“Are You Saving Too Much Money?”, Published in Starbiz, The Star, On 28 September 2020.
Money is an emotional driver. Having too little may be the source of your unhappiness, but, having too much can also cause you a fair amount of stress!
In the field of financial planning, I usually find myself in the position of advising my clients to live within their means in order to save enough for their future.
However, how much is enough? Is there such a thing as saving too much money?
The answer to this is a resounding yes.
While overspending is the common vice today and can hurt your future, saving too much is also a problem, and can hurt you and your loved ones in the present. We call this irrational obsession to put money away with no actual goal in mind, compulsive saving.
Compulsive savers tend to be forever saving for a rainy day – they long for the elusive financial security that they never think they are able to attain. As a result, they continue to save, even long after they have achieved financial freedom and can afford all the indulgences they desire.
Compulsive saving usually stems from anxiety and an unreasonable fear of the future. In the bid to calm these turbulent feelings, compulsive savers may hoard money excessively to regain a feeling of control in their life. In extreme cases, compulsive saving may lead to marital discord and friction with other family members and friends who don’t share the person’s obsession in frugality.
It is especially pronounced when there is no review done on one’s finances and no drawn up clear path towards one’s financial freedom. When there’s no clear picture of how near or how far you are from your targeted financial freedom goals, it is only natural that your reaction is to scramble to save as much as possible.. Soon, this insecurity could form into a pesky little habit that may not be healthy to you nor the people around you.
Take the case of Jimmy. Two months ago, I met Jimmy, 47 at an educational talk that I conducted at his company. He came to me to find out about his financial status. According to Jimmy’s wife, he was a very thrifty person who was careful with his money, rarely splurged, and saved a lot. They knew that they were financially stable, but they wanted to find out just how stable they were.
The more I talked to him, the more it became apparent that I was dealing with a compulsive saver. You see, Eddie was addicted to saving.
With a salary of RM150,000 annually, Eddie was easily saving 50% of his income on his own for the past 12 years, on top of accumulating his EPF contributions.
He never took a vacation, did not care to replace any old or malfunctioning furniture, never indulged his family in anything besides the necessary basics, and subjected his family to a very small and tight budget – all in the name of saving for the future.
As this information surfaced, Eddie’s wife revealed that this was the reason she had pressured him to visit a financial advisor.
Then and there we started drawing up a roadmap to Eddie’s financial freedom goal. After taking into account his financial needs and wants for his family’s present and future, the big reveal came when we discovered that Eddie had already achieved his goal of financial freedom.
After all his years of blindly stinging and saving, Eddie was shocked to discover that when he retired (the retirement age was 55 at the time), his wealth could very well last him and his family till the age of 112!
Upon hearing this, Eddie’s wife began venting about how she and the children have been so unhappy all these years as they stuck to Eddie’s strict rules on spending that came with zero indulgences, family holidays, or splurging on any enjoyment of any kind.
Living under Eddie’s financial dictatorship, it isn’t difficult to see why Eddie’s wife felt robbed of all the years that the family could have spent in enjoyment.
In Eddie’s defense, however, he grew up in a family that faced many financial troubles after his father’s business shut down due to bankruptcy. This scarred Eddie significantly, and as a reaction to this, he resolved to never end up in the same situation and with the same financial failures as his father did.
Eddie’s case is quite the classic case of compulsive saving.
The thing about compulsive savers is, they rarely do it out of greed. It is not about accumulating enough wealth to enjoy later or to show off to others. It stems from self-preservation, a fear of falling into debt even though logic tells them that they have more than enough.
Like many other compulsive savers, Eddie was so deeply rooted in his anxieties that he couldn’t bring himself to enjoy the fruits of his labor, thus causing feelings of resentment in his family.
Personal financial management is about more than just saving. It is about knowing your future and present financial needs, and drawing up a financial roadmap that achieves the optimum balance that fulfills both of these needs.
So before you fall into the trap of oversaving, ask yourself this: Is your financial management achieving the right balance? If you’re unsure, it’s time that you consult a professional to find out.
Bringing balance to compulsive saving
1. Understand the danger of compulsive saving
Compulsive saving can come at the cost of the quality of life of you and your family today, and result in possible regrets in the future. The first step to correct compulsive saving is to acknowledge the dangers of over saving its effects on your loved ones.
2. Get Your Holistic Financial Plan Done
Put an end to the insecurity and anxiety by getting a professional to look at your financial profile and run the numbers. Once you know where you are on your journey to attain financial freedom, you’ll be less likely to worry unnecessarily. Determine the baseline that you need to save every month to achieve your financial goals. If you get anxious when you’re about to spend, check in with this figure to put yourself at ease.
3. Adjust Your Saving and Spending Accordingly
If you find that you have accumulated more than enough to achieve your financial freedom, you can reduce your monthly saving and spend more every month. By doing so, you can have financial security and enjoy good life at the same time.
If you have an inkling that you could be compulsively saving for a ‘rainy day’ , do yourself a favor by getting a clear picture of your roadmap to financial freedom via the iWealth app. You will know if you are undersaving or oversaving – that itself could help you clear the air (once and for all of how you are doing financially) and support you to make the necessary changes to achieve a healthy work-life balance.
As the famous poet Osca Wilde puts it ,“ Everything in moderation, including moderation.”
Signs that you are a compulsive saver:
-You constantly find yourself worrying about your financial state
-You feel pain at the thought or action of spending money
-You keep excessive tabs on every dollar and cent spent
-You refuse your family of common indulgences
-You refuse to owe money to others
-The thought of retirement scares you
Yap Ming Hui ( ymh@whitman.com.my ) is busy working on a personal finance education channel, Yap’s Money Life Show. He hopes to use his professional experience to help Malaysians grow their wealth with high certainty, and avoid making mistakes that could have otherwise cost them millions of Ringgit.
The article is featured in The Star Online, at the following link: Are You Saving Too Much Money?