[Update December 2019: It was fun to go back and read this “classic post” from 2012. My assistant editor suggested I put a note on it to update it a bit before republication. You'll find that note at the end of the post.]
I'm writing this post as much for my benefit as for yours. Although the opposite malady is far more common in our society, there are some of us that are compulsive savers. Like most things in life, there is a spectrum ranging from the spendthrift to the hoarder, and we're all on it somewhere. By virtue of the fact that you actually spend time on a blog like this one, you're probably closer to the hoarder side of the equation. Don't feel too badly, so is the editor of this fine site. But the diagnosis must precede successful treatment.
The Compulsive Saver
A post on the Bogleheads forum (a well-known internet destination for the thrifty/frugal/compulsive saver) linked to a chapter in a book called Money Madness which says this about the compulsive saver:
The compulsive saver carries the idea of thrift to an illogical extreme…saving becomes an end in itself…savings is not done for some future reward; saving is its own reward…
The compulsive saver must put a certain percentage of every paycheck in the bank before paying bills or taking care of other financial obligations…paying full price for anything is a painful experience…satisfaction from spending money does not derive satisfaction from pleasure in the item purchased but from the fact that it was purchased at substantial savings. The obsessive preoccupation with money overshadows everything else so that the only aspect of any object or event that registers in the mind of the compulsive saver is the cost. A show or ball game is not seen as an evening's recreation but as the expenditure of a ten dollar bill. A vacation cannot be enjoyed as an opportunity for a change of pace and a chance to unwind and relax. Instead it is an experience of mixed emotions, with the pleasure ultimately measured by the amount of money painfully extracted from the purse or wallet.
I'm sure a few of us can relate. Here are two recent examples from my life that have made me wonder if I'm slipping too far toward the compulsive saver side of the spectrum.
Savings Limits Increased
I hate paying taxes. I do my best to pay as little as legally possible. The best way for me to lower my tax bill is to max out my retirement and similar savings accounts. Not only do these contributions lower my tax bill, but unlike other ways to lower it, like paying mortgage interest or donating money to charity, I get both the tax break and I get to keep the money.
So I've tried to do that ever since I've been a resident, and for the most part, have been extraordinarily successful at it. But “the bill” seems to go up every year. When I was in the military all I had to do was put $17K into the 401K and $5K into each of our Roths. $27K and I was done. I could spend the rest “guilt-free.” I put a little toward the kids' college, saved a bit more in a taxable account (especially in late 2008 when stocks were on sale), and paid down the mortgage a bit, but for the most part, just spent or gave away the rest my income.
Since I've gotten out, my opportunities for tax-advantaged saving have gone through the roof in 2012. I can put up to $50K into our 401K/profit-sharing plan. I can still do $10K a year into Roth IRAs, via the backdoor route. This year I became eligible to use our defined benefit/cash balance plan, another $15k. I just switched to a high deductible health insurance plan, so now I can do an HSA (stealth IRA) for another $6250. I'm now in a state where I get a tax deduction for 529 contributions, up to $10K a year. The grand total I need to save now in order to minimize my taxes is a whopping $92,250. Despite my increased income in private practice, that total still represents far more than the savings rate I recommend to readers of this site (20%.)
You can imagine my dismay to recently learn that due to inflation the IRS is going to allow me to save EVEN MORE next year. A regular 401K contribution is going up from $17K to $17.5K, IRAs are going up to $5.5K each, and a profit-sharing plan limit is going up from $50K to $51K. Even the 529s are going to allow me a slightly bigger deduction next year. And I'm not even 50. If I were I'd be able to put another $1000 into each IRA and another $5500 into the profit-sharing plan. This increase feels an awful lot like an expense or a tax bill to me right now. [These numbers are from 2012 when this post originally published. – ed]
Now I've run the numbers and I don't need to save $100K a year toward retirement in order to meet my retirement goals. But I find myself inching out on the spectrum toward the compulsive saver in order to take advantage of these opportunities. In fact, there are two other good investing opportunities only available to me in a taxable account right now: buying shares in my hospital and shares of the real estate our partnership uses for our business office. But I hate to give up a guaranteed tax break to use these opportunities, and I really don't want to limit my spending any more.
My Recent Shopping Trip
I enjoy spending time outside enjoying hobbies. In the last year, I've spent significant amounts of time downhill skiing, backcountry skiing, rock climbing, mountaineering, hiking, canyoneering, mountain biking, road biking, boating, water skiing, wakeboarding, camping, disc golfing, playing ice hockey and running. Unfortunately, I have so many hobbies I've never been able to afford the best gear for all of them, especially now that my kids are getting into many of them. The more I spend on a bike the less I can spend on skis. If I fix up the boat, I can't buy a new rope. So I love opportunities to get quality gear on the cheap.
We woke up early this weekend to go to a ski swap well-known for great deals on nice gear. After a couple of hours I'd picked up two pairs of skis, bindings, and poles, a couple of jackets, some boots, an avalanche probe, and a backpack, all used and severely discounted. In fact, my wife was mad when I bought the same pack for $25 that she had just purchased for me as a $200 Christmas present. It was nice to finally get some of the stuff I've been wanting to buy for a while, but I have to admit that part of the pleasure of the experience was scoring “the deal.” And I've definitely experienced a painful sensation in the past when spending money unnecessarily while eating out or on vacation. So I think I've definitely got a tendency toward a compulsive savings habit. I suspect at least a few of you do too.
Treating The Compulsion
So here are some tips if you find yourself forgetting “moderation in all things.”
1) Grow Income
If you're like me, and want to max everything out, you can still do that AND have more money to spend if you make more. You can increase your income by working more hours, by increasing your income per hour worked by making your practice more efficient, or by developing a side income. It's always easier to save $50K when you make $250K than when you make $200K.
2) Stop saving once you hit your goal
Run the numbers and figure out how much you really need to save each year. Then when you hit it, stop saving. If you're not sure how much you need, I suggest putting 20% of your income toward retirement.
3) Remember that all stages of life are different
There are times in your life when saving should be a priority — such as your late 30s and your 40s. A dollar saved in your 30s is 8 times as valuable as a dollar saved in your 60s. Other stages, like med school and residency, and in retirement, are the time to spend. Remembering your priority for your given stage will help you make the transition to spending your money.
4) Learn to enjoy spending as well as saving
Spending money is fun. Saving money can also be fun. Learn to enjoy both. You save now to spend later, not to accumulate some huge stash of cash to die with.
5) Use a credit card
If you're unable to save enough money, I've recommended you get rid of your credit cards. Credit cards have been shown to cause you to spend more money than if you spend cash, because it is more psychologically painful to part with the green stuff. The reverse is also true. If it's painful for you to spend money, use a credit card. A compulsive saver is unlikely to get into credit card trouble, so you might as well take advantage of the convenience.
6) Let your significant other buy stuff for you
Many couples are composed of a saver and a spender. If it's painful for you to spend, have your S.O. go do it for you. Then you get to enjoy some nice stuff without having to feel the psychological pain of buying it.
Most highly paid professionals aren't saving enough money. But if you're at the other end of that spectrum, hopefully, some of these tips will help you find a balance between your spending and saving.
[Editor's Note (2019): Well, I've got all the ropes, bikes, boats, and skis I need. Pretty much everything referenced in this post has been upgraded since this post was written 7+ years ago as discussed in this 2015 post. I thought it might be interesting now, 7+ years later, to go through these “recommendations” one by one and see whether I took my own advice.
- Well, we certainly grew our income. Our income, net worth, tax bill, savings amount, and giving amount are all a large multiple of what they were in 2012. See that little line about a “side income”? Didn't see that coming. It is true that it is easier to save and spend with a larger income.
- Didn't do this really, except for this Winter with the home renovation. Really most of those checks will be written in 2020 though. Yes, we spent more, but we also save more. For what? Well, partially in order to spend more and give more, but mostly just because we feel the need to be good stewards of what we have been blessed with.
- This one seems prophetic. 2012 was a season for saving and boosting income. 2019-2020 is a season for upgrading a house. Maybe 2021 is a season for giving away a ton of money.
- I'm still not that good at spending, but I am getting better at it.
- Our credit card certainly helps me spend more with less pain. We still use those for convenience.
- Katie still does most of the spending (and decision making about finishes for the home renovation.)
Overall, I think we got all 6 of them. Pretty good advice and pretty good job taking it I say. I ran an a tweet recently about spending; you'll enjoy the reply. ]
What do you think? If you're a good saver, how have you decided when enough is enough? How did your spending change when you hit “enough”? Did you just retire? Did you spend more? Give more? Comment below.
I budget everything. I’m alright mentally as long as we stay in budget. I too contribute to pretax accounts to save taxes. However, I sometimes wonder if it will lock me into a longer career than I want. There are significant penalties for early withdrawal before the age of 59.5. Most ER docs burnout way before they hit that age.
There are two ways to pull money out of your pre-tax accounts tax free. There was a nice post about it on this blog a few days/weeks ago.
Dude – budgets are small think – scarcity mindset. You don’t have a spending problem you have an INCOME problem. You can only save so much. One cannot account / budget/plan for everything – life is inherently unpredictable. Don’t focus on savings focus on growing the top line!
Budget everything? Boy you sound super fun
JustSayin’
You’ve been railing on anyone who budgets or saves any money with the majority of your comments for the last 2 or 3 years. Give it a rest.
Good point WCI – I’ll try to make it a minority for the next 2-3 years! No disrespect just counter balancing and providing my perspective.
As you’ve pointed out – my style is a bit more aggressive than most.
Irony – you’ve saved me thousands – SoFi ad allowed me to refi a few years ago – 2.75%!
Saved me thousands/year.
With gratitude
JustSayin’
Great post today – resonated with me on a whole lot of levels.
My dad and I have various degrees of compulsive savings. He is one of the ones that buys a whole bunch of the stuff on sale and gets more excited about “the deal” than he does about the actual stuff.
That’s not me.. BUT i have had the tendency to say on an evening’s night out of stuff… well, that was great, but was it $X great? My wife is the same way… she might see a dress she’d like to have, but then look at the pricetag and say… Great $50 dress, but not for $150.
Unfortunately here’s my mindset…
Every large purchase for me (several thousand or more) I look at and have to ask myself.. would I rather have this or would i rather retire X months earlier?
My chiropractor friend who’s only a few years into his career has the idea that he’s just going to work into his mid/late 70’s…. that saving for retirement isn’t all that..
one time we were having a conversation about cars… he’s got an eye on a BMW he really wants.. My comment? – would you rather have that car or retire 2 years earlier? is it worth 2 years of your life to have that car? His reply? Absolutely… I got into this to live an awesome lifestyle.
My reply? I can’t stand the thought of purchasing something that’s going to add a year onto working, let alone 2 or more.
I guess I just feel more alive every day that I’m not at work than when I am at work.. So the ultimate freedom to me is not having to work.
I’m envious of Dr. Cheap from previous threads… wow.. to be fully retired at 36?
I’m not sure if it’s that i don’t value nice stuff or that I associate it with working longer.
I also get a MASSIVE kick about making money with my money. So in the good market year that this has been so far, I’m so pumped to see my bonds and stocks making me a really nice chunk of change. I derive a lot more satisfaction out of that than I could derive from spending it on something that I don’t really need.
@Dennis – great point – i also wonder if I’m contributing too much to pretax accounts… it’s great to save taxes, but i can’t help but wonder if i’m saving taxes now to just end up paying a higher rate later?
So i get those Roth IRAs in and build up a fairly large cash management account. I’m hoping that if i want to quit at 55 that I’ll have 4 years worth of expenditures in my Roth/Cash Management account and then can switch to 401k
It’s not that hard to find money to spend penalty-free before 59 1/2. Take a look at this old post:
https://www.whitecoatinvestor.com/how-to-get-to-your-money-before-age-59-12/
Great post and I see myself in it especially getting “stuff” at a great price and considering if the benefit of something (eating out, vacations etc) is really worth the cost.
When I was working I had a budget for those things that we would do and everything else went into savings of one sort or another. Not living that well meant that I saved 40% of my pay (children grown, no expensive vacations, keep cars a long time).
Now that I am retired my income is less and saving is only whatever increase in value that my investments make less my spending. I continue to have a budget but it does not include travel etc.
I have a plan and want to stick to it, perhaps too much. Your suggestions are good since money is not the goal but rather what it will allow you to do.
Thanks again.
For me, part of the reason why my savings rate is so high is not because I’m cheap or have an aversion to buying things, but because I am one of those people who truly hates clutter. The stuff I do have is good stuff, but there’s just not much of it. I don’t really see that changing much in the future, as I have pretty much every single material good that I could possibly want at the moment.
The one thing I would love to spend more of my money on is vacations and trips to places on the other side of the world. Unfortunately, that’s more of a time constraint than a financial one which is tough to get around, since one in our profession needs to be present in the office to generate income and pay overhead.
Of course, this isn’t a problem I ever advertise to those around me, as I think there are much worse things than having to stockpile cash 🙂
This is so true! Working for the state gov’t, we had 72K of potential tax-advantaged savings (more with the latest increase). But we don’t need to save 72K/year for retirement! It’s hard not to try to hit those targets, but with childcare and career and so on, we’d really be doing ourselves a disservice if we put that money away for tomorrow at the expense of time today. (We’ve still been saving at a heavy clip, and that saving is enabling DH to quit his job this year, but maxing out our tax deferred savings options is ridiculous at our current income level. I definitely need to make more money!)
This was a particularly good post. As a simple government-employed doc making somewhat less than $200K, I still find myself saving a high percentage of my income. Ultimately, though, I increasingly realize that the goal is to maintain my desired lifestyle in (early) retirement, not to accumulate as much as possible. There is certainly a happy medium. So…decided to plan a few more trips with the family, buy a new car…nothing extravagant, but might as well enjoy it a little bit.
Hey, someone has been stalking me to report me so accurately in the boggleheads post :).
What stopped me is storage space. Got too many boats, bicycles, sleeping bags, etc. Not enough room! So the new rule is – if i want to buy something, i got to get rid of something. Except disc golf discs. They don’t take up much room.
The description of the Compulsive Saver at the beginning reminds me of the classic definition of a bean-counting accountant: Someone who knows the cost of everything, but the value of nothing. There’s value in enjoying the finer things in life, recreation or vacations and we should strive for some kind of balance.
Excellent summary, and broadly applicable. I describe my boss’ boss as a “bean counter, not a leader”. He is concerned only with the bottom line, not with people. Just like with money, it’s a missed opportunity to strive for balance and excellence.
I find it hard to see saving money as a problem. The post and comments assume that saving must mean depriving oneself of desirable purchases. What if I don’t want a BMW, a boat, a ski vacation, fancy restaurants, expensive clothing, jewelry or art? What if I am happy living like a school teacher on a doctor’s income? Why do I need help solving this problem?
What is wrong with saving money being an end in itself? Is there some religious mandate to spend up to my capacity?
I could see a problem if one forced the family to live in dangerous or unhealthy conditions when one had the money to avoid this. I could see a concern if I refused to put wholesome food on the table. But refraining from buying tens or hundreds of thousands of dollars of adult toys? That to me is prudence, not deprivation.
There are many things that I can afford to buy that I don’t want.
Why should I seek out something expensive to waste my money on? I would rather have more shares of VTI and VTEB than a new car, airplane tickets to anywhere or a pricey meal at a fancy restaurant.
Depends on your religious views I suppose, but while money can be a great tool, it is a terrible master.
Matthew 19:16-24
A Christmas Carol- Oh! But he was a tight-fisted hand at the grindstone, Scrooge! a squeezing, wrenching, grasping, scraping, clutching, covetous, old sinner! Hard and sharp as flint, from which no steel had ever struck out generous fire; secret, and self-contained, and solitary as an oyster.
I think it’s fine to not buy the toy du jour, but saving money as an end seems to me to result in miserliness. There are a lot of good uses for money, but hoarding it isn’t one of them.
Nice Christmas reference! Well done. 😀
What about Luke 19, as opposed to Matthew 19?
As Dr. D. A. Carson’s father stated, “a text without context is a pretext for a prooftext”.
While I cannot fathom the wealth accumulated by Doc Bell, my wife and I have done reasonably well sticking to the basics (delayed gratification, spend less than you make, avoid lifestyle creep, invest the difference) while hardly living a poverty vow.
Current Statistics for AFAN, JustSayin’ et al:
-age 62
-Just passed 8M Net Worth
-2019 passive income 1M
-able to retire at age 54 (as planned in my mid20’s preFIRE movement)
-have worked “part-time” since 2011(0.6 FTE at Critical Access Hospital)
-tax bill healthy 5 figures, not 7 like Doc Bell
-direct $$ giving 6 figures/yr
-indirect giving includes 3+ 10 d medical mission trips/year(love it!)
-NO finance charges in 38 yrs marriage
-NO personal debt outside mortgage in 38 yrs
-Mortgage free > 20 years
-3 kids educated, debt-free, gainfully employed/independent, married
Maybe it comes with age, but I know for me I’d rather take that vacation or have an nice meal with my wife and family rather than buy a few more shares. We are all going to die, and you really don’t know when. I’m trying to live by the mantra, “Prepare for the future but don’t neglect the present.” The future is never guaranteed. My mother was 85 and quite functional in good health. She went to dinner with us December 10, and we had a great time. I got a call the next morning that she was found unresponsive and passed away. You never know.
Matthew- I have always loved the writing, esp the KJV translation. Of course, I would care about this line if I were superstitious enough to believe in an afterlife. As it is, ghosts, fairies, wood nymphs and hobgoblins do not factor into my decision making.
I would point out that Jesus is not talking about spending money on oneself- restaurants, travel, clothes or other consumption. He is talking about giving ALL one’s money away to the poor. Exactly NOT loosening up with spending to have some fun. Matthew’s Jesus was not the life of the party.
Scrooge- A hero! Forbes had him at $1.7B. I could not imagine getting to his level, but one can dream. I will never be anywhere close. Reach exceeds grasp, you know.
If I were to discover today that I would be dead in a month there are several things I would do. Running out and wasting my money of a bunch of overpriced junk I don’t want would not be among them.
I know it was all in good fun, but I was surprised by that Forbes estimate of Scrooge’s net worth. I never thought of him as wealthy.
I thought of him as not poor. I thought he was a careful, hard working, thrifty guy who had managed to live a middle class life. With a lifetime of a solid income and cautious spending he was approaching old age with food on the table, a roof over his head and reasonable security about both going forward. I thought he was not rich, but he would not be depending on the porous social safety net of the age. I never got the impression that he regretted not spending more time splurging in Paris.
As I said, I doubt I can reach Scrooge’s level of frugality, but it can be a goal.
Wow. You should submit a guest post “In Defense of Scrooge”.
While trying to find who may have documented his level of wealth, I discovered that there are several defense of Scrooge posts around the internet. Most of the defenses I found focused on his economic theory. I have not come across one simply admiring him for his abstemiousness.
Seeing piles of brand new stuff lying around virtually untouched in friend’s home has started making me feel a little ill over the years. Just the enormous waste of everything – money, production, shipping, pollution, global resources. Anyone can buy pretty much every brand-new widget imaginable nowadays at a price point that’s affordable for them.
I suppose economists would counter that consumerism drives the global economy.
Does Bogleheads have a clever term for non-materialistic? Maybe Compulsive Non-Spender? Compulsive Non-Buyer?
Spend or save, earn or relax, both questions make me wax philosophical.
I’m a doc about to pass 20M in net worth. The passive income gets pretty staggering at this level of wealth. We spent more this year than ever before, but despite expending great effort to spend and give away more, our net worth went up by more than 2M in 2019. In recent years I have had to adjust to several new ideas:
Work is optional, but it is ok to keep working as I enjoy the patient interactions and it gives me pleasure.
Spend whatever on almost anything we enjoy as it doesn’t much matter. I used to care about the cost of a dinner out or a hotel.
Focus more each year on giving back, to charity, community, family, and friends.
High taxes used to bug me, big time, but I have now reframed my 7 figure annual tax bill as a charitable contribution to my fellow citizens and the country that has afforded us such opportunity.
A recent spend vs save decision: We typically sit in the front of the plane, but the old frugal habits persist. No first class for me on a 3 hour flight home from Christmas in the tropics with the whole family, economy plus is just fine as those holiday peak fares are crazy high. And setting an example of careful spending for other family members also has value.
Having way more money than I want or need just means having the resources to do what I want for myself and for others. WCI will likely find himself in similar circumstances in a few more years. Founding a successful business combined with being a super saver/investor is what led to current circumstances.
Doc B
Tell us more – how old are you? History of investments – broad strokes are ok – interested in history at different stages of your careers – student – early-mid-late career
Big difference between money one can make being super saver vs that made from super investor though I suppose super saving gives one the treasure to invest more.
Hoping you feel like sharing – inquiring minds want to know
Happy New Year
JustSayin
For me it was a combination of high savings, careful investing, and growing the income through hard work as a physician and then starting a real estate business and another business. The combination of all three components of living within our means, investing carefully, and then finally growing the income remarkably is is what led to my crazy high net worth for a doc. I am guessing that I could potentially cross 30M in net worth in another 5 or 10 years, and I may then consider retiring, but who knows what tomorrow will bring.
I paid off my modest student loans early. I started tax deferred accounts very early in life and then maxed them every year since becoming a doc. I worked extra shifts moonlighting in my early career and saved or invested the money. We bought moderate vehicles and bought a forever house that we lived in for 20+ years raising our kids. Now I am in the final third of my career, but I remain impassioned to continue to work and contribute. I like the sense of purpose in life that working and contributing continues to provide me.
I can relate. We just walked away from a non-refundable hotel room we had already paid for in order to stay an hour and a half closer to the airport. The room is actually worse! The hotel owner couldn’t believe it when I told him we just changed our plans and there wasn’t anything wrong with the room, we were just leaving town sooner than expected.
It’s nice to make choices without regard to the financial consequences. And yes, we sometimes cheap out too and often can’t even say why.