Originally published in the News Star and the Shreveport Times on Sunday, August 22, 2016.
Question: I think I may be opposite of most people – I am a compulsive saver. Or at least that’s what my wife says. I am always concerned that we will need the money and it won’t be there because we’ve spent it on something frivolous. I’m sure it’s how I was raised. I grew up poor. But my wife is about to get tired of it and I can see her point. How do I free myself from thinking this way?
Answer: Undefined dangers loom large in the mind.
Thus, they consume all our resources, emotional and financial, because they have no boundaries. How much do I set aside for an undefined danger? How can I ever know I have saved enough?
I hope you can you see how this leads to very self-destructive behavior, financially and (ultimately) relationally. It sounds like you are already discovering this is no way to live.
You are correct that your issue – financial hoarding – is the opposite of the more common problem of over-spending and under-saving.
So consider this perspective: all the wealth or money you have will either be spent, lost or left to someone else, who will have those same three opportunities.
When you save or invest money, you are only deferring making one of those three choices.
If your “today self” doesn’t spend or lose the money, your “future self” will have the opportunity to do the same. And if neither your “present self” nor your “future self” spends or loses the money, you will eventually have no choice but to leave it behind for someone else.
As with so many things in life, balance is what you seek. But the key to finding that balance will only come with a carefully conceived financial plan.
Size up the real problem. Of the three choices I suggest, you fear the second – loss. What if you experience a large, significant financial loss and therefore need a lot of money, fast?
Take a sheet of paper and write out all the financial worries you can think of – car breaks down, roof needs to be replaced, you get really sick, become disabled and can’t work, you get fired, you pile up medical bills, you get sued, you lose money in the stock market, your house burns down…are you worried yet?
Face reality. Now, look at that list and place a check mark by any of those problems that all the money you’ve saved so far would take care of. And place an “x” by the ones you still don’t have enough money to handle.
I’ll bet you’ve got more x’s than check marks. Think about it – all the saving (hoarding) you’ve been doing still hasn’t made you safe. Maybe it’s time for a change of strategy.
Get help. The reality is that most of us cannot (and never will be able to) handle sudden, massive financial demands on our lives, brought on by an outside emergency. But most of us would be OK if 1,000 or 10,000 of our friends all chipped in to help.
That’s an oversimplified definition of insurance – it is the spreading out of massive risks, so that the financial impact on any one of us is smaller…manageable.
Of course, it isn’t 10,000 friends, is it? It’s 10,000 strangers, but all of whom have bound themselves together by contract to pay a premium and ultimately take care of whichever one of themselves on whom the peril falls.
Thoughtfully balance. You don’t need to save all your money and you don’t need to buy every insurance policy on the market.
Most households would do well to have six months of gross income available in savings to pay for smaller items.
Beyond that, insurance should be purchased to lessen the risk of the big stuff: getting sued, becoming disabled, getting really sick, dying early or even living too long.
When you’ve done a financial plan, have adequate savings in place and have an insurance portfolio to protect against disasters, you can stop worrying about losing your money and start enjoying spending it.
Because if you don’t, someone else will.
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