A new thread on Canadian Money Forum involves a question that got me thinking – “Can You Save Too Much Money?” which originated from a Globe Investor case study article. In the case study, Lucinda has well paying job, she is a big saver, and has a lucrative defined benefit pension. A financial advisor crunched the numbers, and determined that Lucinda will have a significant nest egg by the time she is 90.
By the time she is age 90, the planner calculates, Lucinda’s investments will total $3.3-million – and she’ll still have her condo as well.
So the question is, with so much capital remaining at the end of Lucinda’s life, is it possible that she’s saving too much money? It’s challenging to quantify “too much” as it’s subjective with everyone having their own opinion. The fact of the matter is that people form habits that are hard to break. Frugal people will naturally save money and spending the extra money will be foreign to them, even challenging. Whereas people who are more liberal with their money would consider Lucinda to have a mental condition as they cannot imagine holding onto so much money without buying the next greatest thing.
It could be that Lucinda lives within her means, buys whatever she needs, and her income happens to be significantly greater than her required expenses. Or it could be an extreme, where she is a miser who puts saving money in front of all of life’s enjoyments. More than likely, it’s somewhere in the middle. But even so, is it wrong to accumulate that much capital just for the sake of accumulating? Or should one spend the extra money just because it’s available?
As the title of this blog suggests, we are focused on building wealth (and likely you as well) through saving and investing. I’m frugal, use many saving strategies, and a capitalist at the same time. As a result, we have surplus cash equal to a large percentage of our take home pay which is directed towards increasing our net worth. We may occasionally buy things that are slightly greater than our needs, but overall, we keep spending in check. Do we save too much money? Perhaps to some, but to me, it’s about living a balanced today while working towards a financially free tomorrow. Having money means security and buying certain freedoms. For accumulators, in the end, the money can be used as a legacy for the next generation.
So back to the question, can one save too much money? It’s a tough one to generalize, but I’ll give it a shot. My thoughts are that if someone is already frugal, saving too much is when they sacrifice the happiness of themselves and/or others for the sake of keeping more money in their pocket.
What are your thoughts? Is it possible to save too much money? What is your definition of saving too much?