Is there Such a Thing as Saving Too Much?
By Erica Sandberg
September 11, 2012
Is there ever a time when it’s not a good idea to save money? Right now, I have money automatically going to an emergency fund, my savings account and an account specifically set up for car expenses, and I feel like I’m not leaving myself any discretionary cash. I know it sounds stupid to worry about saving too much money, but I feel like that is what I’m doing. How do I save money and not go crazy?
Your letter reminds me a bit of the people who fanatically get ready for doomsday. These “preppers” spend their days and nights hoarding canned goods, building shelters and strategizing against the upcoming zombie invasion.
Don’t be like them, Elizabeth. Life is for living! Yes, earn and save, shop wisely and stay out of debt. But also enjoy the fruits of your labor today. The key is balance, and here’s how you can achieve it.
- Analyze your current cache. Common wisdom is that we all ought to have between three to six months’ worth of necessary expenses in an easily accessible account. Therefore, if basics like rent, utilities, food and transportation total $2,000 per month, a healthy figure to aim for would be at least $6,000. This emergency fund would prevent you from having to tap into a credit card or borrow from friends if you lose your job or if an unexpected expense comes up. If you’ve socked more than the recommended amount away, you can probably ease up a bit on contributing to that account.
- Don’t neglect retirement. Have you begun planning for your later years? If not, and you’re ready to reduce contributions to your emergency fund savings, do so now. Take advantage on your employer’s tax deferred plan if it offers one, and contribute the maximum to it. If it doesn’t, do it yourself with an individual retirement account (IRA). You’ll reduce your taxable income now, and make sure your future is financially secure.
- Loosen up your budget. Now get ready for comfort and fun! Examine what you’re currently spending money on to identify the areas where you’re pinching too hard. Perhaps it’s groceries, and you’ve been denying yourself the fresh, organic (and sometimes pricey) produce you crave. Or maybe you want an updated wardrobe or to see more movies. Think carefully, then assign a more robust figure to the line items that will make you happier.
- Redirect excess cash to saving for other goals. If you still have additional money to play with, use it for items and experiences you would like to have later on. You may want to buy a new car or house at some point or to travel to distant lands. Open a separate account and save for large down payments on the ultra-expensive things that you’ll be financing, or the entire cost for the more affordable ones.
- Let plastic help your bottom line. When used correctly, credit cards are financially advantageous tools. In fact, charge with the right kind of card, and you can make money! Obtain an account that offers cash-back rewards on purchases. Charging with it correctly (maintaining no debt) will add desired dollars to your wallet.
- Create a crazy-good credit score. In the event you do want to buy something very expensive (such as that new vehicle or home) that will require a loan, you’ll want an excellent credit rating. A high FICO score will be a major factor in you getting a low interest rate, which can save you big bucks over the long-run. To build a great score, charge regularly and pay on time and in full. Keep other obligations, such as student loans, in good standing as well.
And that’s basically it. Monitor your budget and balances, then save and spend sanely. And go ahead, splurge on the occasional mani-pedi or lobster roll! The zombies will wait.
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