Is your glass half full, or half empty?

Generally when asked that question, my glass is most definitely half full.

Except where personal finance is concerned.

As my previous posting history suggests, I am naturally pessimistic in terms of my finances. But where does the line between being a frugalist and pessmist really get drawn?

For example, I have been salivating over getting a new mobile phone for the last 12 months. I have so far resisted the temptation on the basis of getting out of debt. Now that my employment situation looks less than 100% secure, I am resisting on the basis I do not want to be tied into a contract that I may not be able to afford if I get laid off.

But, being laid off is no certainty. The discussion at work has only just begun. I may not be laid off at all – yet I am already living like it is a dead certainty. I have trimmed my budget further, made some changes to my plan for debt freedom, and generally dug myself into a pit of despair over something that may never happen.

Is this healthy?

Is it just financial prudence?

Or am I holding myself back from happiness?

That isn’t to say a new phone would make me happy. I am pleased to report I have moved on from that stage of consumerism. However, when is – in terms of avoiding risk in your finances – too far?

Are Pessimism and Frugalism mutually exclusive? Can you be a Pessimistic Frugalist?

I think you can.

And worse, I don’t think that is bad thing. A new phone contract will work out more expensive for the phone I want (the shiny new Nokia N900), and I do not wish to risk being tied into paying £40 or so for the next 18 months just to get it.

The safer option, so say my pesimistic frugal self, is to buy the handset outright and use my existing SIM card that is ‘out of contract’, and now just rolling month-to-month. If I get laid off, I can cancel it at the drop of a hat without any penalty.

I will pay less over 18 months doing so as well.

Are you a pessimist in your finances? Am I going too far? Any thoughts gratefully received in the comments.

Quite often I’ll sit here for 20 minutes or so having hashed out a post, changing the order of things, changing words and generally trying to make it flow on paper how it sounded in my head. I was reviewing the wording on my post about my method of fuel hedging just now, when a family member walked in.

They saw the title of the post and looked at me wide-eyed, a hint of genuine fear in their voice, as I explained the general premise behind it in a few sentences. “I hope you’re not risking your money”, they said, despite the fact the only financial product I’d mentioned was “high interest savings account”.  They saw hedging and the fact I was not using my “every day” bank to do this, and immediately decided I was gambling with my life savings and stood to lose thousands.

To an extent I understand. I’m no financial genius, but their concern comes not from my history, but theirs. They got burned in 2006 and lost over £1,500 by using a financial investment product they didn’t understand – which incidentally was recommended by their Independent Financial Advisor – and assumed it was safe on that basis. While I’m sure it was explained that they were ‘investing’ rather than ‘saving’, it likely didn’t register. The difference between the two terms to lay-persons is minimal? Perhaps even none?

Since this event, they have an inherent distrust of anything financial that might make or save them money in real terms. Their life savings sit in a savings account that they’ve had for decades, with a bank they’ve been with for decades, that pays them a measly 0.75% APR. I’ve suggested time and time again that they move it to somewhere that pays 5%, convert it to 3 year bonds, or a combination of both, but they view it as “too risky”. In their mind, moving again could cost them dearly, despite the fact not moving is costing them dearly.