The biggest mistake people make with money

The biggest mistake people make with money

12 years ago, I left a career in management consulting and moved into financial planning. Since then, I had many conversations with people from all walks of life about their money and their life.

I found that people all have money worries regardless of their level of wealth. In fact, I would say the more money one has, the more money worries they have. And people all make mistakes with their money. By far the biggest mistake I’ve seen people making is not to do with investments, tax, etc. It’s something people are not consciously aware of.

The biggest mistake people make with money is not aligning what you do with your money to what’s most important to you.

Oftentimes, people are too focused on building a pile of money and forget why that money is important to them in the first place. We tend to focus too much on return on investments (ROI) and forget to maximise our total Return on Life (ROL).

Aristotle said that the goal of all human activity should be happiness. Since Aristotle‘s time, we have advanced in every area of human endeavour and our living standards have increased many times. But the question is ‘Are we happier’?

A survey1 done in the US covering a 40 year period showed people are not happier today than 40 years ago despite the massive growth of our wealth and income during that period.


Nat Ware, an economist at Oxford University conducted a lot of research in this area and did a TED talk on the topic ‘Why are we unhappy’.

According to him, our happiness is largely determined by expectations, and expectations are largely determined by what we consider to be normal, and what we consider to be normal is largely based on

  • our imagination,
  • others around us, and
  • our past.

When there’s a gap between reality and what we consider to be normal, we are unhappy.


You need ask yourself and arrange your life around three key questions.

1. Why is money important to me?

On the surface, it all seems obvious: We need money to buy the stuff that will make us happy. But we all know stuff can only give us fleeting pleasure. They cannot provide lasting happiness.

According to Jonathan Clements, the author of the book ‘How to Think About Money’, “First and foremost, money buys time and autonomy. Secondarily, money buys experiences. Last, and least, money buys stuff, and more often than not, the stuff we buy makes us miserable.”

So the first step is clarify what really matters to you. Who are the people you love? What are your passions? Your hobbies? The causes that really matter to you? The things you would love to do if time and money were no object?

2. Am I managing my money in line with my values?

Once you’re clear about why money is important to you, you need to make sure you’re managing money in line with your values. The more your use of money is aligned with your values, the happier you feel.

One way to integrate this idea into your daily life is before any big money decision, ask yourself: Is what I’m about to buy/invest/allocate my money toward in alignment with what’s most important to me?

3. Am I having the right balance in my life?

If money is the only resource that matters, then there may be nothing wrong to have a single-minded focus on it. But the reality is that we have other far more important and finite resources.

Money can be made and spent, it can be borrowed and lent. But time is fixed, we all wake up to 24 hours a day and we all have a limited number of hours on the planet. And long before our time is up, our energy diminishes.

We often forget the balance among money, time and energy – we make choices as if time and energy were infinite and money was the most important.


If we can align our use of money with what’s important to us, we can remove the expectations gaps.

  • We reset our imagination. We no longer need to compare reality to an outdated imagination that’s not based on our core values;
  • We no longer need to compare ourselves to other people and how they spend their money;
  • We no longer need to compare to the past, as we have new goals to work toward and any progress in that direction brings about a feeling of happiness.


The above three questions are simple, but not easy to answer. We’d rather avoid thinking about them and tackle the easier tasks.

But if you want to maximise your Return on Life instead of just return on investments, I urge you to think really hard about these questions, review your answers regularly so that you make the best use of your money, time and energy to live a balanced and happier life.

1. NORC General Social Survey: Trends in Psychological Well-being 1972-2014