In the Spring and Autumn Annals (左傳), a classic Chinese text, there is a saying: “Frugality is the coexistence of virtue; extravagance is the great evil.” This key point of traditional Chinese virtue emphasizes the importance of diligence, frugality, and thrift. However, even though everyone understands this principle, often, our wealth is unknowingly wasted.
This is because certain consumption behaviors have become habitual, and habits have turned into second nature. It is only when we occasionally check our account balances that we startle awake with a gasp, wondering, “Where has all the money gone?”
According to a study by Clever Real Estate website, 74% of Americans admit to having a tendency to overspend, while 55% confess that they lack restraint when it comes to spending money. However, with determination and willingness, bad spending habits can be overcome.
Personal finance experts Nischa Shah and Rachel Cruze recently highlighted in a video on their social media channel that certain bad habits can lead to money being squandered unknowingly. Let’s explore three common “money wasting traps” together.
A simple logic to follow is: to stop wasting, one must first acknowledge the existence of waste. Shah believes that a primary habit that leads to money wastage is turning a blind eye and pretending not to see the phenomenon of waste. For example, many people choose to avoid discussing money matters because it makes them uncomfortable, leading them to overlook wasteful spending issues; some individuals even avoid checking bills or planning budgets.
In reality, adopting a “see no evil, hear no evil” attitude toward financial situations makes it impossible to address wasteful habits, leading to increased financial pressures.
The second habit that leads to money wastage is excessive comparison with others. Shah mentioned that in today’s era of ubiquitous social media, we constantly witness others’ glamorous lives – luxury cars, designer brands, lavish travels – which easily evoke envy and might even compel people to deplete their savings to keep up. Cruze also acknowledged this common behavior, noting that some individuals are willing to incur debts to sustain a certain “respectable” lifestyle.
A survey by LendingTree, a leading online loan company, revealed that 32% of Americans admit to feeling financial stress because their friends and family have a more comfortable and luxurious lifestyle. However, this tendency of “keeping up with the Joneses” often leads to more losses than gains, not only wasting money but potentially plunging individuals into a “debt trap.”
Shah also pointed out that slow capital turnover is a form of waste. She explained that keeping money in a bank account is one of the most inefficient ways of resource utilization as it does not generate additional income for you. For instance, idle funds not invested may miss out on growth opportunities. She suggested enhancing income sources through learning new skills, or investing in low-cost index funds to make money “work for you.”
Simultaneously, Cruze emphasized the importance of maintaining an emergency fund that can be readily accessed. She advised against investing every penny to chase high returns, stressing the value of financial security. However, once the emergency fund is sufficient, allocating surplus money to appreciating assets is a sound idea. For example, Shah recommended Vanguard S&P 500 ETF for its low cost and high potential returns.
The key to halting money wastage lies in determination and action. Whether it is courageously facing financial realities, resisting blind comparisons, or making idle money yield greater value, these actions can lead to healthier finances. As the experts stated, managing finances is not just a technical task; it also involves adjusting mindset. By first changing these three bad habits, are you ready to take the first step towards reducing waste?