Insecurity about money can be crippling. If you have lived through periods of your life where you could not guarantee that you could pay your bills, you probably have a strong saving mentality that sticks with you regardless of your current income… but is that wrong? It may be, if you are putting so much emphasis on saving money that you are forgetting to live your life.
It is possible to live a miserly, out-of-balance life, but those properties do not always correlate. There are many happy, well-adjusted spendthrifts. How can you tell which side you are on? Are you happy? Well, that was easy.
Humor aside, it is not always easy to tell if you are drifting toward an oversaving and under-living lifestyle. Here are a few ways to assess your current position.
Tips for Getting the Savings Balance Right
- Ask Your Friends – Good friends are important in leading a balanced life, regardless of finances. They can provide perspective and detect subtle changes in your behavior. If you cannot find any friends to ask for an opinion about your financial habits, you may have your answer.
- Review Your Calendar – Are you going out less and less or canceling events over fears of spending too much money at the event? Minimizing the amount of money that you spend at events is fine, but you must balance finances with enjoyment. Changes showing increasing withdrawal from social events can be a red flag.
- Review Your Budget and Goals – Savings should be within the context of a budget and a set of goals, such as an emergency fund, retirement fund, and investments.
Signs of oversaving are saving without a budget to provide context, or saving with a budget but without any concrete goals to measure your progress. You never know when you have saved enough, and may avoid setting goals because you cannot believe that it is possible ever to save enough.
Try setting apart a monthly discretionary fund in your budget that you can spend without feeling guilty. Start small if you have to.
- Are Your Savings Working for You? – Make sure your savings are not dormant. Cash buried in coffee cans in the back yard does not keep up with inflation (nor does cash in a bank account or CD these days, sadly).
Put your savings to work within a diversified investment portfolio. Some portion of it must remain in a liquid and accessible form; the rest must be devoted to some form of longer-term investment with higher returns and higher corresponding risk.
If you are so risk-averse that you cannot handle any short-term losses in stocks, you may be saving for the wrong reasons. Savings must be looked at through the prism of a rate of return that beats inflation and builds long-term wealth.
Many people who lead a frugal lifestyle do it because they enjoy it. It gives them pleasure to save money just from the viewpoint of not being wasteful, and they would rather pass on any excess to heirs or charities than to spend it themselves. Who are we to say that is wrong?
In essence, only you can decide if you are oversaving, and if you have no savings and/or retirement goals, the question is meaningless.
However, it is easy to lose perspective and not realize that your savings practices – and your attitude toward savings in general – have moved into an unhealthy place and altered your ability to enjoy life. It is possible to slide into depression or withdrawal without realizing that anxiety over money is the underlying reason.
Keep your life balanced with the help of some friends you can trust. They will tell you if you appear to be headed toward an appearance on a cable-TV show focusing on life’s extremes. If not, perhaps you have already found your best balance between saving money and living a happy lifestyle.