Benjamin Graham, the legendary investor and author of “The Intelligent Investor,” was a master of timeless financial wisdom. He believed in financial tips like saving but some savings tips have lasted too long, even for Graham. Many of these tips are remarkably sensible when you consider that inflation was low and technology relatively limited, but they’re starting to bear a striking resemblance to milk in today’s economy.
Outdated advice can end up doing more harm than good, keeping you chained to old habits that do not fit in the modern world of finances. These so-called ‘rules of thumb’ are good ideas but often out of touch, so its time to rethink some of them.
Always Buy in Bulk
The idea of buying in bulk has been trumpeted as a way to save, but it can backfire if you’re not careful. While buying 20 pounds of rice or six bottles of ketchup might seem cheap, the money is wasted if it goes unused or spoiled. If you’re following Graham’s practical approach to finances, you’d look at your actual consumption habits before committing to bulk purchases. If it goes to waste, it’s not a bargain.
Clip Your Coupons for Everything
Graham would likely consider clipping coupons to be the gold standard for thrifty living, but this is penny-wise and pound-foolish. These days, paper coupons are old news — digital apps and rewards programs are far more efficient ways to save without the hours of scouring through paper coupons. Many coupons make you feel you are getting a good deal when, in fact, what they are really selling you is something you wouldn’t normally buy.
Save 10% of Your Income
That old adage of saving 10% of your income might have worked in the 50s, but it’s woefully insufficient today. Sure, this rule barely scratches the surface with skyrocketing housing costs, student loans, and healthcare expenses. According to a Morningstar study, millennials will need to save upwards of 20-25% of their income for retirement due to longer life expectancies, and decreased pension plans. It is much more realistic to adjust your savings goals according to your personal circumstances than to simply follow an out-of-date figure.
Never Carry Any Debt
Graham knew that not all debts are the same. In theory, living completely debt-free sounds great, but in reality, it doesn’t always make the most sense. Something like a low-interest mortgage can cost far less than rent; student loans often pay off by increasing your earning potential. Graham would probably suggest that we are wise in managing our debt as opposed to avoiding debt completely.
Cash Is King
It’s true that having an emergency fund is important, but cash hoarding is not as efficient as it used to be. Idle money slowly gets eaten by inflation. Graham would probably advocate the mix: enough cash for current requirements, but the rest invested in vehicles such as index funds or bonds. There are these options that can grow your money instead of sitting stagnant in a savings account.
Skip Your Morning Coffee
How many times have you heard you will get rich if you cut out your daily latte? Clearly, reducing unnecessary expenses is good advice, but Graham would say that small indulgences aren’t really an issue. Instead, it is a matter of major decisions, like housing, transportation, and investment strategies, having a much greater impact on your financial health. When there are bigger savings opportunities out there, life is too short to skip the little joys.
Never Rent, Always Buy
There is an underlying American belief that home ownership is the ultimate financial achievement, but it’s not always feasible. Graham would argue that tying up all your savings in a single, illiquid asset isn’t such a good idea. Sometimes, renting can be the smarter play, as long as you are able to invest the difference into higher-yielding opportunities.
Stick to a Strict Budget
Rigid budgets sound like the route to financial discipline, but can they be a weight around necks rather than a benefit? Graham’s philosophy is to be flexible and to roll with the punches. Do not waste your time micromanaging every dollar and focus on building saving habits and staying away from unnecessary debt. A tight budget can feel like being mummy-wrapped up and can lead to financial frustration and burnout.
Save Every Raise
Saving raises is good advice, but Graham probably thinks it’s too simplistic. He knew how to take advantage of the spoils of your effort. When you get a raise, the best thing to do is to allocate a part to your savings and another part for improving your quality of life; you’re doing so responsibly and emotionally. Who wants to have money if it can’t be enjoyed?
Always Pay With Cash
Graham would know that credit cards are worth paying for in today’s world and that paying with cash was once the go-to advice to avoid debt. Credit cards provide rewards, cashback, and fraud protection that cash simply can’t if they are used responsibly. The trick is to treat credit as cash and pay it off in full every month so you don’t pay interest on it.
Cut Only Expenses
While cutting expenses is a necessary step in financial health, Graham would caution against ignoring the other side of the equation: increasing your income. Investing, learning new skills, or starting a side hustle can often do more for your earnings potential than cutting expenses. You can only cut so much, but your earning potential is almost infinite.
Avoid All Risk
People often fear losing money so much that they avoid any risk altogether, but Graham would say that’s worse than not. If your savings don’t grow enough to beat inflation without some level of risk, then what? To build long-term wealth, we need to take smart, calculated risks like investing in diversified assets. Graham thought caution was important, but not to the point of missing opportunity.
Disclaimer: This list is solely the author’s opinion based on research and publicly available information.
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