It’s probably not wise to label an American genius and Founding Father as ‘wrong,’ but I’m going to do it anyway.
Benjamin Franklin was prolific as a writer, inventor, and statesman. He has so many great quotes attributed to him. For instance, “Well done is better than well said.” And, “No gains without pains.” As well as my personal favorite: “Wealth is not his that has it, but his that enjoys it.”
But there is one quote from the great Franklin that simply doesn’t add up. In fact, I rarely see anyone who successfully heeds the advice without going to an unhealthy extreme.
Here’s the quote: “Beware of little expenses. A small leak will sink a great ship.”
I appreciate the sentiment, but it’s just not practical advice.
A hyper-focus on small expenses is a poor way to get rich. Today, we often hear an updated version of Franklin’s quote. It goes something like this, “Ditch buying a $5 coffee every day and become a millionaire by investing that money instead.”
The idea is that being unwise with little expenses can lead to big money problems. I don’t buy it.
Even if you bought a $5 coffee every single day of the year, we’re talking $1,825 a year. That’s certainly not nothing, but it would take a 21% return over 25 years to turn that into a $1 million. Good luck getting that return.
Even more, I don’t like the take-home message. To me, it screams, “Money can’t be used for things that make you happy. Starving yourself of things that bring you joy is the surest way to wealth.” It’s also the surest route to misery.
If money isn’t made to be enjoyed, then why make it?
Being able to deny yourself can be a wonderful skill. We can’t always give in to our desires. In fact, I can’t disagree that rigorous self-denial of monetary things can be a road to riches. It’s not well-traveled, though, and to a large extent, for good reason. Being too tight with money can be taken too far. Just ask Ebenezer Scrooge.
So, if your outlet for happiness is a morning coffee, I say, “Go for it!”
In my experience, it’s not the little expenses that cause problems. It’s the big ones.
Houses, cars, grown-up toys, and ill-advised investments tend to create gaping holes in the side of figurative financial ships. Pinpricks in the side of a hull can be patched, but these types of expenses are like hitting an iceberg.
Buying a house you can’t afford can lead to financial ruin. Thousands of people figured that out the hard way in 2009 and 2010. And you don’t have to look hard to find tales of people who took their wealth to extremes – buying boats, cars and jewelry – only to end up in bankruptcy. The National Bureau of Economic Research penned a report in 2015 that showed 16% of NFL players ended up filing for bankruptcy within 12 years after they retire. That is despite the fact that their incomes while playing football were multiples higher than that of most Americans.
Find me one story of someone who went broke buying coffee every day but otherwise led a financially healthy lifestyle.
To be fair, small expenses must be kept in check. They can add up over time. A good thing taken too far can be very bad. Justifying all expenses in the name of happiness is a real problem and can be unquestionably destructive to your wealth.
As with most things in life, it comes down to balance.
So maybe saying Benjamin Franklin is ‘wrong’ is a little harsh. There is certainly truth in the logic that being sensible in small decisions often leads to being wise in big ones.
Just don’t take it to an extreme.
Justin Lueger is President of Invisor Financial LLC, a registered investor adviser firm in the State of Kansas. All opinions expressed are his own and should not be viewed as individual advice. He can be reached at firstname.lastname@example.org.