Monday, June 15, 2015

Saving Too Much?

One of my favorite newspaper columnists is The Globe and Mail’s John Heinzl.  His ‘Yield Hog’ columns are full of great ideas for dividend investors and his ‘Investor Clinic’ pieces are always educational. His column from last weekend Yes, a person can save too much hit a nerve with me.

The article introduces the notion of ‘compulsive savers’ who have difficulty spending even after they have achieved financial security.  A financial planner indicates about a quarter of his clients have a hard time loosening the purse strings. Another financial planner explains that one way he overcomes the fear his clients face relating to spending is to show them projections which clearly indicate they can afford to indulge from time to time.  However, some clients still have irrational fears relating to money that cause stress and impact the quality of their relationships with their spouses.  The article ends with the following quote that succinctly summarizes the complex emotional connection that people have with money: Money can be very emotional and they are going to be set in their ways.”

My feelings regarding the article are mixed. I absolutely hate the example given below regarding a need to upgrade cars when you have the personal resources to do it.  For the record, my 12 year old Honda Civic continues to perform just fine, and I walked away from my only accident without a bruise. Furthermore, I’d be no happier if I upgraded to a new(er) car. In my case, the opposite would be true.

“Some people will continue driving an old beater that’s barely roadworthy, for example, when they could easily upgrade to a new model with all the modern safety equipment.”
My other main beef with the article is the notion that spending makes people happier.  I'd argue that as long as your basic food, housing, and clothing needs are taken care of, spending won't necessarily equate with increased happiness. Having deep conversations, taking walks in scenic places, and connecting with friends and family don't cost anything, but all will lead to a happier life. 
One the other hand, if obsessive saving leads to marital discord, or if you associate your worth as a person by the balance of your bank/brokerage account, you clearly have issues. I also enjoy the fact that the article at least introduces the notion that for some savers “spending money isn’t a source of pleasure”.  I count myself lucky to be part of this group. 
The main reason why this article caught my attention is that I’ve recently been asking myself why I’m saving such a comparatively high percentage of my income, and if I should take my foot off the gas a bit given I’m well ahead of my goals.  To be honest, I’m having a very difficult time coming up with a specific, rational answer to the first question. I’m closer to answering the second question; I just don’t know exactly how much pressure to take off the gas pedal.
Is anyone else out there wrestling with the ‘compulsive saver’ issues?

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