One of the biggest mistakes people make when saving money is saving too much of it. I’m sure you’re scratching your head and thinking, “What are you talking about, Raya?!” But it’s true! You could be saving TOO much money.
Before you click away, hear me out…
It’s possible to save too much money when your saving hinders other areas of your life—saving money the right way is an art and a science. The good news? Anyone can master it! Check out 6 signs you’re saving too much money and start mastering the art of saving effectively.
6 Signs You’re Saving Too Much Money
#1 You’re saving money just to take it right back
The first indicator that you’re saving too much money is if you’re constantly pulling money out of your savings, especially to cover bills and spending. If you constantly have to use your savings to pay for your living expenses, you were putting too much money into savings to begin with.
Take a step back and review your budget. After all of your bills and expenses are covered, what amount do you have left? From that amount, allocate money to fun spending and the rest to savings.
The amount that’s allocated to savings is what should be going into savings. Anything more, and you’re doing it at the expense of other bills and spending.
#2 You’re saving money but living paycheck to paycheck
Saving money to live paycheck to paycheck is counterintuitive. We should be saving money so we don’t have to live paycheck to paycheck!
Do you find that you have your money saved, bills are paid, but have nothing in your checking account a few days before payday? If so, you could be saving too much money.
While you don’t need a whole lot of money in your checking account right before payday, you do need something. You never know what bill or expense could pop up. You can try reducing how much you have going into savings, or see if you can reduce spending in between pay periods.
If your spending is pretty controlled, then slightly reduce what you put into savings.
#3 You’re saving and haven’t focused on aggressively paying down debt
There’s a caveat to this one. You’ll want to have SOMETHING saved before aggressively paying down debt, but it doesn’t have to be a large amount.
I typically recommend clients save $500-$1000 before focusing on debt. Depending on your situation, do you need a little less saved ($500) or a little more saved ($1000)?
If you have well over $1000 in your savings and are still putting money in but you have debt (especially credit card debt), then you’re saving too much money. Actually, you’re losing money.
You’re likely spending more on interest with your credit cards then you are gaining interest on the money in your savings account. Funny how that works.
Get $500-$1000 saved and then shift your focus to paying down debt. You can get further by focusing on one goal at a time.
#4 You’re in a good financial place but never spend money on yourself
Hear me out. Saving money is always wise, but enjoying life (in moderation) is wise too, and makes for a happier life. You’re saving too much money if you’re in a good financial place but never treat yourself to anything.
You’re a robot: Save. Spend on bills. Repeat. Sound familiar?
Life is too short not to enjoy yourself on occasion. Include fun spending in your budget, so you know you can afford it and it’s already planned out.
Even if you reduce your savings slightly to ensure you can have some fun, it will be worth it in the long run. You work hard for your money, so you should be able to enjoy it.
#5 Your budget tells you you’re saving too much money
This is probably one of the easiest signs you’re saving too much money: your budget says you are! Your budget should outline all the money coming in and going out monthly. When you know what’s coming in, you can make sure that the amount that goes out stays under that number.
If your budget is telling you that after all of your bills and spending is covered, you have $500 left, then it doesn’t make sense to allocate $700 a month to savings.
Let your budget dictate what you can afford to save, and you’ll find that you save exactly what you’re meant to. You can always bring in more money to put into your savings as well.
#6 You have a stacked savings but no investments
While I do believe investing is a form of savings, for the sake of this sign, let’s look at them separately. If you’re debt free, have money constantly going into your savings account, and have an emergency fund of 3-6 months’ worth of expenses, but nothing invested, that’s a problem.
Investing is one of the best ways to build wealth, but people often avoid it because they’re scared or don’t know where to start. The good news is that it doesn’t take much to get started with investing!
All, or a portion, of the money you currently have going to savings can be reallocated to investments. I think Betterment is one of the best places to start.
You’ll find that investing can be more fulfilling and exhilarating than regular savings. Your money makes so much more when it’s invested.
Related: How I’m Saving $1400 a Month
Now do you get it? You could be saving too much money if it’s at the expense of something else (your debt, your livelihood, etc.). If none of the scenarios above applies to you, then keep doing what you’re doing!
If you are saving too much money, then don’t fear! Just refer to your budget and see what’s realistic for your situation. I’d love to hear about your money-saving tips and experiences, so share in the comments section below!