Tag: Balance

Can You Save Too Much Money?

This question recently came up, and I’ve been noodling on it ever since. My whole adult life, I’ve been following the habit of maxing out my RRSP, my TFSA, and saving another chunk of my paycheque in my non-registered investment account. However, yesterday, someone asked me what I was saving it all for and whether I would still be able to achieve my retirement goals if I saved slightly less and spent more money in my day-to-day.

Mind blown!

In all honesty, I have never seriously considered that possibility. When it comes to my own money, I’m very rigid and allow for little, if any, deviation from my money rules. I wanted to hit certain savings targets in my life, and I’m pleased to say that I’ve hit them. It simply never occurred to me that doing so would mean that I would be saving too much money.

Bridget Casey, Ramit Sethi, and Bill Perkins are three people whom I’ve started following online in the past few years. Each of them, in their own way, discusses the importance of operating from an abundance mindset instead of a scarcity mindset. All of them encourage their readers/followers to live a rich life today and to avoid putting off today’s happiness to save for tomorrow’s.

It was brought to my attention that, though I read those books, there’s a very, very, very teensy-weensy, itty-bitty, little chance that I might not be putting their advice into practice. It’s quite possible that I’m operating from a scarcity mindset. Maybe I’m operating out of a place of fear that I won’t have enough, despite all the evidence to the contrary? A very wise and very good friend has suggested to me that I’m in a position where I have enough invested for the future. (Truth be told, I’ve heard that same message or a variation thereof from other people who love me.) The suggestion was made that continuing to save for tomorrow will prevent me from having what I want today. My friend’s words threw me for a loop and I’ve been thinking about them ever since she uttered them.

So again, my question is can you save too much money?

This question leads me to more questions. According to calculations I trust, I will die with several million dollars in the bank if I stick to my current Rigid Rules. I’m a Single. No spouse, no kids. Strictly speaking, I have no natural heirs of my own issue. Does it make sense for me to die with that much money when I don’t have my own children? Isn’t there the slightest possibility that I could cut back on my saving right now and let my current investments ride? After all, I would still die with a nice fat cash-cushion, but I could have a little more fun along the way if I spent more of my money day-to-day.

Yet that viewpoint leads me to the next question that I think is important. Am I unhappy with how I currently spend my money?

My honest answer is that I’m not. In all honesty, when I want something, I buy it. Do I save for it first? Generally, yes – saving comes before spending. Do I stop or reduce my investment and retirement contributions to spend money? No, never. Is this a bad choice?

Until yesterday, I would have emphatically said “No – it’s not a bad choice.”

Today, I’m not so sure. If my retirement will still be quite comfortable, even if I spend a little bit more today, then does it make sense to continue with the same savings habit? Alternatively, should I be forcing myself to spend more money today just because I can?

The goal of life isn’t to simply die with a whole lot of money. Even I can appreciate that such a life is a wasted one. I don’t feel that I’m wasting my life by following my Rigid Rules. Right now, I go out with my friends. I travelled a lot before the pandemic. I spend a lot of time with my family. Buying what I want, when I want isn’t an issue. Could I spend more money on stuff for the sake of doing so? Sure, but I don’t want to fill my house with stuff that I don’t need or won’t use.

My whole life, I’ve been a money planner. I’ve been saving since I was a small child. My parents started us on an allowance. When I started working, I kept up the habit. Never once did I question whether I was doing the right thing by saving something from every paycheque. As my paycheques grew, so did the percentage that I saved and invested. Lifestyle inflation was never a problem for me. Living below my means has always be my guiding financial principle. I created a very large buffer between myself and the financial edge.

Now, I’m entering the second half of my life. The lessons that got me here might not be exactly the right ones to get me where I really want to be. It’s time for me to consider the possibility that I’ve moved into the “and” stage of my life. Up until now, I’ve always believed that I have to choose between various options. However, it’s starting to come to my attention that maybe there are situations where I don’t have to choose. Maybe I’ve reached a point where I can have both.

I can spend money today and still retire comfortably. It might be time for me to force myself to spend, in just the same way that I forced myself to save. Maybe I can cut my daily saving amount and still reach my financial goals. I get one life, and I want it to be as good as I can possibly make it. This means that I need to get back to assessing if what I’m still doing will continue to be the right choice. The strategies that I employed when I was younger may not be the strategies that will benefit me going forward.

Can you save too much money? The question will stick with me for a good while. I’m happy with how I live my life, but I have to consider the possibility that I could be happier. There’s a chance that I could be spending my money in a way that brings me more joy today while still ensuring that I’ll be taken care of tomorrow. And that’s the goal that I should be striving to fulfill.

F.I.R.E. – A Refreshing New Perspective

For those who don’t know, F.I.R.E. is the acronym for Financial Independence, Retire Early. It’s a financial point of view that has gained traction in the past 10-15 years. People live significantly below their means in order to grow their money as fast as possible until they no longer need to work. Once they hit that point, they are considered financially independent. If they wish, they can choose to retire early at that point. There are a multitude of websites and blogs devoted to the F.I.R.E. way of life. I will admit that my personal finance coming-of-age was heavily influenced by the initial hardcore tenets of FIRE.

For a long time, I easily adopted the face-punching viewpoint of Pete who runs Mr. Money Mustache even though I was not going to give up some of things that he clearly eschewed. For a little while, I was also enamored with the draconian thriftiness espoused by Jacob’s on his website, Early Retirement Extreme, even though I would never choose to live that way. I was constantly searching for stories of people who lived well-below their means because I wanted to see how far I was willing to go to have money for my investments. When I found a poster on YouTube who only ate once a day in order to save money for investing, I realized that I had limits. Starving when you don’t have enough money is one thing. Purposely starving yourself in order to invest money is offensive to me. I decided to stop seeking the extremes.

Lately, a refreshingly new perspective has emerged. In my view, it is healthier and more welcoming than what I learned. The concept is an homage to living your best life while investing your money. Your money should be used to make your life as good as possible. This doesn’t mean going into debt. It doesn’t mean working forever. It does mean being laser-focused on that which is most important to you. Debts eventually get paid. Salaries increase, one way or another. Consistent contributions to investments will churn out capital gains and dividends. At some point, the gap between the cost of your monthly necessities and the cash flow coming to you will widen to an appreciable amount. This is called your disposable income. The new perspective is about figuring out how to spend that disposable income in a way to brings the most joy and happiness into your life.

I find the new perspective more persuasive than I would have even 5 years ago. One of my biggest challenges is finding balance between living today to the fullest while saving and investing just enough for tomorrow. Two authors come to mind. They’ve articulated ideas about living each day to the fullest, without ignoring the onus to take care of Future You. Specifically, I’m thinking about Ramit Sethi of I Will Teach You To Be Rich and his exhortation to live your rich life now. The other author is Bill Perkins, who has encapsulated the essence of the new perspective in his book book, Die With Zero.

What I like most about the new perspective is that it offers a sense of balance. It gives people permission to enjoy the present, and to enjoy spending a little bit of money today. The new perspective recognizes that time is fungible – once gone, it can never be reclaimed. Accordingly, everyone should figure out what is most important to them and spend their money accordingly in order to maximize the utility of their money while securing their financial future.

Ramit Sethi encourages people to pursue their rich life today. As I understand his message, he doesn’t want you to wait 10-15-20 years to start living well. He wants you to determine what you want and to figure out if you can incorporate it into your life today. Mr. Sethi advises people to ruthlessly cut out the stuff that doesn’t matter so that they can focus their money on the things that do.

I love this idea! For my part, cable TV is unimportant. I cut it out of my life 8 years ago, and I don’t really miss it too much. I can’t host Grey Cup or Super Bowl parties, but that’s the extent of the drawbacks to not have cable in my home. What I do love is traveling to new countries. Before the pandemic, I was able to fund 3 trips to Europe in the space of 4 years. For me, that was a huge accomplishment. My rich life definitely includes travel!

In Die With Zero, the author’s position is that dying with too much money means that you have deprived yourself of experiences that could have enriched your life. This book really challenged my views about spending, saving, and investing my money. Truth be told, my mind was blown! First of all, how could a person die with too much money? Was that even a thing? I really had to slow down and contemplate what the author was saying.

Speaking only for myself, this book forced me to consider whether I was spending money in ways that made me happiest. I’ve been saving consistently since age 21. I’d finally visited a fee-only financial planner to get an objective opinion on whether I could hit my financial goals. (The answer was a resounding “Yes!”) By the time I read Die With Zero, I was comfortably past the Coast F.I.R.E. point in my money journey. I was ready to contemplate the idea that I might not have been using my money in the best way possible. After reading this book, dying with un-spent millions no longer seemed like the wisest choice.

It’s truly not my intention to be the richest person in the graveyard. There are experiences that I’d like to have which will require me to open my wallet. Though I’m not entirely convinced that I should die just as my net worth hits $5.47, I appreciate the ridiculousness of dying with millions of dollars to my name. That money will only benefit my heirs. The opportunity for me to benefit from the money dies the moment that I do. While I intend to leave something to my heirs, I want to help and not hinder. There is an intrinsic value in attaining your own personal goals. I won’t deprive them of the chance to experience the pride of accomplishment.

Right now, I’m still searching for the sweet spot. In my humble opinion, the new perspective is going to gain traction. There are those who hate their jobs and want to leave as soon as humanly possible. To those unfortunate masses, I encourage you to change jobs or find a new career. Life is too short to be miserable at work. If changing jobs isn’t an option, then know that I completely understand why you’re willing to sacrifice time today and gamble that you’ll have the time tomorrow to enjoy your money when you eventually do quit.

There will always be hardcore adherents to the “sacrifice everything in the short-term to retire ASAP” view of F.I.R.E. However, that path to financial independence and early retirement is not palatable to everyone. As with most lessons to be learned in life, it is up to each of us to take what we need and to leave the rest. We alone are the ones who know best what we truly desire from our precious time here on Earth. We owe it to ourselves to learn new ideas, try them out, see if they work, keep them if they do, discard them if they don’t, and to do it all over again.

Spend Some, Save Some

This most excellent advice came to me from a highly trusted source – my mother.

While we were on our most recent vacation together, I asked her what she believed was the most important lesson to learn about money. In four words, she summed up the cornerstone of every personal finance blog I’ve ever come across: “Spend some, save some.”

For those of you who already peruse PF-oriented blogs, you’ll immediately recognize this alliterative wonder as the admonition to always live below your means. Living at your means, and living above you means, always ends with the result of not having any savings set aside for investing. My mother’s four little words are the bedrock upon which all wealth is built.

Please do not let her mantra mislead you. I can assure you that my mother is is not some penny-pinching old lady who resents the fact that she has to open her wallet. My mother loves fun! She enjoys her family and her friends – she entertains and she travels. My mother is the one who advises strangers at the casino to bet big money, if they can afford it, in order to score the big win. At the same time, my mother doesn’t have a mortgage on her home – she follows the stock market more diligently than seminary students study the scripture – she is always “finding” money that she didn’t know she had. And how does she accomplish this day after day, month after month, and year after year?

The woman lives by her mantra – spend some, save some. My parents were not rich people and they were not university-educated. They were regular people who didn’t earn big money. They had the same struggles as everyone else in raising their family and meeting their goals. When I was growing up, my father put my mother in charge of the household finances. Every two weeks, he got paid and he would sign his cheque over to her. (Back in the day, banks would cash signed cheques without too much fuss. For those of us who’ve known online banking our whole lives, trust me when I say it was a different world – today, no bank would ever do this for its customers!) When his company went to direct deposit, my father’s paycheque went straight into my mother’s bank account and they never fought about money. I’m not being cagey – my parents never had a joint bank account. His money went straight to her bank account, as did the money she earned from her job. It wasn’t until my first full-time job, as a bank teller, that I even realized that joint bank accounts were actually a thing!

So, every two weeks my mother got my father’s paycheque. And every month, she would write out what bills had to be paid. The money came in, the bills got paid, the groceries were purchased, the mortgage was serviced, long-term & short-term goals were funded. It worked like clockwork. Both of them had pensions, but they still ensured that they put money away in their RRSPs every year. They also wanted my brother and I to go to university, so every payday meant that $10 from my father’s paycheque went into our bank accounts so that we could buy Canada Savings Bonds each fall to finance our post-secondary education. As an aside, that $10 bi-weekly contribution grew to be substantial enough to cover 6 years of post-secondary for me and 9 years of post-secondary for my brother. We grew up in the 80s when inflation was high and Canada Savings Bonds were paying double-digit interest rates. Tuition was a lot cheaper in the 90s when we went to school, so our parents “little” investment plan allowed them to achieve one of their biggest goals for their family.

What other benefits came along with the “spend some, save some” philosophy?  If there was an emergency, the money was in the bank to pay for it. Renovations were made to the family home. Birthday parties took place every year without credit cards bills hanging around. There was always money for a movie and snacks with friends. Money was set aside for retirement accounts and investing accounts. (Investment accounts generated dividends that were invested, never spent!) An annual vacation was a given in our household. We spent many an hour in the car driving all over the place to visit family and friends, and to see this great big country of ours. Every few years, we’d even take a trip by airplane. The “spend some, save some” mantra meant that there was a balance between spending money now and spending money later. It also meant that there was always money somewhere: in a wallet, in the bank, in a retirement/investing/emergency account, in the change-jar in the corner of our kitchen.

We live in a world where the AdMan is always, always, always exhorting us to immediately cave to temptation. We’re encouraged to spend every penny we have, and even those we don’t, right away. Personally, I believe that the relentless tide of advertising is one of the many factors leading to the debt burdens of so many people. Adopting my mother’s mantra to “spend some, save some” and repeating it to myself every day is one way to fight back against the tide. It wasn’t until I was grown up that I realized just how well my parents managed their money – they had mastered the art how to live day-to-day while simultaneously saving money for both short-term and long-term goals. Thankfully, I’ve learned to do the same.

What about you? Have you made it a priority to “spend some, save some” in your life?