Practical Finance: The perils of over-saving

So you’ve gotten a handle on your expenses, your budget is looking thick and nice like a certain soca diva near and dear to my heart (oh gosh somebody send her meh page nah), and you’re putting aside funds for a rainy day like a boss….but are you saving too much? Yes fam, there is such a thing as over-saving.

I know I did a whole post about saving enough and I know some of you just got Forrest Whittaker eye reading the title of this post but hear me out. Yes, saving is essential, it’s like the transmission in your Datsun 120Y or the slice of zaboca on your plate of ‘red and white’ (corned beef and rice) but if you’re not careful, too much saving could lead to problems. Here’s why…

1. Unnecessary fees - the best place to put your savings is somewhere that is difficult to access easily, unless it’s part of your emergency fund (which you absolutely should have). That is part of the reason I am totally against having a debit card attached to a mutual fund account, but I digress. Anyway, if your savings are hard to access and you put aside too much you may cause yourself problems when you need cash and have to retrieve some of those savings. Depending on where you’ve put those savings it may cost you in terms of fees to break that fixed deposit or redeem those units. Worse yet, you may be tempted to swipe that devil spawn credit card leading to more problems.

2. Inflation - everyone knows about the effects of inflation on prices of “pongkin” and gizzard but they don’t always consider the impact it has on their savings. Interest rates on savings accounts are more miniscule than the level of impressed I feel hearing Licensing Office is going digital….in 2024. There are two types of interest rates you should be aware of, nominal interest rates and real interest rates. The nominal interest rate is the rate before you take into account the impact of inflation. The real interest rate is well….you know nah. So if your saving account is paying you 1% on a good day and inflation is 3%, congratulations you are earning NEGATIVE 2%.!!! You’re losing money. Another reason to be mindful of inflation is because, best believe the bank factoring it in their rates when lending we deposits to people.

3. Under-living - while putting aside money for your future is prudent, you still have to live your life now. I will never advocate for you live like a hermit at the top of Mt Hololo just to save a few shillings. You are far more likely to stick to your personal finance plan if it does not mean you have to deprive yourself of any enjoyment in life. It’s the same philosophy I use when trying to lose weight, which I’m still working on….they really say the last 27 lbs are the hardest.

So if over-saving is a problem then what’s the solution? Well, saving is the vehicle but investment is the goal. Don’t have your money sitting idle like it now finish UWI and liming on the block playing “wappie”. Never have more money in your savings account than is necessary to provide for an emergency or an immediate goal. Put it to work!…and when you put it to work try yuh best to find something that either keeping pace with or beating inflation like it thief something. I know that’s easier said than done but having the mindset of not parking up money in low interest accounts would help you when opportunities…..legal opportunities, present themselves.

TANA