Yes, There Is Such a Thing as Saving Too Much


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There’s no shortage of headlines in the personal finance world telling us how poor Americans are at saving money, particularly when it comes to saving for retirement. It’s easy for people who have an unhealthy obsession with saving money to justify their habit since it’s culturally supported for the most part. This may be an unpopular opinion in my field, but I’m not here to win Miss Personal Finance 2020.


There is such a thing as saving too much and more than once in my career as a financial coach, the only action item I’ve given someone after a session is to spend some money. In fact, this is one of my favorite types of people to work with.


Does it pain you to spend money?

People who have trouble spending money are usually running the Money Vigilance script, one of 4 scripts identified by the Klontz Money Script Inventory, a tool I use when getting started with clients.


One sign that you may be going overboard with saving money is if it actually causes you pain or anxiety to spend money on things like new clothes, ordering take-out more than once a week, or even just buying something at a higher price out of convenience (like picking up a bottle of wine at your neighborhood place when you know it's cheaper at Costco), even though you have more than enough money in the bank to pay your bills and then some.


You may have a fear that any type of spending that can be classified as frivolous is the beginning of a trend of needless spending that could ultimately leave you penniless.


Are you afraid to retire?

Another sign of an unhealthy need to save money is if you’ve reached an age (and a savings level) where it would be culturally acceptable to retire, yet you insist to friends and family that you can’t afford to take time away from work to travel, even when your spouse or children are begging you to see the world with them. People with a saving mentality like this often only feel relief from their fear of financial ruin when they are actually physically depositing money into their savings. I know a few people like this and my heart breaks for their poor partners who are also missing out on life.


It’s not about greed

It's important to note that over-savers aren't just greedy Scrooges. People who have a tendency to hoard money are usually doing it out of fear of never having enough or to fulfill some other need that is temporarily met when they see their net worth grow. They’re rarely greedy. Rather, their behavior is more about self-preservation than self-promotion. They have trouble ever enjoying the fruits of their labor, even when logic tells them that they can safely afford to.


Greedy people are easy to spot — they’re often the pricks who take cuts in traffic, brag about everything and typically have no problem spending their money. Over-savers can sometimes be mistaken for the opposite — their fear of spending money could keep them living in run-down homes driving beat-up cars and wearing threadbare clothing. You’d never guess they have money in the bank.


You could be hurting yourself more in the long run

The fact is that the personal finance industry generally supports this unhealthy mindset. The problem is that there are real risks to being overly obsessed with saving money. Here are three:

  1. Poor investment performance due to overly active trading. People who are unhealthy savers often tend to pay too much attention to their investment performance, which can lead to losses due to failed attempts at market timing or investing too conservatively due to a risk-averse orientation. To overcome this habit, resolve to only check your accounts quarterly, and consider using a pre-mixed investment strategy like target date funds, where the asset allocation decisions are made for you. Ask a financial planner to run a few projections showing you different outcomes based on more aggressive versus more conservative investment mixes to show you what you may be missing out on by being too vigilant about market risk. Then try to limit how often you check your accounts, especially when you hear about market turmoil on the news.

  2. Inappropriate levels of insurance. You may be tempted to skimp on insurance because the cost of the premiums may seem too high, but being underinsured could easily lead to realizing your biggest fear of losing everything. On the other hand, you may be way over-insured to protect you against any loss at all. Your best bet here is to consult an independent insurance broker and request a review. Obtain a couple of opinions if you’re concerned about being sold or schedule a session with an unbiased financial coach who can give you the agenda-free viewpoint. Some of my favorite conversations with clients are “second opinion” calls.

  3. Deathbed regrets. The mantra of many over-spenders applies here: You can’t take it with you, and it’s true. Too many people who spend their entire lives accumulating cash find themselves at a point when they realize they’ll never see the benefit of all that sacrifice and immense regrets ensue. The best way to avoid this tragedy is to sit down with an independent financial person you trust. Maybe it’s your financial advisor or maybe it’s your accountant, but ask them to help you ease your grip on your money so that you can spend some of it on yourself, family, travel, a vacation home — whatever will fulfill you besides the feeling of saving money.

Look at the numbers

Whenever I have the opportunity to encourage an over-saver to spend, I give them comfort by showing them in real numbers what they need to keep in the bank in order to feel safe. We talk about worst-case scenarios and assign dollar amounts to that to show how they truly do have more than enough. A savings account with enough cash in it to pay six months’ worth of bills is usually adequate, although I find that most money vigilants prefer 12 months - that's totally fine! Next, run a retirement projection to see that you’re saving enough. If it all looks good, go out and enjoy some of that money guilt free.


Don’t get me wrong. Saving money is definitely a necessary aspect of achieving financial security. But there’s a balance that we all need to achieve in order to find that sweet spot of seizing the day while also setting our future selves up for financial independence.