The first piece of financial advice we receive as children is to “save your pennies.” Although this is a good standard for most people, there are times when penny-pinching can affect your mental, physical, and fiscal health. Here are 7 bad effects of saving too much money to watch out for.
7 Bad Effects 0f Saving Too Much Money
1. Your savings isn’t working to your benefit.
If you are hoarding your cash in a checking or savings account, then you aren’t putting your money to work for you. Traditional checking and savings accounts earn little interest. Even high-yield savings accounts don’t offer great returns. So if you let your money sit in these accounts, it could actually lose value over time due to inflation.
While convenient to park your money in these accounts, there are other ways you could use the money that would offer a better return on your investment. Allocating funds into a brokerage account, real estate, or learning a new skill will all increase your net worth faster and help you reach your savings goals more quickly.
2. It creates an unhealthy relationship with money.
The desire to save and be frugal is usually a good thing. But too much of a good thing can quickly turn into an obsession. Picture Ebenezer Scrooge and you can understand my point. The need to save creates an unhealthy relationship with money, putting you in an endless cycle to accrue more wealth.
The first indication is when saving money becomes the primary goal instead of the means to reach them. Rather than celebrating and utilizing the money when they reach their financial goals, some people simply increase the amount, putting the ultimate goal just out of reach. If you are constantly striving for an unattainable goal, you may be suffering from one of the bad effects of saving too much money.
3. Some people who put too much focus on saving money neglect their basic needs.
Frugality can be helpful when living on a budget. But, it can indicate a larger problem if it is physically painful to spend money. Many psychologists explain that it is a fear born from trauma or childhood conditioning that they will go broke. For these people, even the thought of spending money can induce anxiety, guilt, or pain.
While it’s good to be conservative in your spending, you shouldn’t neglect your health or basic needs. The most obvious sign is when people avoid going to the doctor or buying things they need. Others will always go for the cheapest option rather than investing in higher quality. However, sacrificing your well-being is not only bad, but perhaps one of the worst effects of saving too much money.
4. Even when you have enough, you still continue saving “just in case.”
Learning how to save is a fundamental financial lesson. But recklessly saving can be just as harmful as irresponsible spending. Rather than stashing everything in an emergency fund, you should know what you are saving for.
When saving money becomes the focus, it creates an imbalance in your priorities. Make sure you have enough to cover your financial obligations, maintain your squirrel fund, and invest in your future. However, stashing away all your extra cash “just in case” is counterproductive to your savings goals.
5. The need to save could cause you to miss opportunities.
No one can deny that saving money is an important tool in building your financial future. However, most savvy investors will tell you that you have to spend money to make money. So instead of hoarding it in low-interest savings accounts, you could look for new investment opportunities to grow your wealth.
Furthermore, if you only focus on saving, you never have the opportunity to enjoy your money either. There is no need to sacrifice your quality of life to save money. Remember, we work to live, not live to work. Don’t become a Scrooge and deny yourself simple pleasures or pass on good opportunities when they come your way.
6. You can’t access retirement savings before 60.
Unfortunately, it’s difficult to know how much you’ll need for your retirement years. An online retirement calculator can help you plan, but can’t tell you exactly how much you will need. It’s impossible to predict future market conditions, inflation rates, or which medical conditions you may develop. Therefore, you never know how your financial needs may change.
Make no mistake: contributing to your retirement funds is important. But, you don’t want to over-invest and shortchange yourself now of money you actually need now. If you lock up all your funds in your retirement accounts, you won’t be able to access them before age 60 without paying a penalty. So if accessibility is a concern, you may want to re-evaluate your savings strategy.
7. You may never get the chance to spend it.
Lastly, those who spend their entire lives scrimping and saving may never get the chance to spend their money. The need to save is so deeply ingrained that they never transition from saving to spending mode, even when they enter retirement.
You never know when your time will come. So, if you don’t take the opportunities when they present themselves to enjoy your money, you may never get to. Rather than looking back with regrets, weigh the value of saving your money against the experiences or other benefits of spending it. Most people realize that the “unnecessary expenses” and experiences are what make life worth living.
While it is a cliche, the key to anything is finding balance. Creating good savings habits will get you ahead in life. But, there are bad effects of saving too much money you should consider. You work hard for your money. Although you must take care of your personal need, you shouldn’t feel guilty for spending some on things you enjoy.
However, you need to honestly assess your finance and establish spending habits that suit your lifestyle. Make sure that you have what you need for future expenses, but you don’t want to sell yourself short and miss out on things you really want in life.
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.