There are two kinds of statistics: the kind you look up and the kind you make up.

– Rex Stout

The symptom: Anything under budget target is free money.

The example: Your local sports team is doing well and has made the playoffs! Suddenly you think how much fun it would be to actually attend the playoff game. The only problem is that a ticket is €150 and you do not really think you can afford that. So you sit down with your budget to see if you can find some savings. You notice it is the 25th of the month and so far you are under your monthly budget in a few categories. You are €80 under for food, €10 under for gasoline, €10 under for haircuts, and €20 under for household items. You reduce your budgeted amount in each of those categories for this month and then resolve not to buy anything in those categories for the next 5 day. Problem solved. Now you have €150 for the ticket. It did not turn out to be so difficult after all.

Another flaw in the human character is that everybody wants to build and nobody wants to do maintenance.

– Kurt Vonnegut

The symptom: Avoiding maintenance seems like frugality.

The example: You observe how much money some of your homeowner friends spend on home repairs and replacements – roofs, siding, gutters, carpet, heater. Over time it is big bucks! You think to yourself they could be rich if they would stop doing that. You think to yourself that you could live without repairing and replacing most of that stuff. You decide that when you buy a house, you will do things differently. If a pipe breaks and water is gushing everywhere, of course you will fix it. But for other types of things, you will just live with it. You can stand to live with no air conditioning and old carpet and leaky gutters and so forth. It is not that bad, even if others make fun of your frugality, because you will be laughing all the way to the bank. The extra one or two hundred thousand dollars you will not be spending on home maintenance during your lifetime will pay for early retirement. You will show them.

Economics is a very difficult subject. I’ve compared it to trying to learn how to repair a car when the engine is running.

– Ben Bernanke

The symptom: Expensive repairs still seem better than new purchases.

The example: Your 15 year old car had a cooling problem that permanently damaged the engine. The shop said it would cost €4,000 to replace the engine and the cooling system. That still seems like a bargain compared to spending €20,000 for a new car. Hence, you decided to go ahead with the repairs. Surprisingly, not all your friends think you did the right thing! You do not understand why people cannot clearly see that €4,000 is a much better deal than €20,000.

The major difference between a thing that might go wrong and a thing that cannot possibly go wrong is that when a thing that cannot possibly go wrong goes wrong it usually turns out to be impossible to get at or repair.

– Douglas Adams

The symptom: Real estate investments look like a sure thing.

The example: You listen to a sales presentation for a new resort flat development in another city. The salesperson assures the audience that these properties are so valuable that the developer will buy the unit back at any time for the next ten years for the purchase price. The loan terms are also attractive at 5% for 30 years and nothing down. The more you consider the offer, the more you feel this is a sure thing. What could possibly go wrong? Since you do not put anything down, and you can always get back at least what you paid, it seems like there is no downside and substantial upside if the flat appreciates. You do not have a lot of money right now, but that is not a problem since you do not have to put anything down. You decide to purchase the flat as an investment and pay as long as you can, at which point you will either break even selling it back to the developer, or hopefully turn a profit selling it to someone else at a higher price.

There are known knowns. These are things that we know we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. These are things we do not know we don’t know.

– Donald Rumsfeld

The symptom: You appear to be saving money except for unexpected costs.

The example: Your finances seem fine most of the time. However, every once in a while you get clobbered by an unexpected expense, like a huge car repair bill or a furnace replacement. You feel like these unexpected items are killing you! Every time you get a few thousand dollars saved up, another unexpected expense comes along. You feel that you must the unluckiest person in the whole world. If only you could somehow stop these one-time expenses long enough, you could really get somewhere financially.

A man’s indebtedness is not virtue; his repayment is.

– Ruth Benedict

The symptom: Deferral of debt repayment feels like savings.

The examples: 1. In order to meet your monthly savings goal, you sometimes pay only part of your credit card bill. For example, last month you realized that if you paid off your entire €600 credit card bill, you would not be able to save any money that month. However, your goal is to save €500 per month. Hence, you only pay €100 of your credit card bill and save the other €500. You make a mental note to pay off the whole bill soon. This seems better than not saving money, but you feel uneasy about this approach for some reason.

2. While reading a magazine article about colleges, you are shocked to find out how much it is going to cost your 3-year-old to attend college in 15 years. The article suggests you should be saving €500 a month for the next 15 years in order to pay for college costs. You look at your budget, but you do not see any way you can come up with any savings. Then an idea strikes. When you bought your €200,000 house about six months ago, your bank gave you a choice of a 15-year mortgage or a 30-year mortgage. You remember that the difference in payments was about €500/month. At the time, you went with the 15-year mortgage because you could afford it and it seemed like a nice idea to pay it off sooner. Now you wish you had that extra €500/month to save for college. So why not switch? You call the bank and find out that for €1,500 you can refinance into the 30-year mortgage. So now with your mortgage payments lowered, you begin to put that €500 into a college savings fund every month. Everything is budgeted properly now, and you think you are quite clever to have thought up this idea.

Time destroys the groundless conceits of men,
it confirms decisions founded on reality.

– Cicero

The symptom: Depreciation does not feel like a cost.

The example: Two years ago, you felt like your household finances were completely out of control. That was the year both you and your spouse each bought a new €25,000 car, not to mention a new computer, a new entertainment center, and new carpet throughout the whole house! It was almost reckless, and you used up almost all your savings on those spending binges. But then things changed. Without all that crazy spending on big-ticket items, you managed to save almost €10,000 last year, and you are on track to do it again this year! You congratulate yourself on your self-control, and you feel good that you finally have your act together.

If you think nobody cares if you’re alive, try missing a couple of car payments.

– Earl Wilson

The symptom: Costs do not seem like they are incurred until you pay them.

The example: Your goal is to pay off an extra €1,000 on your student loan at the end of each month. The payback requires a sustained effort each month, but you feel the sacrifice is worth it to get the debt monster off your back. Near the end of some months, it appears you will not be able to make your goal, but you are determined. During the last week of the month, you usually stop paying for anything with cash, and start using your credit cards for everything. That way you will have the money on hand to pay extra on the student loan. You also delay some utility bill payments a few days into the next month. Even if you have to pay a small late fee, it is worth it to keep the paybacks on schedule.