Obsessed with Saving
Is saving too much money a bad thing?
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Obsessed with Saving
It has come to my attention of late that I might be obsessed with saving. You know frugal aka a penny pincher. I started looking up synonyms for “frugal” and quite frankly I’m not thrilled with what I found.
Frugal. Penny pincher. Non-indulgent. Self-denying. Economizing. Cheap. Ungenerous. Scrooge. Conserving. Preserving. Miserly. Cautious. Thrifty. Economical. Puritanical. Stingy. Careful. Restrained. Close-fisted. Unwasteful. Penny-wise.
These strike a nerve and are not all something I would like to be called or call myself.
Could saving too much be a bad thing?
According to Ramit Sethi, author of the book I Will Teach You To Be Rich, the answer is yes. I have yet to read this book but I did listen to Ramit on one of my favorite Bigger Pockets podcasts.
It was while listening to this podcast that I realized too much saving could be a bad thing. The problem is this, once you save as much as you possibly can and arrive in a place in life where you have plenty of money, you still do not spend it. Saving is a habit. Habits are difficult to break. Ramit shares stories of his clients who have millions of dollars in income a year, a large nest egg still fret over spending an extra $3 on the sliced broccoli over the un-sliced broccoli.
The point he makes is to not stress over the little things. He recommends cutting the big bills, like car payments, cable/wifi or even credit card debt. Spend your energy reducing those big ticket items and don’t worry about the small stuff.
I do like this concept and agree to one level. I think it is wise to get the sliced broccoli because in the long run it will save you time and we know time is also worth money. Trust me it took me awhile but now I buy the sliced mushrooms, they are $1 more but oh so worth it! On the other hand I believe that you should still try to shop and maintain your overall budget. Going over budget often could put you in a bad financial spot.
Ramit also cited other clients who reach an age or time in their life where they have money and have the ability to spend it but their mindset has been saving for too long and they are unable to get over it and spend the money on what they desire. He is suggesting that if you have disposable income then you have the freedom to use your money to make your wildest dreams a reality. For instance, go on that dream vacation, buy that dream house or car.
This to me is really difficult to stomach but I think I am not yet in the phase in my life that I am able to spend lavishly. I also am of the saving mindset, which makes it really difficult for me to stomach spending money on certain things, even the sliced broccoli. And that can be problematic. I think Ramit would suggest balance in my scenario, or at least I would!
I recently read a book called the Simple Path to Wealth by J.L. Collins. It is a great book about retirement investing strategies and I highly suggest it. Collins talks about two different phases in life that should guide your investment strategy. There is the wealth accumulation phase and the wealth preservation phase. During the wealth accumulation phase the goal is to maximize your savings rate and put everything you possibly can towards stocks and less towards bonds. In the wealth preservation phase the idea is to maintain your retirement savings and not lose it to the pitches of the stock market, hence he suggests a higher ratio of investments in bonds compared to stocks. The people in this phase are more than likely retired and therefore taking money out of their retirement accounts. J.L. Collins would suggest withdrawing at a rate of 4% of your total investments each year.
Would Ramit agree with this 4% rule?
I think Ramit would agree on some level but at the same time I think he would say go and enjoy life and spend the money that you worked so hard to obtain. I think fundamentally he would disagree with the whole ideology of wealth preservation. The word preservation itself lends to the idea that you aren’t spending money at all. I think Ramit would argue go spend your money and enjoy your life within your means. And not just on everyday items but on what you WANT.
Honestly, it feels so conflicting. So what is the right thing to do?
I don’t think there is a right or wrong way of doing things. I think it is up to your personal preferences. I am leaning towards balance and I realize it will likely be difficult for me to get on the spending money train because my mindset has been on saving and non-indulgence for so long. I don’t think Covid has helped either because I haven’t been able to travel and go places. I would so much rather spend money on a trip than clothes for instance.
This is my take away:
The amount you save and spend is dependent on what phase you are at in your life
When you don’t have money you should save and maintain your budget
You can budget for indulgent things such as travel and don’t have to wait until you accumulate a certain amount of money to do so
It is okay to Spend money
When you have accumulated money you should spend it on what you want and you should dream big!
Once you are financially free what do you dream about spending money on?
Share in the comments.
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Until next time,
Amanda
Disclaimer: The purpose of this article is for entertainment purposes only. This article is not financial advice. Please consult a financial advisor, CPA or lawyer before proceeding with any actions.
Unfortunately, he is right. I have saved my whole career and still value a bargain and preservation over a splurge. There is some balance, but after 35 years of being in that saving and accumulation mindset, I anticipate it will be a difficult transition to retirement and taking out when all I have ever done is accumulate.