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Why Do We Save Anyway?
| September 24, 2010 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
If you have been financially responsible, then it’s time to rid yourself of the fear and guilt associated with reasonable spending on things that you value. Extreme frugality can be harmful. If your saving habits are an obsession despite attaining your financial goals, little good is coming from such deprivation and self-torture. You must give yourself permission to enjoy your money; otherwise, your austerity will leave you feeling unfulfilled and without any peace.
Fear and Guilt
Does the “fear of lack” control you?
I am convinced that we are too often motivated by fear. It is quite sad that people who have been responsible [i.e. are free of consumer debts, have fully-funded emergency funds, have invested for retirement and their kids’ education (if applicable), and have even given to charitable organizations] are still being controlled by fear. Unfortunately, fear can rule frugal people too.
In the Total Money Makeover, Dave Ramsey wrote about Michael, a caller who wanted to purchase a Harley-Davidson motorcycle. This can run you over $20,000 for a nice one. Dave prejudged Michael to be young and irresponsible for wanting to purchase the bike without adequately providing for his family. It turned out that Michael made over $550,000 a year and had a net worth of over $20 million. Dave enthusiastically told Michael to buy the bike. Clearly, this is an extreme example: Michael is a prodigious accumulator of wealth (a.k.a. Balance Sheet Affluent) with a net worth approaching the top 2% of millionaire households. However, despite his success, he still feels guilty spending an amount equivalent to the cost of a Happy Meal, given his financial position.
This example illustrates the need for eliminating the “fear of lack” and guilt from enjoyment. I really don’t know what amount of money would have made Michael feel comfortable making that purchase because his problem had nothing to do with his financial statements.
Balance
Breathe.
While I am certainly not promoting irresponsibility, I do want to make the case for moderation. If you have already been responsible and have an average income with reasonable expenses, there should not be so much conflict between building wealth and enjoying life. I don’t see anything personally wrong with having a very nice car (if that strikes your fancy) if you are hitting your other financial goals. Just because it is not prudent to have too much of your financial world tied into depreciating assets (i.e. such as cars) doesn’t preclude you from ever having such items. Financial detriment occurs when people refuse to delay gratification long enough to build a solid foundation. However, once one is built, then there should be allowances for some fun.
Of course, there are many enjoyable activities don’t even require money, but some meaningful experiences and purchases do. In Is Extreme Frugality for You?, I cite new research findings showing that out of the nine major categories of consumption, only spending on leisure correlates with happiness. Thus, argue as you may that “the best things in life are free,” there are plenty of things that will bring fun and happiness to you that require M.O.N.E.Y. I don’t think I will ever advocate materialism, but I also refuse to live in denial. Moreover, there are plenty of non-selfish and enjoyable things that also require resources. For example, money provides medical care for the sick, feeds the hungry, educates our children, and provides for the poor.
In societies that have glamorized conspicuous consumption to the point of a worldwide financial catastrophe, a call for balance may seem somewhat untimely. However, this admonishment is for those who are financially-solvent, fiscally-responsible, debt-free, and have built wealth but are so consumed with saving that their lives lack joy and peace. Until one has built this foundation, being off-balanced (very frugal) is a very good thing in most cases.
Security
Some people argue that they are compelled to save and invest for financial security. This is certainly a valid motivation for frugality. Nonetheless, there should not be much of a conflict between becoming financially secure and enjoying life (in most cases), provided that you have reasonable income and expenses. If this cannot be done, my concern is somewhere we may have lost our ways under the guise of frugality. We should be concerned if we will barely go out to eat or have fun with others because we’re too cheap. The warning bells should go off if we stock up on napkins and utensils that we stole from the condiment bar at McDonald’s. We are not right if we’re “regifting” crappy stuff that we don’t want ourselves.
Please don’t call yourself frugal if you are really cheap. It’s really not fair and hurts the cause.
If your goal is financial security, be sure to clearly define what this means to you. Consider “how much do you need?”, “how long will it take to obtain it?”, and “from which sources do you want this income?” We must also develop and execute plans to achieve it. Financially security doesn’t typically happen by chance, even for the frugal.
Self-care is okay
It is not selfish to nurture yourself AND your love ones. I often say that the best gift you can give someone is a better you. For some this is intuitive, but for others it is a revelation. There are so many kind and loving people who invest nothing in themselves, yet the atmosphere that they are in determines the decisions they make. For example, merchants create environments that influence our buying decisions. When you go into a clothing store for younger people, the music is often fast, upbeat and energizing. Contrast that to music at a high fashion retailer, which is often quiet, classical, or dignified. This isn’t by coincidence.
Unfortunately, few people really care about your specific needs like you do, yet your productivity and prosperity depend on it. There are books that will revolutionize how you handle your finances, but no one will make sure that you read them. How many lives do you think have been changed by following the message in the Millionaire Next Door, yet there are some who will argue that $10 is too much to pay or that it takes too much time to read. Your future is worth considerable investment. Don’t think saving a few dollars at the expense of your comfort or enrichment is smart: it’s merely penny-wise but pound foolish.
Past building a foundation, a primary focus of investing and saving is obtaining financial peace, but if you derive little to no enjoyment from your money, are you missing the point entirely?
In this journey to acquire wealth, don’t rob yourselves of a fulfilled life.
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Is Extreme Frugality for You?
I've gone a little closer to the extreme end of frugality (still miles away) this past year to balance the reduction in my income resulting from some quality of life choices. Going without some things I always took for granted has been a useful exercise in that, in not even missing them, I realized what little fufillment I actually got from those things anyway. Turns out they were not things I really wanted, I just bought into the story of our time that these are things I *should* have. Eyeopening. Empowering. So much of what I've given up I know I will not replace even when the income is back up. Cool.
I like Vicki Robin's definition of frugality in "Your Money or Your Life" – frugality is having a high joy to stuff ratio.
My ratio is definitely up these last few years. Nice.
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Thanks so much for commenting Chris. My concept of financial security has changed, so I was happy that discuss defining it. It's hard to reach an undefined goal.
Yes, I definitely think cookie-cutter advice may make great headlines, it is not very practical for many. Starting with the general is always helpful, but there is clearly more customization that is necessary.
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Quality of life is very important as well. The old saying is "no one says on their death bed, I wished I had worked more or had a bigger house." Sure things and experiences are nice, but if you can't enjoy them because you are miserable, then scaling back (regrouping) is an order, no?
I have heard of the book but never the saying. It sounds very intriguing.
Cheers – I'm happy you have joy and hopefully you are contagious 🙂
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Hey Kris,
Your comment "I worry that no matter how much money I have, I will never have the freedom to treat myself" really hits home and is at the heart of the discussion.
All too often, we miss the purpose of frugality: it's not about doing it for the sake of doing it unless you derive joy from it. It about achieving a desired end.
To be honest, I am a little enamored with the whole self-care issue because I see so much misinformation. I have no idea why we are taught to feel guilty for being responsible stewards of ourselves. I see so many women in my family fit the description that you describe: no time for themselves. I know Suze Orman wrote about it in her book "Women and Money," but to be honest I haven't read it.
Thanks so much for the comment!
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I've been trying to live frugally for the past year, and I have had my run-ins with the "cheap" demon as well. I believe that it stems from my desire to become financially independent as quickly as possible, but I need to keep in mind that I have a wife who has to deal with the repercussions of my financial decisions. If I do something that reflects poorly on me socially or deprives us of a reasonable comfort, I am not the only one affected, and that knowledge goes a long way towards bringing me back from the dark side.
Thank you for the insightful post, Roshawn.
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My favorite part of the post: "It is not selfish to nurture yourself AND your love ones. I often say that the best gift you can give someone is a better you. "
Definitely about keeping things in moderation, balanced, and optimized for the best way going forward, for you. This doesn't necessarily have to be extreme frugality, but nor is it unbalanced and extreme consumption. Good stuff!
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Hey William,
Thank you so much for reading and commenting.
I think most of us have gone into the "cheap" territory at some point. It is very honorable and worthwhile to want to achieve financial independence. However, the challenge is to not make the entire process miserable.
While there is certainly some merit to being uncomfortable while coming out of debt (it certainly increases the velocity at which you do it), I see wealth-building differently and a much more long-term process. Thus, to tightly pinch those purse strings until you achieve "the number" may be too long of a road for most.
Great point about the decisions affecting the entire family. It's kind of hard, and the number one cause of divorce in North America is money problems and fights about money. Thus, it is critical to be on the same page.
Thanks again for your comment.
Kind Regards,
Shawn
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Hey Kevin
Yeah, I guess I was channeling my personal development roots with the "best gift you can give yourself, but I really do believe."
Those of us in the personal finance community can be so myopic that we're not very pragmatic at all. Thanks for the comment!.
My recent post Why Do We Save Anyway
Great article!
I agree with all of it!!! But I especially like this part:
the best gift you can give someone is a better you
This is very true with kids! In fact, until I saw my faults in my son (my daugther is perfect), I didn't realize to what degree I had them.
For the past few years I've been trying to overcome my faults so that my son has a better role model, and to help lessen the faults that he apparently inherited from me…
Thanks for such a great writeup, I really enjoyed this article 🙂
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Thanks so much Money Reasons!
Very cool observations about how our behaviors can affect others, such as our kids. I have certainly been taught things that I had to deliberately change in order to improve my productivity. For some, it has been such an uphill battle. I'm certainly glad we don't have to have it all figured out at 18, 28, or even 38 for that matter 🙂
Kudos to you and all of the parents who care enough to try improve themselves. As long as everyone is doing the best they know how though, it hard to blame anyone.
When I knew better, I did better!
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There's an ROI and an opportunity cost on every dollar spent or saved. Your money should go toward fulfilling your dreams, whatever they may be so you live with no regrets.
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Interesting quote (I've never heard of it before), but I think I see where it came from. An imbalance can come swiftly and unintentionally even if you are just trying to moderate your behavior for the greater good (i.e. trying to become financially independent).
Thanks for the comment, and welcome!
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"…this admonishment is for those who are financially-solvent, fiscally-responsible, debt-free, and have built wealth but are so consumed with saving that their lives lack joy and peace."
You're talking to me in this case! 😉 I fairly recently hit my magic number for financial independence, thought I would like to retire, took some time off and decided I didn't like it that much and went back to work. I've been fortunate to make a pretty decent salary but never had much lifestyle inflation over the years as my income went up.
I haven't totally deprived myself along the way – have definitely done my share of traveling, bought a new car and a new RV, and some expensive leisure activities (skiing comes to mind) but there are certain areas where I've been a cheapskate and this go around, am determined to resolve it. It seems my one sticking point for spending has been household renovations and furniture – and using money to give myself more leisure time (house cleaning, renos, home maintenance). Growing up with uber-frugal parents, all of the above was considered wasteful.
In hindsight though, I have to say I'm kind of glad that I've saved up enough to do the whole house in one go. And fortunate that it's a one-off thing that I don't have to keep paying for.
It does seem that for me anyway, I have to have that feeling of "I'm safe" in order to let go of the wallet on major purchases.
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Hello Jacq,
It's superb that you have reached financial independence! You have achieved what so few ever do, and I celebrate your success. It's people like you who should be influential in our society, so I'm very ecstatic for you.
As I read your comment, it seems like you have struck a fabulous balance: you spend money on many of the things that have the most value and have a better than adequate financial foundation.
I can totally relate to that kind of childhood and your reasons for delaying certain purchases and services. Your comfort level with spending is obviously important, so going at a pace that you are comfortable with certainly seems reasonable. One thing that I do keep in mind when faced with this choice is: there is a statistically significant negative wealth correlation with DIY type projects. Thus, what some consider wasteful, many millionaires consider worthwhile.
I wrote about it somewhat in my Dirty Diaper Round Up about 2 weeks ago.
Everyone has to make the best choices for their own situation. Since there is no right or wrong answer, you really can't lose.
Lastly, what a fabulously empowering name "single, rich mom"
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Good post. I had an executive of Oracle as a client once who was single, had a great salary, several million in her 401k and was afraid to spend a dime. She feared she didn't have enough to retire. At the rate she was saving she was headed for a $15 million portfolio! She was actually getting counselling because of her fear of spending! Most of my clients have been the exact opposite.
Anyways the financial planner and I talked her into buying a Mercedes (she had said it was her dream) and now she is one of the happiest people I know. She's mad at herself at not having done it sooner.
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Very interesting, and I don't doubt that she is a lot more happy now. Her priorities were wrong and her saving motivated by fear. Clearly, there are plenty of things one can do that are worst, but she was in bondage just like the person in debt. Her boundaries were just internal.
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I love this post! I think that certain items/living arrangements are automatically seen as being irresponsible – especially due to the backlash from the indulgence of the last few decades! I agree that if your financial house is in order, then purchasing something because you like it or find it useful isn't a bad thing.
We run into so many people who want to buy because of their lack of discipline, that we sometimes forget the purpose of money!
Hey Khaleef,
Thanks for your comment. Your comment brings it home "we run into so many people who want to buy because of their lack of discipline, that we sometimes forget the purpose of money!"
It's so easy to point our fingers at someone else because so many people misbehave with money. However, if you are behaving, remember why you are earning it in the first place. 🙂
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