Obsessive Saver / Frugality Disease / Compulsive Saving Articles (3 Articles)
~ Wednesday, January 24, 2024 Blog Post ~
Article #1: 5 Signs You’re Saving Too Much (From GoBankingRates)
By Cynthia Measom, October 21, 2021
For many people, saving too little is the problem. However, for others, it’s the exact opposite because they are saving too much. Too much of anything can be dangerous, including stashing excess cash in a savings account or under a mattress.
But how do know if you’re putting too much cash toward savings? To help, consider these five signs that indicate your savings balance is out of control and learn how you can start being smarter with your money.
Why Is It Bad To Have Too Much Excess Cash?
“Cash is king except when rates earned on cash are low and the cost of goods you pay for are rising,” said Michele Lee Fine, RICP, founder and CEO of Cornerstone Wealth Advisory. “The world around you is getting more expensive, but your saved capital remains flat. Being in ‘too much excess cash’ has a cost called opportunity cost. You may be wealthy today sitting on a lot of cash, but as your cash balances remain level, they are not outpacing inflation and actually losing value. Inflation is a stealth tax, and if your savings don’t earn more than the inflation rate, your savings and its purchasing power is actually diminishing.”
Chris Kampitsis, from The SKG Team at Barnum Financial Group, agrees:
“If you keep all of your nest egg in conservative cash — it is near certain that it will lose some spending power every single year,” he said. “Think of the cost of a mid-sized sedan now versus thirty years ago. If you kept that cash in the bank the last thirty years, would you still be able to afford the same car?”
But people who are hoarding cash also need to think about why they feel the need to sustain this behavior. “What is this really about?” said Lisa M. Dieter, CFP(r), founder and wealth advisor, EmberHouse. “Do you need the cash to feel secure? Do you feel unworthy of bigger-ticket expenditures? What is in your money history that could explain the need for so much cash?”
Now that you know that having too much excess cash can be to your financial detriment, here are five signs you are saving too much.
You’ve Become Too Frugal
“Small spending can indicate compulsive savings,” said Hutch Ashoo, founder and CEO of Pillar Wealth Management, LLC. “If you have plenty of cash, yet spend minutes pondering whether to pay a dollar more for huge chips or medium-sized, your spending worry may be obsessive. While being frugal is admirable, don’t sweat the small stuff.”
Your Emergency Savings Fund Is Overflowing
Once you have at least three to six months of fixed expenses saved in your bank account, any more than that is unnecessary,” said Blaine Thiederman, CFP and the founder of Progress Wealth Management. “If you feel uncomfortable for whatever reason, you probably should contact a financial advisor (preferably a fee-only, fiduciary).”
If three to six months of emergency savings doesn’t seem like it will be enough, consider this helpful hint from Kampitsis:
“One rule of thumb is six months expenses for a dual income household and one year of expenses for a single income household.”
You Aren’t Contributing to a Brokerage or Retirement Account
“If you have a large cash balance in your bank account and aren’t contributing to a brokerage account or a retirement account, such as a 401(k) or IRA, you might be a compulsive saver,” said Laura Adams, MBA, and personal finance expert with Finder.com. “There’s nothing wrong with saving aggressively; however, if your funds earmarked for long-term goals aren’t earning a return that significantly exceeds the inflation rate, you’ll come up short.
“If investing makes you feel uncomfortable, remember that keeping it in the bank earning very little is risky, too. Most people will probably need more for retirement than they think because we’re living longer and could have reduced Social Security benefits in the future.”
You Deny Yourself Things That You Shouldn’t
“If compulsive saving gets too extreme, people can actually stop socializing because they don’t want to spend money going out,” said Matt Sexton, a small-business finance analyst and writer at Fit Small Business. “If it keeps getting more extreme, those people can deny themselves the essential items they need to survive in order to save. Those people should consider professional help as it has crossed over into a psychological issue from a strictly financial one.”
You Overthink or Over-Research Every Purchase
When you clearly have enough money to afford things you want but don’t need, yet you won’t allow yourself to purchase them without weeks or months of over-analyzing the purchase, you may be saving too much.
“For example, an attorney who bills at $300 per hour and spends weeks waiting on sales before buying a $200 handbag,” Dieter said. “When asked the question of ‘how much do you need in savings in order to safe/secure?’, the answer is either exactly how much they have today or never enough.”
What Are Some Investment Strategies To Consider?
Once you’ve established an emergency fund, it’s time to start investing. Here are some strategies to consider.
“For most, investing no less than 10% to 15% of your gross income in a diversified portfolio is the best strategy,” Adams said. “First, max out a tax-advantaged account to save the most in current or future taxes. Then if you still have more to invest, use a regular, taxable brokerage account.
“If you’re relatively young with a long time horizon before you plan to retire or spend down your investments, having a stock-heavy portfolio may be wise. Stock investments are relatively risky but offer higher potential returns. However, you can substantially reduce your investment risk by owning a diversified portfolio, where you spread it out over multiple investments, such as bonds, real estate and cryptocurrency, in addition to stocks and cash. That way, if one investment is a loser, you have other winners to count on.”
Source:
https://www.gobankingrates.com/saving-money/savings-advice/5-signs-youre-saving-too-much/
Article #2: Meet the Young, People Who Are Obsessive Savers (From Vice)
By Marris Adikwu, March 20, 2020
“I remember eating nothing but ramen noodles for weeks on end.”
Ethan has always had a weird relationship with money, and he’s often the first to admit this. It became obvious to him that he was not a regular spender when he went off to university and began to budget every single penny he had.
“I remember eating nothing but ramen noodles for weeks on end, and not going out with friends, just so I could save money and pay off my loans much quicker,” he says.
Coupled with his job as a teacher’s assistant, the occasional odd bit of work, and thousands of pounds in private scholarships that he applied for, Ethan was able to graduate debt-free. But he still finds it difficult to be easy with money. “I make a comfortable living these days, but that part of my life never really left,” he adds. “I rarely go out to eat, but when I do, I find myself constantly looking for the cheapest thing on the menu. I guess one could say I’m a bit obsessed with saving money.”
The benefits of saving are numerous, especially if you’re able to hack it in the current economy. However, savings culture also has a dark side to it — when it becomes addictive. We’ve all heard about compulsive spending, where people drive themselves into debt by splurging on luxury goods and vacations. But we don’t hear as much about the people on the other end of the spectrum, who have more money than they need, but cannot bring themselves to spend it.
Some signs you might be a compulsive saver are putting away money endlessly, with no actual end goal in mind; being unable to stop checking your bank account to see how much money you have, and having an irrational fear of spending money, even when you can afford to spend it. Since saving can usually be difficult, how do people get to the point that it’s taken over their life?
One of the main factors is a person’s upbringing. Derek Hagen, a certified financial behaviour specialist, says most people who grew up having little money develop a deep fear that there will never be enough, so they putting away money to control their fear. Others, he says, may be nervous that something bad might happen. They convince themselves that they are saving so much so they can be prepared for that situation. “We all have subconscious ‘money scripts’ that drive our behaviours, and most of these scripts are written when we are really young,” says Hagen.
Snezhina, a writer, came from a family where money had always been an issue. She attributes her obsession with saving to the frugality her mother practiced and taught her while she was growing up.
“My mother used to always talk about how I was only supposed to spend money on sensible and practical things,” she says. “We would never buy items just out of pure desire; the only things that we bought in our house had a clearly distinguished use.”
This mindset stuck all the way into adulthood. Snezhina currently has a stable job which allows her to freely spend as much money as she wishes, but the thing is that she doesn’t want to do that, or at least, she’s waiting for the right occasion to splurge.
“I still prefer to keep my salary away from the ATM. It’s not that I have something in mind for it, nor am I saving for a special occasion — it just feels better to watch the numbers in my bank account increase, instead of buying material things with it,” she says.
According to Dan Pallesen, a clinical psychologist and financial advisor, compulsive saving can be as much of an unhealthy financial behaviour as overspending. “Holding onto assets and resources is very adaptive,” says Pallesen. “To some people, it is a way to ensure their survival in a quite unforeseeable future. Many disciplined investors, for instance, spend their entire careers making sacrifices so that they can build a retirement nest egg that will last for a lifetime. The thought of spending it can go against their entire being,” he adds. This can undoubtedly cause a lot of anxiety.
Compulsive saving is said to be one of the symptoms of Obsessive Compulsive Personality Disorder (OCPD), and it is generally seen as a severe form of hoarding. Stewart, who works with a personal finance company, realised his inability to enjoy spending money is further heightened by his anxiety disorder, and both of these factors combined affect all areas of his life. “Instead of spending the money I earn, I find myself fixating on the hours of my life it took to earn it, and what it could mean for my financial freedom if I didn’t save and invest it,” he says.
However some people who have this habit see it as a kind of financial discipline. To them, it helps control their spending and encourages them to live within their means. Sometimes, it helps them build wealth. For Snezhina, the obsession with saving money is no issue — she feels very content with her life. “I don’t feel like I’m missing out on anything by not spending money,” she says.
But though compulsive saving poses no problem for some, when a person denies themselves basic necessities on account of saving money, or spends a lot of time worrying about managing their finances, it can be quite disruptive — to that person, and to other people who are close to them.
So, if you find yourself saving more than you’d like, how can you curb the habit?
“Just being aware of the problem can help,” suggests Hagen. According to him, fear around spending can be eliminated by starting out with small steps, like giving yourself rewards when you reach a savings target. Compulsive savers do not like to spend — even on themselves — so learning to purchase something you wouldn’t ordinarily buy, every once in a while, is a great way to get rid of the habit.
For Ethan, saving money is the one thing that keeps his mind at ease in a world full of uncertainty. But he would like to spend a lot of money on something nice for himself or someone else, without feeling a little guilty. “I hope I can eventually ease up, and learn to enjoy the money I’ve worked hard for,” he says. Perhaps that could mean feasting on a prime cut of steak, next time he dines out.
Source:
https://www.vice.com/en/article/3a8435/meet-the-young-people-who-are-obsessive-savers
Article #3: What’s your money personality type? (From WeMoney)
By WeMoney, September 8, 2021
It’s no secret that everyone approaches managing their money differently. In fact, there are a total of 7 money personality types that tend to cover the most common ways that we as humans manage our money.
Your unique money personality type impacts the way you view money, spend or save, and make financial decisions in general. Like all personality types, your money personality type is often learned from a young age, with traits resembling that of your role models, including your parents. However, they can definitely change over time and more than likely will differ depending on which stage of life you are in — If you’re a young adult you probably don’t mind spending money on food and drinks, whereas if you’re getting ready to settle down and start a family, there’s a good chance you’re living frugally and buying your groceries from Aldi.
If you have a certain goal in mind or are looking to improve your overall approach to money, then it is important to understand your personality type so you can learn the approaches that might work best for you. So, without further ado, here are the 7 money personality types:
1. The Compulsive Saver
AKA the hoarder
Everyone knows a compulsive saver — and if you don’t, you probably are the compulsive saver. Compulsive savers are constantly putting money aside without a specific reason or end goal in mind, but just generally feel more secure when they put money away. They are very frugal and find that saving money gives them peace of mind about the future.
If you are a compulsive saver, be wary of being too obsessed with saving that you never get to enjoy the rewards of the money you have saved. It can be really easy to forget that your money serves a purpose, and that purpose is whatever you make it. If you are saving up for a house, then holding onto your savings is important. But, if you are saving up for a holiday, then book a holiday as soon as you can.
We know that compulsive spenders are often afraid of losing money. The best general advice we could offer is that you need to remember that everything in life is about moderation — and that includes saving. Instead of mindlessly putting money into your savings, think about your future, and how you can best use your savings to get there. Putting a goal in place will make it all worthwhile.
2. The compulsive spender
AKA the cash splasher
Cash splashers are known for spending money on things they don’t need. Buying a new ball gown, without a ball to go to? Adding a fifth pair of sneakers to your cart even though they wear the same pair every day? That’s a cash splasher. Often accompanied with an outgoing personality and a love for treating your loved ones, it can be almost too easy to spend more than you earn. If you are a compulsive spender, you may also find that when you’re upset, your solution is to impulse shop, as a means to achieve instant gratification.
If this sounds like you, make sure you do your best to avoid going shopping, whether in person or online, so you are less likely to go on a spending spree ‘just because’. It is not uncommon for compulsive spenders to spend money they don’t have, which, in extreme cases, can lead to bankruptcy.
So, if this sounds like you, here are some things to keep in mind: Most importantly, do everything you can to spend less than you earn. The best way to minimise your risk of going into debt is to create a budget and track your spending to ensure you are spending less than you earn. We also like to remind ourselves that every time you make a purchase, there is a sacrifice you have to make for it — If you want to buy a new Apple watch for $750, and you earn $30 an hour, is that shiny new watch worth 25 hours of your time? Maybe it is! But you never know until you put your purchases into perspective.
3. The compulsive money maker
AKA the baller who wants to make it rain
There are plenty of people out there who see money as the meaning of life. And although we aren’t here to judge your money personality type, we want to ensure that everyone has a healthy relationship with money. Compulsive moneymakers tend to believe that earning more money is the secret to happiness, and therefore they spend most of their time and energy trying to make as much money as possible.
Our warning: please be cautious not to fall into the trap of sacrificing your health, relationships and overall happiness just to make lots of money and be rich. Chasing an early retirement or financial independence is a really great reason for working hard to earn money, but there definitely needs to be some balance in your life that prioritises your physical and mental health too.
We also want to remind any compulsive money makers that there is more to life than money. So if you have more money than you need, why not give your money some purpose? Treat yourself to a nice holiday, support someone you know who may be doing it a bit tough, or even donate to a cause that is important to you. Money is only as good as what you do with it!
4. The indifferent to money
Not too fussed about how much you earn or spend? This might be your money personality type! Those who are indifferent to money rarely think about money and absolutely despise the idea of creating a budget. Some may believe that money is inherently bad or evil, and should definitely not have any influence over the important decisions in life.
If you feel this way about money, be wary that there are definitely some consequences for not being responsible with your finances. It can be really easy to not take control of your finances, or let a partner take care of them for you, but there are some big risks to that, including falling into a big debt.
If you think this might be your personality type, don’t panic. The most important thing you can do is start trying. Make a point of knowing where your money is going; some to rent, some to food, some to ‘fun’ expenses, and do your best to spend less than you earn. It’s okay to spend money on the things you value, but it is important to try and limit that amount to be under your income, so you can build up some savings to fall back on if you need.
5. The saver-splurger
This money personality type shares common traits with both savers and spenders. They love saving lots of money, but then tend to impulse spend a lot of money at a time. When they dip into their savings, it’s possibly for unnecessary things that you don’t need or will rarely use.
If this sounds familiar to you, then we know that it can feel draining. Saving a lot of money and then splurging all at once can lead to feelings of dissatisfaction and even regret. In general, your money journey may feel like a roller coaster for you.
If you’re looking to change your money personality and improve your approach to finances, we have some general advice for you! It may help you to put some thought into what you are saving for, whether it’s a house or a new pair of shoes. If you set out some clear goals, it’s a lot easier to rethink your financial decisions before you impulse buy 7 new pairs of jeans that you definitely don’t need. The ‘bucket’ method is a really popular way of defining your saving goals and making it super transparent what you are working towards. Similarly, you may like to create multiple savings accounts, each assigned to one of your goals, such as “holiday”, “new car” or “new surfboard” so you don’t feel as guilty when you use that money on exactly what you saved it for.
6. The gambler
If you have the money personality type of a gambler, then you probably share some common traits with compulsive money makers and spenders. It can be really easy for gamblers to get lost in the thrill of risk and the promise of reward. They might gamble away their money for the purpose of escaping boredom, whether it’s lotto tickets, the pokies, the casino or even investing.
If you are a gambler, be wary of risking money that will have a substantial impact on your life. For example, it might be a risky idea to withdraw from your super to fund a chance bet. It’s also important to make sure that you don’t take more risks than you can afford. If you don’t have the money to gamble, don’t risk going into debt for it.
If you’re a gambler, be strict with yourself and the money risks you take. If it’s something you genuinely enjoy doing and don’t want to give up entirely, just set yourself a reasonable limit of how much you can afford to risk, and find balance in your financial risks — it may help you enjoy yourself even more.
7. The worrier
Ah, the dreaded worrier. No matter how much money they have, they are constantly worried that at any given moment they will lose it all. A lack of confidence in their ability to achieve financial freedom is accompanied by a constant obsession over the worst-case scenario of what will happen if they run out of money. This is an all too common money personality type, and we know how tricky it can be to go about your day to day life with constant money worries.
It is good to be aware of what could happen if you don’t plan for your future, so if you shift your perspective to an appreciation that you are prepared for the worst, it might help improve your attitude towards money. As much as it is definitely easier said than done, try not to let your fear of money overwhelm you and impact your current happiness. There is definitely more to life than money, and it’s important to keep that in mind whenever your fears start to overwhelm you.
Looking to improve your attitude towards money? Starting positive conversations around money is a great place to start. The WeMoney app has a great community feature where you can discuss your money plans, budgeting, savings hacks and more with people all across Australia. It may also help if you figure out where your money stress really comes from — Speaking to a professional, whether that be a financial advisor or a therapist, may help you change your mindset.
Sources:
https://www.ft.com/content/5e8da24c-bb09-11e6-8b45-b8b81dd5d080
https://www.investopedia.com/articles/basics/07/money-personality.asp
https://www.wemoney.com.au/blog/whats-your-money-personality-type
