You may have noticed that most mainstream advice about “saving money” can be boiled down to one simple phrase: spend less. In fact, the less money you spend the better.
This sounds like sensible advice. After all, it is simple maths – in theory, the less money you spend, the more you should have leftover to save, right?
While the common advice is to save money at all costs, there is such a thing as ‘underspending’ and it’s not healthy.Credit:Simon Letch.
This has become such a popular approach that people on social media are creating a new status symbol out of how little money they spend. In the personal finance world, this is the “new cool”. How high is your savings rate, and how low can you keep your expenses?
You might be thinking, isn’t that a good thing? After all, they’re being financially responsible and doing all the things you’re told to do: “live within your means”, “spend less than you earn”, etc.
Yes, but there’s a dark side to the save-money-at-all-costs approach, which doesn’t get much airtime. There is such a thing as underspending, and it’s not healthy.
While overspending is an easy problem to identify, underspending is a more invisible problem because, on the face of it, it just looks like someone is excellent at saving money.
However, underspending isn’t determined by how much you save or how little you spend. Rather, the symptoms show up in your emotional relationship with spending money:
- Do you feel anxious about the thought of spending money, even though you have ample savings?
- Do you always go for the cheapest option, even though spending a few extra dollars would get you better quality and wouldn’t hurt your hip pocket?
- Do you know you have more than sufficient savings but still obsess over every dollar you spend?
- Do you avoid even small upgrades or conveniences that would make your life better or easier, even though you know you could easily afford it without jeopardising your long-term financial goals?
If you said yes to any or all of these, then you, my friend, might be underspending.
An excessive focus on spending less can create a deprivation mindset and a belief that the best way to save money is by spending as little as possible. This can also lead to a never-enough mentality, where, no matter how much someone has in savings, they feel the need to maintain the same level of extreme frugality to continue saving more.
Spending well balances quantity and quality. It means you look beyond the price tag, to the value that a given purchase adds to your life.
While that can certainly work in the short term to achieve specific goals, in the long term it can be unsustainable and unhealthy. It can lead to an anxious and even obsessive relationship with spending money, and feelings of exhaustion, deprivation and burnout.
This can lead to cycling between excessive restriction and overindulgence, which then leads to guilt, regret and shame, which again leads to excessive restriction. This cycle may mean that the financial gains from the restriction are often nullified or negligible in the long term.
Thankfully, there is a better way. In my experience, I’ve found that the key to successful, sustainable saving is not necessarily “spending less” but “spending well”.
Spending less only focuses on the quantity of spending, leading to an obsession with the dollar value, the cost, and the price tag. Spending well balances quantity and quality. It means you look beyond the price tag, to the value that a given purchase adds to your life.
This means that you aren’t always reaching for the cheapest item on the shelf. It means that you can see expenditures as a value-add to your life, not just a subtraction from your bank account.
Ultimately, this leaves you feeling more fulfilled and happy with your spending decisions (so you can say goodbye to buyer’s remorse and spending guilt).
The best part is that in the long term, you’re likely to end up saving more money because you have a spending strategy that is sustainable. You don’t have to binge-spend every few months as a result of feeling deprived because you get to enjoy spending and saving simultaneously. Wouldn’t that be nice?
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Investors should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest their money through financial education courses and classes.
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