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How To Save Money?

How do you get past a compulsion to save as much money as possible?

  • I am single and in my 20s. I have always maxed out my Roth 401k and Roth IRA since the day I started working 5+ years ago. I am now earning too much to be eligible for a Roth IRA. I have the urge to put the $5000 I was putting into a Roth IRA into a Traditional IRA. However, I live frugally, still have money left over, and feel like I should save it. I feel like I will never be able to enjoy/spend money no matter how much I earn and will try to save it all for a rainy day. If I keep going down this path, I will end up with a lot of money when I die, but may not live a full life. How do folks convince themselves they should spend on themselves and enjoy money when they are naturally inclined to save? Some of you may think that I am being facetious, but I am really serious about this. The recession has made my natural inclination to save even worse because I am afraid if I spend, I will regret it later if I am ever fired and can't find a good job since there is so much that can change and is out of our control when it comes to our incomes. My propensity to save makes me feel like I horrible person. I could give much more to charities, but don't because I am afraid I will need the money later. I don't go out like most folks in NYC because I am afraid to spend which limits my social interaction with folks (probably partly why I am still single).

  • Answer:

    This compulsion to save is particularly prevalent around certain Chinese circles.  China, a country with one of the world's highest personal savings rates, has created a fairly thrifty culture, and it's been difficult for myself and some of my friends to break out of this tendency.  If you're earning a decent living (it sounds like you're making at least $121K/year since you're not eligible for a Roth IRA) and already saving a healthy amount for retirement, however, there's no reason not to spend some of the money if it can lead you to more happiness or to a better quality of life.  Why work so hard to earn money if you're not going to spend it? The first step toward overcoming this compulsion is realizing that there's decreasing utility to saving too much money, for two reasons: The utility of your money will be lower at an old age than when you're young, healthy, and have fewer obligations.  Suppose one of your goals is one day to travel the world.  You'll be able to travel farther and do more physically strenuous activities now than when you're sixty, so there's simply more freedom and options in what you want to do now. It's possible to save enough, beyond which there's little point to save anymore.  If you over-save, you'll end up with more disposable income per year in retirement than during your youthful years, and if you haven't been able to find outlets for spending the money now, it's unlikely that you'll find more when you're sixty.  At your current savings rate, if you actually do the math on how much you're spending per year and assume reasonable return rates, you don't have to save too much to maintain similar disposable income levels when you retire. If the utility of money decreases at old age, then there's simply no reason not to spend money (at least some of it) now because now is when you'll enjoy it the most. The second step, then, after understanding that you're already saving enough money is figuring out where to spend it and telling yourself to worry less when you're actually spending it on the things that you enjoy.  If you enjoy good food, then eat out more or spend more on gourmet ingredients when you cook.  If you've always been wanting a more upscale apartment, find one.  If you enjoy traveling, plan some trips to faraway places.  If you enjoy gadgets, buy an iPad or whatever the latest toy is.  If you don't have enough free time, work less or spend more on conveniences like cab rides that will get you more free time. Initially, it will take some time to convince yourself that it's ok to spend more money.  The key is that if you recognize that you're already saving enough for retirement, then the money leftover is really just icing on the cake and can be spent on whatever you feel would make you happy.  You can always adjust your plans later if you decide to get married or have kids.

Edmond Lau at Quora Visit the source

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Beyond retirement savings and a comfortable nest egg, what is there to save for? Saving for savings sake is unmotivating and as you mentioned, kinda pointless. You may die rich, but as Colonel Sanders says: "There's no reason to be the richest man in the cemetery. You can't do any business from there." What goals do you have? Do you want to travel the world? Do you want to buy a home in the country and live a quiet life with your family? Do you want to work less and spend more time doing things you love? Save your money towards goals and you'll find it easier to spend the money once you reach the savings goal. I recently bought a brand new 27" iMac because I wanted it, saved for it, and reached my savings goal. It's important to have a conscious spending plan. Spend extravagantly on things that make you happy. Cut expenses ruthlessly on things that don't.

Caleb Hicks

I don't see why a habit of saving money is bad per se. Saving for a rainy day is a good cause, and a lack of such a habit can arguably be linked to the subprime mortgage bubble. If you are worried you may end up with a lot of money when you die, why not write a will to make sure your money gets donated to some charities/trusts whose causes you believe in?

Edwin Khoo

Work out what you need or want for the future, and create a budget which you can live to which will enable that. In this budget, first allocate the savings you need to hit your targets. Then allocate the money you need to spend on life as it is. Whatever is left is for enjoying life now. You can spend it without guilt. You might want to create a separate account for this money, so it can go in there, and is kept separate from your savings and from your regular living expenses. This way, you won't be fearful of getting carried away. Then start looking out for things you'd like to do, and can easily check if you can afford them. Put a monthly reminder in your calendar to check for concerts or theatre shows in your city. Take someone out for dinner to a new restaurant each week. Book a holiday in Sweden or Thailand for summer. Call an interstate friend and arrange to visit them one weekend. Once you have allocated the money to enjoyment, it's OK to spend it :-)

Richard Russell

Your answer may be in working on 2 areas: Money management and Psychology.   Your money strategy should be to learn about ways to balance spending and saving, have an emergency fund and have a fun money fund. Work with someone, either a close friend or advisor to discuss what you learn. Having someone to talk to - expert or friend - will help you to work through ideas.    It is the norm for emotions, values and circumstances to affect your money habits. It is good that you recognize this.You have expressed that your feelings may be a compulsion that you're having difficulty controlling. Whether it is overspending or inability to spend, we want to have control over these emotions. Ask yourself if you control your money or if your money controls you. Again, it will be a good idea to talk to someone on a regular basis, be it friend or counsellor, to explore these feelings and work toward what you feel is a healthy balance.   Many people have feelings of fear or overwhelm when times are uncertain. Whether the uncertainty is in the world, all over the news or in your own household, we can react by having these difficult feelings. Reach out for good objective help and information.

Jennifer Maier

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