Asked on 25 Oct 2020
The best optimal scenario is to die with zero savings left and just sufficient enough to live through the years of your life. But how do we know if we are oversaving?
Thanks for bringing this up! I never actually knew that oversaving was a thing. I went to read up a bit about this and here's what I found.
Oversaving refers to allocating too much money into one's savings. This is actually one of the mistakes that people make when trying to plan for retirement.
Oversaving can sometimes stem from and can enhance anxiety, stress, and burnout. It often comes from a fear of scarcity.
According to an article from The Business Insider, the potential issue with oversaving for retirement is that if you're saving without any specific goal in mind, you're likely compromising on the goals you probably want to accomplish between now and retirement.
Reading this immediately reminded me of a question posed by our Seedly Community member who was saving 65% of his income, largely only spending on his wife and kids, and was starting to lose motivation in life.
So, while saving money is definitely an important skill, if it’s taken to an extreme, you deprive yourself of a vital quality of life: the happiness that spending money brings – for things that truly make you happy (e.g. treating your friend a birthday meal, booking a Grab for your grandparents to travel with ease, or maybe even just buying that shirt for yourself that you really like).
One way to check if you're oversaving for retirement, would be to project your current retirement savings amount, along with your savings rate. This tells you how much money you're on track to retire with, compared to how much money you need or want to be on track for. You might even be on track to retire even earlier than planned.
Hope this helps and thanks for helping me learn as well! :)
That is a great question. For me, I know that I am over-saving when I did a projection on my income earning, my spend and savings, and my investment returns (indexed returns, so fairly conservative at 7% p.a).
I realised that I am going to retire with more than $5 million which is way more than I can spend as someone frugal.
Friends who know me since secondary school days know that I am a compulsive saver/ savings account maximiser/ miles chaser and that I invest aggressively and consistently as well. They probably think that I am an over saver and go too crazy on the delayed gratification part of life.
I think over saving is a virtue when you are young, especially if it gives you peace of mind to pursue your personal passions that are higher risks. Because of my savings and investment habits, I have the confidence to join and invest in a startup that I believe in, and that is probably a by-product of what people may think is "over-saving"
Picture borrowed from this great article from The Woke Salaryman, which is highly relevant to your thoughts!
Saving up fanatically without a plan would be over-saving. Saving up while sacrificing necessities is over-saving. Saving up while sacrificing luxuries may or may not be over-saving.
Saving up a lot of money (1M65) with a plan is not over-saving but being the ant in "The Ant and the Grasshopper".
If by 'oversaving' you also 'underinvest' then that's a serious issue as you are going to lose out on the long run to inflation.
Determine the optimal amount of money you should have in the bank, either one year of your average monthly expenses or salary.. any amount beyond that you'll should look at putting in an instrument that has higher rate of interest vs the average inflation rate (about 2%).
Is there such a thing as over-saving?
If you look towards Mr Heng's statements, we used up many years of reserves to provide for the budget reliefs to help our economy during the current pandemic. Some countries right now don't even have the capacity or resources to keep covid under control, let alone their economies.
While you can be certain of how much you saved and have stashed aside, it is rather difficult to predict the same for our circumstances when adversity is upon us.
Just addressing retirement, how many people know when they would die? As an example, you take the average life expectancy of 85-89, as the possible time to let your savings run to zero... But what if you actually live to 105, and have little to nothing to spend between the age of 90-105? Can you imagine what life would look like then?
What if your standard of living then becomes dependent on the amount of subsidies, relief and charitable help you get?
Would you then decide to err on the side of caution?
Just like a saying of Warren Buffet that my friends have been telling me... Its better to be roughly right, than to be precisely wrong.
Saving is a term most of us asians can relate to since its a concept that was etched into us since young and if we were to look at our parents and above, majority of them(not financial savy ofc) saw saving as a safest form of protection for their future generations. It was only until the Internet was introduced and people started understanding how saving keeps you alive but doesn't make you rich and so came many ways to break that barrier.
Tbh, oversaving can lead to more bad scenarios than good ones since it usually involves giving something up at an extreme rate so as to save money as seen in that guy who got some issues because of him oversaving. You can only give up that amount of things before you realise whats the point of saving so much if you wont be able to enjoy it?.
Comparing a couple(30) who earns 5k each vs another(30) who earns 2.5k, the 1m65 cannot be applied accurately to the latter because of their situation and if it could, it would come at a huge cost and im sure you all know the reason. What everyone needs to do is to adjust their lifestyle to their income with a little additional spending here and there. If you can reach 1m65 then good for you. If you cant, living within your means is also a good job.
To end, make sure to have min 12months,24 if you are kiasu of savings, sufficient insurance covered for yourself/dependents, investments(simplicity) w low fees if possible, enjoy the little things(friends/families/hobbies etc but at your own means).
Saving 'too much' could be bad for the economy, haha, but not for your own economy I believe.
Zero savings at one's departure from this earth could be less optimal. If you let something for your descendants or a good cause, you could gain a ticket to heaven.
It is sometimes hard to resist peer and media pressure to buy unimportant things, situation fueled up by modern capitalism (that has it's advantages) and globalization. The trend is toward technocracy - and I believe - dehumanization and reification.
We, in our own small world, should strive to keep upright core human values and needs, not artificial empty materialism (luxury 'things', e-devices, ...) (difficult for me too, constant challenge)
in probably difficult times (Covid, and more so midterm future wave of widespread loss of jobs b/o automatization/AI in many professional fields), I believe there is no 'oversaving' when you still cover your basic needs and support your family and friends.
Also: what is the definition of oversaving ?
Wei Sheng, Health Management And Promotion at Republic Polytechnic
Answered on 25 Oct 2020
I don't think there is a definite answer as to whether we are oversaving. I would say its better to err on the side of caution and save a little more than what's necessary.