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To achieve peak performance athletes need to train. Train too little, and they risk lacking the fitness and skills to achieve their full potential. Train too much though, and they risk fatigue and injury. A balance needs to be found in order for the athlete to succeed.
In the world of finance, the typical goal is finding ways to save more. But saving involves forgoing spending today, for benefits in the future. And whilst some level of saving is unquestionably wise, just as with the athlete who over-trains it is possible to over-save, wasting opportunities to enjoy today only to end up with far more wealth later in life than is necessary.
While some level of saving is unquestionably wise, just as with the athlete who over-trains, it is possible to over-save.Credit: Dominic Lorrimer
Let’s begin by defining over-saving. We don’t know how long we are going to live, and we don’t know what our health will look like in our final years or what sort of care expenses might be needed. With these considerations in mind, most of us would like to know that there’s no significant prospect of running out of savings before we hit 100.
Distinct from our savings, we typically own our home, which provides a secondary form of financial security, particularly if we need to go into aged care. My definition of over-saving then is when projections indicate you will have significant wealth, over and above your home, at age 100.
Now it could be that a particular goal of yours is to pass on significant wealth to the next generation, and if that’s the case, then you may well wish to see an expectation of meaningful assets at the end of your life.
But in most cases, I would suggest that if your goal is to support future generations you are likely better off achieving that through funding education expenses, perhaps helping out with the deposit on a home, or gifts, rather than delaying all that assistance until after you’ve passed away.
We want to save enough to ensure we are financially secure throughout the entirety of our lives and can achieve our goals along the way. So, how do we go about finding a balance between spending today, versus saving for the future?
Start by interrogating your goals and ensuring that they truly reflect what you hope to happen. I find that sometimes people’s goals are determined more by what they think they should aspire to, rather than what actually makes sense to them.
Next, crunch your numbers. How are you looking long term? If you’re savvy with a spreadsheet and your situation is fairly simple, you can probably get a reasonable approximation yourself. If you want to dial that in, or just gain the confidence of having a fresh set of eyes test your thinking, then, of course, reach out for external help.
A final filter to help you identify potential over-saving is to reflect on what you are sacrificing today to achieve the savings regime that you are currently adhering to. For example, if saving 50 per cent of your wage is resulting in you being unable to socialise with your friends on the weekend, perhaps give some thought to dialling that savings rate back to a level that enables you to enjoy your life, even whilst being financially sensible.
Money is an enabler. Happiness is our goal. Taking a few months to travel around Australia with your kids, backpacking in Europe in your 20s, or paying for childcare or a cleaner to give you some de-stressing time. These will all dent your savings. But their value can’t be measured in dollars.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Paul Benson is a Certified Financial Planner, and the host of the Financial Autonomy podcast.
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