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The Dangers Of Oversaving – Yes It Is A Word!


spendingEvery time I type the word oversave into Microsoft Word, the ugly red line appears to let me know the word doesn’t exist. But when I type overspend, no red line appears. As a society, we recognize and frequently discuss the dangers of overspending, and yet oversaving is hardly ever mentioned. In a search of Google, overspend has 1,760,000 results, while oversave only has 374,000. Why is that?

I was recently discussing this topic with a group of financial planners. The consensus among these highly skilled and respected advisors is that oversaving isn’t a big deal. “So what? They get to retire earlier than expected” was the general opinion of the group.

I believe that oversaving is just as destructive financially as overspending, and is something that we must address.

What does it mean to oversave? Well, why are you saving money in the first place? Typically it is so that you can meet a financial goal in the future. Although retirement is the goal we talk about most often, it might include travel, new car purchases, paying for kid’s college expenses, or leaving a bequest. If you are saving enough to meet those goals, saving additional money would constitute oversaving.

I was bragging to my professor once that I had scored a 90% on a pass/fail certification exam. A score of 70% was passing, and it didn’t matter if I got a 70% or a 100%, I would have received the same certification. He looked at me and said “So why did you study 20% more than you had to?” I could ask you the same question about how much money you are saving… Why are you saving $10,000 more each year than you need to meet your financial goals?

Now to be fair, with the national savings rate hovering around 0%, 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. I think we look at oversaving as something that just isn’t a big deal.

Don’t you dare take this as an excuse to stop saving and start spending all your money… that is certainly not the point. The point is, we all need to find a balance in our daily spending and saving habits. Put aside enough money for a rainy day (ie. emergency fund), save enough to meet your financial goals, and then decide how to spend the remaining on things that will actually make you happy today.

One common response to this belief is that research has shown 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… money doesn’t automatically bring happiness. But I do believe that practicing Conscious Spending can bring you happiness… you just have to sure you are spending money on things that ACTUALLY increase your happiness, and that you aren’t just wasting it on things you THINK will make you happier.

There is a place between “Letting my last check bounce” and “Save everything you can.” If you are saving enough to meet you goals, spend some on the things you have always wanted to do. Take an extra week off work, go skydiving, vacation in the French Rivera… whatever tickles your fancy! You never know when your time on this world will be up, and giving up your opportunity at some happiness today in order to save for the future won’t be something you are proud of.

One last thought… our society tends to reward the extreme views. Just look at politicians… Usually people save all they can, or spend every dollar that comes in… Both are dangerous and financially destructive… Save for your future financial goals, and spend the rest on what will make you happy…

Are you an oversaver, or do you know one? What do you think about my call for balance? I would love to hear your thoughts.

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2 comments on “The Dangers Of Oversaving – Yes It Is A Word!

  1. Jacob Kuebler on said:

    Good article Alan! I would guess this is much more common amount the type of clients who seek advisors. I deal with clients like this from time to time and have to remind them to enjoy the fruits of their labor and “invest” in making memories.

    This falls right into line with consumer economic research regarding consumption theory which states individuals will get the most utility (happiness) by smoothing consumption over their lifetime as compared to large increases as they get older.

    • Alan MooreAlan Moore on said:

      Thanks for the comment Jacob! You are right that there is some self-selection bias going on, in that savers are more likely to pay for finance advice than spenders… I love when clients tell their friends “my financial planner tells me I need to spend more money!”

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