Are You Too Thrifty?

September 3, 2012

in Saving money

By Ken Tan (guest contributor)

During my informal chats with people, I realized different people approach savings differently. This may be due to individual circumstances, mentality, personal challenges or incomes. Some people save 10% of their income, some 15%, some 30%. For me, I save 40% of my net earned salary (minus CPF).

I’ve even met people who are able to save 90% to 95% of their income by (excluding CPF) by squeezing every dollar. Initially, I was amazed! But I gradually realized that there was a price to pay, usually by skimping on expenses which are deemed unnecessary to the individual but may add value to one’s life.

Of course, the word “value” is subjective. For instance, the “value” can be overseas trips with your loved ones, which is intangible but could be unforgettable. But to some, it’s a waste of money. They prefer “value” by spending money on a one-night stay at a local budget hotel although they can well afford to travel to Bintan. “Value” perception is all in the mind.

The downside of over-saving – a fable

The problem is, sometimes you can over-save and treat spending on things that add value of things like a personal crime that should not be committed. Even if money needs to be spent, the over-stingy person will have a little voice in his head telling him not to spend. The cash he has in his savings account makes him feel secure.

Consider a married couple. The couple has a savings plan together, contributing a certain percentage of their monthly income. But the guy, like a typical CFO (Chief Financial Officer), directs the savings ratio for his wife. They try to spend as little as possible and the husband dictates the wife’s spending habits. There is a ceiling on their monthly expenditure. It’s not like they can’t make ends meet – they just do not see the need to spend despite having decent monthly income.

Therefore, for several years, the wife has been spending time with the husband at home, downloading free movies on the net to watch or just does the household chores while the husband lazes at home. Gradually, the wife is bored with her life and starts to compare with her peers at her workplace. Her peers have husbands who WOW them with exciting things – the sparks that create romance.

One fine day, the wife knows a guy called A through a mutual friend. A is flamboyant and brought the wife (without the husband’s knowledge) to romantic places, such as high-end restaurants, which the wife has never been to. By the way, we shall call the wife G. A likes G and sweeps her off the feet. G feels like a frog in the well. She thinks: “Why have I, at this age, not experienced such things before?”

G starts to wonder: “Why did my husband scrimp and save and not pamper me? A is willing to open up his wallet. A is not a person whom spends a lot but he values the money spent with me even though he is just a typical white collar professional with a four-figure income.”

All this while her husband is still in the dark. G questions him and the answer remains: “Honey, we should save till we are old. The main reason why we save is because saving is a habit. And when we are old, we can count the dollars.”

G soon becomes sick of her mundane life and seeks a divorce. G makes up her mind and cannot see any reconciliation. She regrets that she did not discuss money habits with her husband from the beginning. The husband is shell-shocked. He was so obsessed with saving that he lost something very valuable, something that money cannot buy.

Money versus experiences

Let me be clear – I believe saving is important. I save 40% of my income. But to over-save and refuse to open your wallet may be overdoing it. For me, I spend on dinners with my wife, trips together, and buying Prada products (we love Prada!) once in a while. I also treat my close buddies and friends. I find that this has “value”. The value derived is memories built together with my wife. For friends, it’s the long-lasting relationship. Money can be earned back, but not experiences.

Don’t get me wrong, we are not generally materialistic. We just spend on things that make us happy, and treat it like a bonus. During our honeymoon trip, we bought many Prada products in Europe. For guys, we never know why women spend so much on shoes. But we spend on gadgets, and the women may be thinking likewise.

Each day, our time passes quickly. You may not know what happens the day after. If I did not buy a certain Prada design, when will I have the chance to do so in Europe again? So do it while you can.

Yes, saving is VERY important. Define how much you want to save monthly to reach your target FIRST, be it for retirement or future purchase plans. But don’t be over thrifty, as there is also a price to pay! Go on, spend a little as long as you keep within your saving budget.

 

By guest contributor Ken Tan, who blogs at investment blog KT Wealth.

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{ 1 comment… read it below or add one }

Thomas Tan December 1, 2012 at 4:56 pm

Good article.. especially the part on Husband and Wife

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