Am I spending too much or saving too much?

Aug 28 / Jay Zigmont, PhD, CFP®

The internet is full of general rules and numbers that say you are either doing ‘good’ or ‘bad’ with your finances. In reality, the only measure of success that matters is if you are on the path to your goals or not. With that said, I often find that clients fall into one of two buckets; they are spending too much or saving too much. Most people understand when they are spending too much, but it is also just as possible to be saving too much. Saving too much, in this case, means focusing too much on adding dollars to your bank account and not enough on truly enjoying your life.

To that end, I want to share a series of considerations to help you to identify if you are spending or saving too much. Keep in mind that these considerations are rough, and your situation may not fit exactly. Also, these assumptions are all based on your current income. If your income changes, you need to reassess if you save or spend too much.

For those who prefer video, here is a discussion I had with Cody from Childfree Family on this topic (post continues below the video)


If you have consumer debt, you are spending too much.

I know it is controversial, but if you have consumer debt (credit cards, loans, student loans, car loans, and the like), you are spending too much. Debt is stealing from your future and allows you to buy things now that you cannot afford. The problem is that our society has made having debt an acceptable part of our lives that we need to cut out. Focus on making sure your needs are covered, and you may need to pause on buying what you want until your debt is gone.

If you have a mortgage, you need to find a balance.

Mortgage rates over the past few years have been remarkably low. As of today (April 25, 2022), 30-year mortgage rates are back over 6%. With mortgage rates at 6%+, you need to make paying off your mortgage a priority. While there may be some investments that will beat that 6%, achieving a risk-free return of 6% (by paying off your mortgage) may be a better bet. You will hear people talking about how mortgage interest is tax-deductible, but only if you itemize your taxes and most Americans do not now. The other bonus of paying off your mortgage is that it gives you a solid foundation in the future (and lowers your expenses in retirement).

If you have no debt at all, the next step is to get clear on your goals.

The bonus of having no debt (including your house) is that now you have money. The challenge with having money is now you need to have a plan for it. Are you looking to FIRE (Financial Independence, Retire Early) or FILE (Financial Independence, Live Early)? Both FIRE and FILE have financial independence at the core, so what does financial independence mean to you? Is there a ‘magic number’ you need to hit? If you hit that number, then what?

The challenge is that most people don’t have their goals set or have vague goals like “I want to retire.” In the FIRE movement, they talk about a range of levels, from Lean FIRE (a very low cost of living, like eating Ramen Noodles for every meal) to FAT FIRE (a high cost of living, maybe with your private chef). The reality is that more money does not mean more happiness. There is a certain amount of money you must have to be happy (and cover your basic needs), but at some point, it just becomes extra zeros in a bank account and a way to keep score.

You don’t get to take your money with you when you die, and as Childfree people, most of us don’t have the goal of passing down intergenerational wealth.

So how do you identify your goals? Try Kinder’s 3 questions:

Below are the 3 questions for life planning as designed by George Kinder. Take time to go through each of the three questions. When you get to the end, you may find that you have a better handle on what matters and your goals. Understanding your goals is the first step in financial planning. If you are doing this with your spouse, start filling out the answers individually, then share.

  1. Imagine you are financially secure, that you have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything? Let yourself go. Don’t hold back on your dreams. Describe a life that is complete and richly yours.
  2. Now imagine that you visit your doctor, who tells you that you have only 5-10 years to live. You won’t ever feel sick, but you will have no notice of the moment of your death. What will you do in the time you have remaining? Will you change your life, and how will you do it? (Note that this question does not assume unlimited funds.)
  3. Finally, imagine that your doctor shocks you with the news that you only have 24 hours to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What did you miss? Who did you not get to be? What did you not get to do?

If you have your goals, how do you know if you are making enough progress?

Let’s say you set a goal to retire at 55. Your age is less important than the amount of money you need to retire at that age. There are a lot of general rules out there and calculators to help you determine your number. Still, they are all based upon assumptions of what you will spend each year going forward and what you will be earning on your investments (and is beyond the goal of this article). Remember that what type of account it is in (tax-free, tax-advantaged, or taxable) will also impact what you can spend. For a fun number, let’s assume you need $2 million at age 55.

To determine how much you need to save (and earn) each year between now and your goal, you can use a simple compound calculator, but the challenge is determining the right assumptions for average return. Investments in the stock market have average returns (which vary based on your investment strategy) but keep in mind that those averages are over the long term. The last three years have seen record returns, and 2022 does not look the same to date. The problem is that any assumptions you put in your calculator will be off, and real-life returns will be different.

The best bet is to use a compound interest calculator and your assumptions to set up a basic savings plan (and target savings) but then track returns and outcomes in something more complex. Most financial planners have software that can run Monte Carlo simulations. The basic idea is that it runs 1000+ simulations of good, bad, and ugly expected returns to determine the likelihood of success. With these simulations, the bonus is that you can look at the probability of hitting your goal and further out, like if you will run out of money before you die. There’s an example in the image at the top of this post.

There are a lot of assumptions in this financial plan, but the result is that there is an 82% probability of success. That means that the plan ran out of money in 18% of the simulations (hit 0). The challenge, even with simulations, is to identify what probability of success you are ok with and when enough is enough.

If you are comfortable with your assumptions and probability of success, you are saving enough.

It becomes challenging when you have a set goal and are on a path to achieve the goal – you hit the boring middle. The boring middle is when you have a solid foundation (no debt) and are now just ticking away at your goal. Nothing crazy is happening (hopefully), and all you need to do is follow your plan, and you will achieve your goal.

This is where people start saving too much. It is common for people to start pushing to retire faster, or with more money or whatever… If you did the hard work to set your goal and your plan, why do you want to move the goalposts? If you have a great year at work and get a bonus, you could put it towards your plan, but you could also go on a nice trip. Trust in your goal and plan, and resist the urge to change it unless something changed that you did not plan on.

If you’ve hit your goal number, you’re saving too much.

Here is where people have a bit of a crisis moment. Once you have achieved your goals, then what? You have been running the hamster wheel for so long that it may be hard to step off. The natural inclination may be to reset the goalposts. I see people say something along the lines of “well, that was too easy; I must not have set a high enough goal.” This is when I walk them through the math, show them they are set for life and then get a deer in the headlights look (or surprised Pikachu, for those who know).

Now it is time to go back to the first Kinder question… If you were financially secure, what would you do? The difference is that now it is “You ARE financially secure, what do you want to do?” The problem is that most people seem to not honestly believe they ever will be (or are) financially secure. We have lived so long in a scarcity mindset that it can be challenging to shift.

Now what?

The problem with being Childfree is that it allows you to have the time, money, and freedom to do whatever you want and achieve your goals. At about 40, I looked around and realized I had reached most of my personal, professional, and financial goals. I realized that for parents, their goals often shift to their kids, and the cycle starts again. That doesn’t happen for us. It was then that I hit a mid-life crisis.

I didn’t go out and buy a flashy sports car. I decided to run a maple farm and sell stuff on Amazon and eBay. I filled my time with lots of fun work (there is just something about running a tractor that is fun) while trying to find myself. It took me a while to figure out what I wanted for an encore career. The idea of an encore career is to take a bow on where you’ve been, pull the curtain, and start a new show. I had been coaching most of my career in one form or another and realized I could help others achieve their goals by being their life and financial planner.

That is what I’m doing now. I’ve also set a new financial goal: To buy a Nordhavn 51 (a really nice boat) in cash and travel the world by the time I’m 59. I guess I’ve inadvertently set myself back on the hamster wheel, but this time it is more about helping others and having my own fun at the end.

You don’t have to do another career, but you do need to find a passion and follow it. It doesn’t have to be a work passion. It could be a passion to play video games (as shared by Ryan G in my book, Portraits of Childfree Wealth). It could be volunteering. It could be gardening. It could be playing the flute or traveling the world. What do you want to do?

If you need help identifying your goals or identifying if you are making enough progress, schedule a meeting with a Childfree Wealth Specialist® here.

***Note, the image shown is for illustrative purposes and is from a made up financial plan and should not be used by anyone.

Jay Zigmont, PhD, MBA, CFP® is the Founder of Childfree Wealth, a life and financial planning firm dedicated to helping Childfree and Permanently Childless people. Dr. Jay is a CERTIFIED FINANCIAL PLANNER™, Childfree Wealth Specialist, and author of the book “Portraits of Childfree Wealth.” Dr. Jay is the co-host of Childfree Wealth Podcast. His Ph.D. is in Adult Learning from the University of Connecticut.

He has been featured in Fortune, Forbes, MarketWatch, Wall Street Journal, New York Times, Business Insider, CNBC, and many other publications.