According to this Investopedia article, “Eat well, sleep well” is an adage that, referring to the risk-return tradeoff, says that the type of security an investor chooses depends on whether he or she wants to generate high returns or have peace of mind. This tradeoff in finances can be thought of as balancing return needs and risk tolerance. For example, stocks are often thought of as “eat well” investments while bonds are “sleep well” investments, as are CDs, TIPs and money market funds.

Many high earners still have trouble sleeping because their taste for the good things in life cause them to both take unnecessary financial risks and live in a highly leveraged position. Some of the people you perceive to have a great lifestyle, may actually be suffering from a lopsided balance sheet – where debts significantly outpace assets.

Remember that the concept of eating well vs. sleeping well doesn’t just apply to finances and investments. It’s really a metaphor for how you live your life. Some examples of how the differences affect your lifestyle, financial and otherwise:

Eat well: I buy that high performance sports car that costs a small fortune and make sure I buy a new car every few years.

Sleep well: I buy a highly reliable and reasonably priced vehicle and keep it after it is paid off.

Eat well: I live in a highly-mortgaged 12 room house, even though I seldom use 3 or 4 rooms of those rooms.

Sleep well: I live in a functional and tastefully-decorated house, that I own outright or with a small mortgage, and fully utilize the property.

Eat well. I enjoy the finest of wines and dine at mostly upscale restaurants.

Sleep well. I enjoy good food and wine but also realize that some of my best times happen at more casual and inexpensive restaurants.

Eat well. I take extensive vacations and travel first class all the way.

Sleep well. I travel to great destinations and while I occasionally splurge, I don’t mind (or at least tolerate) flying coach and keep to a reasonable budget.

Eat well. I never hesitate to make a major purchase on credit, including autos, boats, timeshares, golf club memberships, and even vacation homes.

Sleep well. I’m happy to rent what I need to avoid debt and let others take care of maintenance and other issues.

You can argue that the “eat well” folks have a better quality of life, but I am not so sure. Often, the thrill of having so many possessions is balanced by the pressure of taking care of, and paying for, all those possessions. I experienced this in my own life when my husband and I purchased both a timeshare and medium-sized sailboat within a few years. The excitement of these purchases soon wore off and we ended up taking a financial loss on each (especially the timeshare). Lesson learned.

There is a caveat. As in most areas, finances can be taken to the extreme. As I point out in my article, Financial Insecurity in Retirement, there are people who have incredible financial security but yet live in such a state of fear that they don’t enjoy the incredible blessings. Money is to be used wisely and even conservatively, but not to hoard and deny you and your loved ones the pleasures of life. There is a happy medium here. When it comes to both investing and lifestyle, a reasonable combination of eating well and sleeping well can serve your needs.

Perhaps the best advice on the subject comes from financial expert Dave Ramsey, “Don’t buy things you don’t need with money you don’t have to impress people you don’t like.” Just keep Ramsey’s words in mind when you are tempted to make that highly speculative investment or buy the big- ticket item that you don’t really need.

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