The Most Damaging Misconception in Personal Finance

If I could convince people of one thing in the world of personal finance, it would be this.

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Hey, quoting your own book is clearly bad form, but I’m not above it. This quick passage summarizes my most important learning from over four decades of helping people with their money. One of the most damaging misconceptions in personal finance is that saving for the future requires sacrifices today that lessens people’s enjoyment of life.

Surprisingly, it’s quite the opposite! People who live within their means tend to be happier and less stressed. That’s true not only for the obvious reasons—they know their financial futures look bright—but also because they’re not consumed with consumption. They’re not in the emotionally and financially draining race to acquire the most stuff they possibly can. A race that, it should be noted, has no finish line and thus no winner.

I repeat, people who live within their means are happier and less stressed. Over and over I see that. Jean-Jacques Rousseau (the Swiss-born French philosopher) understood all of this long before I did. In 1754, when I was only six years old, he argued that wealth is not an absolute, instead it’s relative to desires.

When we covet things we can’t afford, we grow poorer regardless of our incomes. Conversely, when we’re satisfied with what we have, we are truly wealthy. Great point, but today because of ubiquitously available credit, it’s even worse. When people covet things they can’t afford, they buy them anyway. But the negative combination of habituation, guilt, and financial worry so often overwhelms the joy of whatever has been purchased. Again, leaving us poorer regardless of our incomes.

My barber when I was young, Bernie Fitzgerald, told me, “We should stop trying to impress others and instead impress our future self.” Wise words, very wise words. I’m telling you, I’ve seen it for over 40 years, if at all possible, spend less, save more—you’ll be happier.