Consistently saving money is one of the first and most fundamental financial lessons we must learn. But, is it possible to save too much? Come to find out, yes you can. And, it happens more often than you might think. While saving more money than you need seems like a good thing, there are hidden dangers of oversaving.
What is Oversaving?
In general terms, oversaving occurs when you are saving in excess. It happens a lot and can manifest at any stage of life. Sometimes it’s the result of not fully understanding your expenses. Other times, it happens if someone has an ingrained need to save.
From the perspective of retirement planning, oversaving becomes a problem if you are accumulating more than you need to support yourself throughout your golden years. It can affect your current quality of life and create an imbalance in your savings plan. However, smart financial planning can give you a blueprint to help you gain a more accurate picture of your future and avoid the hidden dangers of oversaving.
The 7 Hidden Dangers of Oversaving
Recognizing the patterns can help you avoid these 7 hidden dangers of oversaving.
1. Arbitrarily saving works against your financial goals.
Many people believe that saving alone is enough. Once they deposit the money into a checking or savings account, it sits in there, forgotten. While it’s good to have an emergency fund, blindly saving with no clear goal is counterproductive to your savings plan.
You should be doing more than just putting your money into an account. With the low-interest rates on these accounts, your money will actually depreciate in time. Therefore, it’s wise to find financial products that will increase your rate of savings. If you are oversaving, you need to learn how to plan for your long-term goals and put your money to work for you now.
2. Your retirement planning becomes too generalized.
Financial planning isn’t a one-size-fits-all kind of deal. You can’t rely on standard models and financial software to plan for the future. These tools have many built-in assumptions that don’t apply to everyone. So, you need the ability to customize your plan to help you prioritize what’s most important.
Online estimates and calculators can be extremely helpful for quick estimates. But, you shouldn’t rely on projections without specific context and a serious discussion with your financial advisor. Every financial is unique; your financial plan should be as well.
3. Looking for ways to cut corners in the budget could cost you.
It’s one thing to look for ways to save money. It’s another to force yourself to cheap out on things you need because you think they cost too much.
Although it may not seem like a big deal, it can impact your finances in big ways. When you try to cut corners on important things like insurance coverage, it can have devastating consequences. It’s not a good idea to skimp out and choose basic plans to avoid higher premiums. Being underinsured could leave you more vulnerable and cost you more than you could ever imagine.
4. Overestimating your retirement expenses can put a strain on your current situation.
One of the most common hidden dangers of oversaving that people encounter is the strain it puts on your current situation. If you are always focused on saving for the future, it can make it difficult to afford the here and now.
This frequently happens when people don’t do a deep dive into their finances to determine how much they will really need in retirement. People often overestimate their replacement rate and fail to account for additional income for Social Security and pensions. This leads them to think they need to save more than they will actually need.
In extreme cases, prioritizing retirement savings may come at the risk of not being able to afford much else. While saving should be a high priority, you should have to sacrifice small things that improve your quality of life now.
5. It can add unnecessary financial stress.
If you are a chronic oversaver, you are probably creating unnecessary financial stress in your life. Living as if you are constantly struggling so that you can put everything away for retirement means that you never get to reap the benefits of all your efforts.
This tendency to always save for later creates a lot of financial pressure that may lead to a lifetime of resentment and regrets. If you are too focused on saving for the future, you can’t live in the present.
6. If it isn’t addressed, it could turn into a fear of spending.
There comes a point when oversaving crosses the line from frugal into a cause for concern. When someone becomes obsessive about saving or afraid that they are on the verge of financial ruin, it may be a sign of a deeper-seeded issue or phobia that require professional attention.
For example, you should never deny yourself basic items to save money. Nor should you feel guilty about buying things you need. If you or someone you care about are exhibiting these behaviors, it may be a good idea to talk to someone about their relationship with money.
7. Oversaving comes with the risk of regrets.
Financial planning is an important step toward a comfortable retirement. However, building wealth and saving for end-of-life expenses isn’t the end-all-be-all. If you plan ahead, you should be able to have enough resources to afford the life you want, both before and after retirement.
However, oversaving could leave you looking back with many regrets. If you are sacrificing things you enjoy, it’s time to reassess your financial plan. The best parts of life require you to take a break so you don’t overwork yourself and can enjoy it with the people you care about. When you are preoccupied with saving money, you miss out on important moments in life. Although it’s important, no amount of money will ever buy you more time.
Striking the Right Balance
So, what should you do if you are oversaving? The best course of action is to discuss it with your financial advisor to help you strike a balance with your savings.
The first step is to do the math to determine how much you will actually need. While the calculations aren’t exact, they will give you a more accurate picture of your future. If you are always focused on the future, it’s hard to enjoy today. Therefore, knowing the hidden dangers of oversaving can help you have a better quality of life after retirement and allow you to live better now.
- 7 Signs That You Aren’t Saving Enough For Retirement
- The Best Retirement Accounts to Start Saving
- Terrible Investing Advice You Should Ignore
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.