A couple of months ago Des from Half-Banked had a blog post about how to spend or save your tax refund for maximum happiness. One of the points was to treat yourself; guilt-free. (Check her site out if you have not already!) Her point was if you are responsible with 90% of it you don’t have to feel guilty about spending 10% of it. It’s a great concept and it really works for people who are more likely to spend 90% and save 10%. The problem with that is that I can’t seem to put that into practice myself. So I was wondering if I should feel odd for saving/investing 100% and if I’m missing out on something.
I want to be clear, I love the concept. Similar to that is something you might have heard called the 80/20 rule. That is a rule I use in my professional and personal life all of the time. Basically getting 80% of the way there is usually pretty good. The extra 20% is usually not going to change the results so it’s more effort than it is worth.
I love doing things 80%; which is not to say that I don’t give it my all. I do. I give 100% of my effort when I’m working on something (BTW you can’t give 110% – that isn’t a thing). But when so much is demanding our attention you have to prioritize what you are working on. So if I need to vacuum a room most of the time I just vacuum the room. I usually don’t get on my hands and knees to vacuum between the floor and the baseboards. The extra effort to do that is not worth the return I will get.
So if I understand that concept why can’t I put that into practice with my money?
The Case for Saving it All:
For the last several years (probably around 7) every time we get a refund from our taxes we save the money or have re-invested back into our RRSPs.
Every. Single. Cent.
The day before we make the transfer I always sit and think about what we could do with that money but I would feel too much guilt to actually spend it on anything like a trip or something for the house. Then the money gets deposited and I forget about the joy of having that extra money to spending until the following year.
Truthfully that’s why we have a budget and plan that we set out ahead of time. So decisions like that are automatic and don’t require much thinking. There is very little temptation to actually spend the extra money because we decide ahead of time what the plan is. Also since the RRSP plan is a tax-deferred investment umbrella I know that the right thing to do is invest the money back into the RRSPs to have the money grow tax-sheltered. It’s an incredible snowball effect that once it gets going it’s pretty awesome to see the growth in returns year over year.
Can You Save Too Much?
Can you save too much? The more I think about it I believe that there is a situation where that is possible. This isn’t a license to spend everything but in a certain scenario I think it’s okay to maybe not invest/save all of your tax refund or extra money that comes your way.
If you have all of your bases covered in your day to day spending you should feel free to spend a little bit of any extra money coming your way. Specifically if you are already saving 10% of your pay regularly, have insurance that covers your needs and no consumer debt you shouldn’t feel any guilt about spending a small amount. However if it were me and any of those things weren’t covered I wouldn’t feel right about spending the money on extras without taking care of those things first.
I have never been in debt but I know that many people who have and have paid off their debt sometimes go in the opposite direction of saving too much. I have noticed that some people feel that they can’t spend any money or that will cause a slip up and send them back into debt. This isn’t a great mindset. It does not have to be all or nothing. You should try really hard to work towards a balance. If you go too far into the “must save all things” you might miss out on some pretty neat stuff. The depravation you are enforcing on yourself is not the punishment for having debt at one point. This goes back to trusting yourself and building a budget that works and not a budget that punishes you for spending money.
RRSPs for the Win, again:
Thanks to our focus on RRSP contributions, I know we are in for a sweet refund this year. The odds are I will invest all of it into our RRSPs. I know that I could give myself a way out to spend 5% or even 10% on something for us. But in our day to day money spending we don’t really worry about getting an extra coffee here or there or being super frugal with our money. We have balance with our budget day to day. So we really don’t need a “break” from being super responsible all the time. The right thing to do for our financial situation is to invest 100% of the money. We budget well and make sure we have money kicking around for other treats. To us it doesn’t feel like we are depriving ourselves of a good time by spending that extra money.
Have you ever struggled with saving too much money? How have you let yourself feel okay about spending money? Do you save or invest any extra money that comes your way. Let me know in the comments. I would love to hear from you.
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