Watch Out for Oversaving
You hear a lot about the dangers of overspending. Yet most people hardly ever mention oversaving – which is just as financially destructive. Rather than simply avoiding spending, seeking a balance between saving and spending can make you happier.
Saving a lot sounds virtuous. So the concept of oversaving is almost unknown. Every time I type the word “oversave” into Microsoft Word, the ugly red line appears to tell me that it doesn’t exist. But when I type overspend, no red line appears.
Why are you saving money in the first place? Typically, you save to meet a financial goal in the future. Although retirement is the goal we talk about most often, travel, new car purchases, paying for kids’ college expenses and leaving a bequest are all perfectly good long-term goals, too. If you save enough to meet those goals, saving additional money is oversaving.
What does it mean to oversave? You squirrel away more money than you need to fund retirement and other future needs. And you deprive yourself of a vital quality of life: the happiness that spending money brings – for things that truly make you happy.
Now to be fair, with the national savings rate hovering around 3.6%, oversaving isn’t as prevalent as overspending. That may be why we don’t hear much about it, but I believe it goes deeper than that. Most folks, even highly skilled and respected financial advisors, think that oversaving just isn’t a big deal.
Don’t take this as an excuse to stop saving and squander all your money. That is certainly not my point. We all need to find a balance in our daily spending and saving habits. Put aside a sufficient emergency fund for a rainy day, save enough to meet your financial goals and then spend the remaining on things that actually make you happy.
One common response to this belief is that research shows that increasing income above $75,000 or so doesn’t increase happiness. I have seen this play out in many clients’ lives, so I believe it is true.
But I also believe that conscious spending can make you happier. Just be sure you are spending money on things that actually increase your happiness, like tickets to a Sunday football game or a concert, and that you aren’t just wasting it on things that don’t, like overpriced coffee or joyless fast food lunch breaks.
If you oversave, you can afford to spend more on rewarding experiences. You can afford the really enjoyable things if you eliminate wasteful spending.
Usually, people tend toward extremes and either save all they can or spend every dollar that comes in. Both are dangerous and financially harmful.
There is a place between letting your last check bounce and saving everything you can. If you are saving enough to meet your goals, spend some on the things you always wanted to do. Take an extra week off work, go skydiving or vacation in the French Rivera.
Save for your future financial goals and spend the rest on what makes you happy in a balanced way.
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Alan Moore, MS, CFP, is the founder of Serenity Financial Consulting in Milwaukee, Wis.
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