The Dark Side of A Savings Habit
- Campfire Wealth
- Jul 25, 2023
- 4 min read
Written by: Campfire Wealth | Life, Money, Health
If you’ve read or received financial advice there is no doubt you have heard, “Save 20% of your income to achieve financial freedom!”
Sounds logical. Save and invest to grow your wealth. But there is a dark underbelly of developing a savings habit that nobody talks about.
It’s a downside to being frugal that can also compound over time just like your savings.
Let me share a story of a 92 year old client, named “Maggie”.
Seeking Simplicity
Maggie came to us looking for help. While she was still in decent health, she wanted to simplify and consolidate her financial life. Maggie was still quite sharp mentally, and kept written journals of her accounts and their values. She was an actuary during her career and still enjoys keeping the numbers.
But she realized that when she passed away, she would leave behind a tangled web of scattered assets. The executor of her will would have a real headache on their hands sorting everything out.
To complicate things even further, Maggie was not married and had no children. She planned to leave her inheritance to nieces and nephews. How many? More than you could count on two hands.
And the most amazing part? She had a net worth of over $5 million dollars.
Smart, Lucky, or Patient?
You’ve probably heard that there are three types of people who make money investing:
People who are smarter than everyone else
People who are just lucky
Or people who are patient
Of course for any of those to work you need some money to actually start with! So how did Maggie gather all that wealth?
1.) She saved, and saved, and saved. We’ll come back to this later….
2.) A little bit of luck… Maggie bought stock in the company she worked for back in the late 60’s and through the 70’s. Her employer offered stock purchase plans to employees, so she bought small chunks when she had the chance.
And this is where luck comes into play. You wouldn’t recognize the name of the company she worked for back then. But they were purchased by another company in the 80’s. She was compensated for her shares with the new company's stock.
This happened again a few years later with a new buyer.
Today she holds about $3+ million in stock. (And half of that is actually in paper certificates!)
The luck for Maggie? The company stock she bought continued to build value over 50+ years! A majority of companies over that time frame FAIL. No company bankruptcies and no cash buyouts.
3.) Patience paid off. She saved, invested and held. Compounding worked for her!
The Dark Side of A Savings Habit
Sounds like a great happy ending type story! A very nice, hard working woman accrues a fortune!
The downside to this story is that Maggie never spent money. She was so focused on saving she never took the time to enjoy life!
And now she plans to leave all that hard work, time and patience to her nieces and nephews after she’s gone.
We talked to her about spending money on experiences or things to enhance her life. Maggie had no interest. She said she was too old, and has no interest in spending money on herself. To me, that’s an not a happy ending.
Maggie had no interest in giving while she was alive. No desire to give to her nieces and nephews now so she could enjoy their gratitude. She built a fortune for someone else to enjoy.
If only we could have met with Maggie 50 years ago. She could have learned to balance her skill of saving with the skill of spending.
Saving Skills AND Spending Skills
Unfortunately we see this all too often with retirees. Their identity is that they are savers. Not lavish spenders. Frugal.
We encourage them to spend more money on experiences.
Give money to family while they are alive.
Spend on things that help buy back time and energy.
We had a retired couple with millions saved and they were reluctant to buy a new washer and dryer.
Another retired woman that just wanted a car wash pass, but thought she was splurging.
Saving is an amazing skill and an important part of any financial plan. But it must be balanced with the skill of spending.
We only get one life and therefore a finite amount of time on this Earth. Finding the balance of enjoying today and preparing for tomorrow helps us make the most of the time and money we have left.
How to find balance:
Set a reasonable savings goal. Most rules of thumb point to 15% - 20% of your income. If you don’t currently have a savings goal, start with 15% and see how it feels.
Set short term goals. Delayed gratification is hard. We need short term pay back for our efforts. Set a few goals that you would like to accomplish in the next 6 months. Focus on experiences or life enhancements (things that buy back time or bring great joy).
Set medium term goals. These would be goals that you want to check off in the next 1-5 years. These could be bigger goals like trips or something you’ve never done before. Typically these require more planning, time and preparation.
Add long term goals. Most financial plans on have long term goals. That sucks and it makes you feel like all you do is save. But that doesn't mean they aren't necessary. Typically these would be a target retirement age, building a business, or planning a larger celebration for a notable birthday or anniversary.
By having goals scattered into different time buckets, we avoid feeling like all we’re doing is saving.
You can enjoy shorter term gratification for your work efforts.
And lastly, you have a clearer picture of how to use your time and money resources to bring fulfillment and happiness.
Don’t forget to sign-up for our Life.Money.Health. newsletter below to receive FREE weekly insights into those areas to help in your quest to find balance.
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