Are You Saving Too Much?

By Silicon Valley Blogger on 9 September 2010 9 comments
Photo: voobie

The current economy has taught a lot of us that we're not saving enough money for that proverbial (and inevitable) rainy day. Still, there are folks who could easily retire at 40 and never look back. These so-called "super savers" have been saving their milk money since they started kindergarten.

While we are all envying them now, I often wonder what kind of sacrifices they've been making in order to ensure they have the money in the bank to become financially independent. The thing is though, many people who don't possess this same mindset are often not sure about how to go about saving for the long term or how to deal with an investment broker. (See also: Living Cheaply for the Long Term)

I started learning that there are two types of people in this world: savers and spenders. Yours truly happens to be a saver at heart, and saving comes quite naturally to me. For other people I know, they've had to learn through many trials and tribulations that saving money is a habit that needs to be developed so that they can become financially successful. It's a tough lesson for some who've had to struggle daily with combating their shopping impulses or their spending addiction and who've had to control the use of their favorite credit card.

But let's take a closer look at those folks who tend to squirrel away their savings with ease. They carry their tidbits of cash back to the bank as industriously as possible, storing away those little nuggets to be used in leaner times. Some of these people are actually super savers. These savers manage to sock away 50% or more of their weekly paychecks each and every paycheck, without fail, come hell or high water, no matter what.

Of course, they tell us the things we already know. They don't buy fancy new cars. They don't need big houses. They don't overuse their hotel credit cards to go on expensive vacations, they don't eat or dress extravagantly, and they most certainly don't buy anything "just because." They don't go to movies when they can buy the DVD. They don't buy the DVD if they can rent it for less, and they don't rent the DVD if they can simply borrow it from someone else. Rarely will you find a super saver at the table of your local Texas Roadhouse unless it is a very special occasion.

So, what are they planning to do with all of that dough? Some will tell you that they want to retire early. Wow! You say. What a great idea. But is it possible that we can actually save too much? For instance, what happens when a super saver finally decides to actually cut back on work hours? Could the drive to save increase two fold in these households when there isn't a regular income coming in each month?

Unfortunately, I've seen this type of behavior actually happen. What certain savers denied themselves during their working years suddenly becomes completely taboo during retirement. Sure, they might be able to afford to send their kids to the best schools, but how many of them actually do? For these people, it simply doesn't make good financial sense to spend hundreds of thousands of dollars on a Yale or Harvard education if a local university degree will suffice.

I want to emphasize that I am all in favor of saving — but it's also important to find balance in the way we manage our finances. Certainly, people should buy less and save more. We really don't need $100,000 cars if we can't afford to pay cash. 7,000 square feet is a bit much when it comes to putting a roof over our heads, especially if the payments are at the very top of our income allowance. Also, having dinner at home with the family is a great way to save some cash as well as to reconnect with our loved ones on a regular basis.

But, I firmly believe that money is a vehicle. A way to enjoy life to the fullest. You have to be able to find a balance between having money in the bank, squirreled away for a rainy day, and having the money you are willing to spend to enrich your life and the lives of your loved ones. Those new video game consoles are really cool. Going to the movies (especially the 3D ones!) is fun, and taking a vacation every now and again is just what the doctor ordered.

Extreme savers take heed. It is OK to spend some of our hard-earned cash on ourselves. Take a break! You deserve it.

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Guest's picture

I'm what some might call a "super saver", but that's probably MOSTLY due to my age and being single with no kids. I save over 2/3 of my post-tax income. I'm definitely "cheap" in a lot of aspects; I don't go out, I usually leave the A/C off, I research products at length before I even think about buying anything, I refuse to ever pay a single penny for a cell phone, etc. But I'm not living like I'm impoverished. I think it's great to find a comfortable balance, especially when you have the financial room to do so.

Guest's picture

Well, there's more to saving than just forgoing spending. You could almost argue that being frugal is the first step to being enterprising. Even super savers have to put their money somewhere, and it's up to the saver to determine whether that's a checking account, a mattress, a mutual fund, or a business venture.

I own a decently-sized house and travel extensively, but I also drive an undistinguished truck and would rather spend the night in a $36 Motel 6 than a $200 Hyatt (that $164 would eat away at my conscience all night.) I spend as little as I'm comfortable with, only because I'd rather put any available cash toward buying assets and selling liabilities.

Guest's picture

$36 a night? where?

Guest's picture

Not all super savers are as compulsive about saving as you imagine them to be. My wife and I retired last year at age 56. We've saved an average of 50% of our income for most of the thirty years we have been married. We live modestly, true, but we aren't lacking anything that is of value to us, even in retirement.

We saved as much as we could, when we could, because we never knew if we would be able to save later on. In reality, no one knows if he has saved too much until he is dead. Old age requires a lot of money. Besides, if we discover that we have saved too much, we can always spend some of it. It's never too late to spend. On the other hand, if we discover in old age that we have saved too little, it's too late.

Guest's picture

I really believe in keeping a balance with spending and saving and these balancing will differ from person-to-person.

Guest's picture

I always enjoy your posts "Silicon Valley Blogger". I am definitely the frugal one between my wife and I. She had to teach me to enjoy life and spend a little money once in a while! It has been great, and I wouldn't trade her for the world.

Guest's picture

Why is it that people always want savers to spend more? It's like telling a fit person that they don't need to work out because they're so fit. They wouldn't be fit (or have lots of money) if they didn't work out (or didn't save money).

Guest's picture

I strongly believe that it's possible to save too much. And the results can be just as bad as the results of spending too much.

The idea should be to get the greatest possible value proposition from the money that passes through your hands. It's what you accomplish with your spending or saving that matters.

The big problem, in my view, is that both too many savers and too many spenders make their money choices on auto-pilot. We should aim to be mindful of WHY we are spending or saving and make the choice only when it furthers our Life Goals.


Guest's picture

I'm one of the saver types. I save largely because I don't WANT any of the fancy, overpriced junk out there. If other people like stuff, go right ahead and buy it... but I don't want an extra large house to clean, resuraunts that never make food the way I want it, or extra gadgets I won't use. So I save the cash for a day when I actually need/ want it for something.

Guest's picture

I don’t know anyone who is saving too much for retirement. I only know people who don’t have any saving. It’s silly to say anyone is saving too much for retirement. When the time comes, it’s better to have extra money than to run out. If you have extra, you can give your kids a leg up or get the library named after you or something like that.