There is a popular British saying, “penny wise, pound foolish.”

No, the saying does not mean that those who have less money are wiser. Rather, it refers to someone who goes to great lengths to save some money (a few pennies) now, but ends up losing more money (many British pounds) later on.

It refers to people who are cautious with small amounts of money, but are careless with larger amounts.

Most of us look for ways to cut corners in our spending in a bid to stick to our prepared monthly budgets. However, does this help with wealth accumulation and management?

Here are some examples:

1) Paying too much in insurance premiums

Some people tend to over insure themselves or pay an excessive premium for insurance because they do not know how to optimise their money.

The main objective of buying insurance is to protect you and your loved ones from financial hardship in the event an untoward incident occurs. Go for the lowest monthly premium with the most coverage to optimise your money.

2) Failing to increase savings when income rises

It is typical for someone to increase his standard of living when there is an increase in income. Whilst this is a common behavioral pattern, where we want to make changes for a better quality of life, this behavior is not recommended.

Since there is an increase in income, why not increase your savings as well?

3) Not optimising the return on savings

One common error is keeping too much money in savings instead of investing it. Whilst any investment opportunity you get needs to be scrutinised for its legality and risks involved, chances are you will stand to generate more wealth if your money is invested in a low risk and legal investment. Just remember not to put all your eggs in one basket – diversify your investments.

Other examples include:

• Buying the least expensive clothing and shoes, but having to replace the wardrobe frequently because of the poor quality. This does not mean that you have to invest in expensive clothing, but ensure that you receive value for money for your purchases.

• Parking and “just running in” without feeding the parking meter coins, but returning to find a parking ticket attached to your windshield.

• Buying items in bulk during a sale only to throw them away because they serve no purpose or have expired (food items).

• With the holy month of Ramadhan, many people are tempted to buy more food than they can actually eat to break their fast.

As you can see, the saying “penny wise, pound foolish” can teach us a lot about how we make decisions with our own money, as well as on the national scale. It goes without saying that you should try to cut costs and save money. Just be smart about it and think of the future consequences.

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