions. It’s easy, for example, to think you’re doing a great job saving $3 on a $8 package of paper towels — and then turn around and fail to save $300 on a $27,000 new car because “what the heck, if I’m dropping twenty-seven grand on this car, what’s three hundred more for some cool bells and whistles?” That’s where the phrase ‘pennywise and pound-foolish’ comes from, and almost everyone is guilty of it on some level.

Perhaps one of the best personal finance tips we can offer really is that simple — don’t fall for the faulty proportional thinking that we all tend to. How do you do that? Quite simple, actually…keep a tally. It may seem strange, but actually carrying around a notepad with you and jotting down every time you do something specifically to save yourself a few cents or dollars can help put you in the right money saving mindset.

At the end of each month, write down on your calendar how many entries you have in your notebook, and how much your efforts actually saved. If you’re like most families, you’ll find that you averaged maybe one decision every day, and you saved your family an impressive $50 or $75 over the month.

That’s nothing to sneeze at, but it’s actually not the important part. What’s important is that when you’re tracking a number, you prime your brain to pay attention to it. Just like how people trying to lose weight step on the scales every day and obsess about the numbers they see. People trying to save money ought to be recording the amount they save, because recording it creates the obsession.

When the big moment comes and a buyer tries to haggle you out of an extra $1500 on a beautiful $300,000 home that you really love, all those $50s and $75s will come back to mind. You’ll be ready to resist the lure of proportional thinking; you’ll be ready to be penny wise and poundwise, and that’s a wonderful feeling.

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