Saving money is always a good thing, but it is possible to save too much? If you're looking to adopt a more FIRE lifestyle, you need to know the downsides of overaggressive savings — because going too hard can be harmful to both your mental health and your professional development.

I’ve always been an aggressive saver. When I was young, my parents instilled in me that one should always have money saved for a rainy day and, ever since, I’ve been walking around in rain boots.

To give you a sense of my saving obsession, I worked three jobs during college to increase my savings rate, and til’ this day, I continue to juggle my day job along with several other side hustles. For me, saving and investing have always been priorities — but I also know what it’s like to go too far.

I’ve recently been looking back on my life and wondering about all the things I may have missed over the years because I was working multiple jobs or unwilling to spend.

Which got me thinking: can saving too much be bad for you?

Don’t forget, saving is a personal thing

Saving money is a good thing but it also depends on your personal situation. While there are lots of saving “rules of thumb” out there, everyone’s financial situation is different. Don’t feel like you need to fit into a single budgeting methodology if it just doesn’t work for you.

To set your savings goals, first define what you want your finances to look like over the short-, medium-, and long-term. Then, take an honest look at your current financial and career situation to determine what is feasible based on where you are.

Once you have this personal context set, your saving decisions will become clearer. Always start with the end goal in mind. It’s key to knowing if you are saving at the expense of other things.

How much does the average person actually save?

According to the Federal Reserve’s Board Survey of Consumer Finances (SCF), the average American’s savings balance differs greatly by age:

Age groupAverage savings balance
Under 35$11,200
35-44$27,900
45-54$48,200
55-64$57,800
65-74$60,400
75+$55,600

As you can see, the older you get, the more savings you tend to accumulate.

More importantly though, according to the Bureau of Economic Analysis, Americans have been saving about 6% of their income so far in 2022, which is lower than 2021’s figures of 12% on average (albeit distorted by historically high savings rates earlier in the year).

When you compare these figures with generally accepted savings rules of thumb like the 50/30/20 model or the 80/20 plan, you’ll quickly see that most Americans aren’t saving nearly enough. There are many reasons for this and on top of the surging inflation we’ve seen recently, it makes sense that finding extra money to put away has been challenging for a lot of us.

Read more: 7 tips to protect your finances against inflation

But even though Americans aren’t saving enough in general, it’s important to point out that you can also develop harmful habits related to savings.

With movements like FIRE (which stands for financial independence, retire early), there’s more pressure than ever on young people to achieve financial independence as early as possible — and to do so through highly aggressive savings.

Saving is, of course, important for your financial health. But the way you go about it can actually be harmful to your mental health and long-term professional success.

Can saving too aggressively be a bad thing?

If you are reading this article, you’ve probably heard of the many aggressive saving and investing philosophies out there like the FIRE movement.

On the surface, these personal finance approaches sound great, but the potential negative mental and emotional impacts are not often discussed.

Mental health impacts of aggressive saving

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While it may seem counterintuitive, overaggressive saving can be as harmful to your mental health as other, more negative, financial behaviours like compulsive spending. Saving can become an addiction, impacting your life and relationships.

Overaggressive saving can also lead to anxiety when it comes to spending on anything. This phenomenon tends to come out especially once aggressive savers enter retirement. These people have developed an ingrained sense of frugality and an emotional attachment to their money due to the sacrifices they have made to get it.

Saving away your life

We’ve all heard about the bad side of FOMO and YOLO, but there is also a positive side that shouldn’t be ignored. If you are too aggressive of a saver, it can easily make you feel like you are wasting away your life for some future day that might never come.

In some cases, FOMO can be a valid reason to forgo aggressive saving if you are in a reasonably good financial position with no outstanding high-interest debt (like credit card debt) and have set aside an emergency fund.

From personal experience, there are several things I regret not doing because I was so focused on saving and working, and that I’ll never get the chance to do again. You only live once and it’s important to balance your savings goals with what’s important to you at this life stage.

Read more: When it’s ok to spend money

Forgoing investments in yourself

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There’s lots of truth to the statement, “You need to spend money to make money.” Many of the things that can help you grow professionally will cost you, including courses to help you learn new skills, or networking events where you can meet new people.

Read more: How to network like a pro: tips for beginners and college grads

If you are saving too aggressively, forgoing those types of investments can hurt you in the long run. Don’t be shy about spending money on your professional growth. As Warren Buffett once said, “The best investment you can make is in yourself.”

But don’t confuse investing in yourself with things like dropping thousands on designer clothes or lavish vacations and dinners if you can’t afford it.

How much should you save according to the experts?

Overall, that figure tends to come in at between 15-20% of your after-tax income.

There are also many studies out there from organizations like Merrill that provide significant detail on how much money you should have saved by a certain age. For example, Bank of America’s proprietary Financial Wellness Tracker suggests you take a multiple of your salary within certain age ranges to determine how much you should have saved by a certain age.

According to the tracker, if you are between 26-30, you should be multiplying your current salary by 0.7 to determine how much you should have saved. This means that a 28-year-old making $60,000 per year should have approximately $42,000 saved.

Don’t forget, it’s not all about saving

While there are lots of well-researched and publicized approaches that outline how much you should ideally save, don’t forget that you can only save so much. The reality is that it costs a certain amount to live so you’ll never be able to get to a 100% savings rate. The best thing to do to naturally increase your savings is earn more money, pay down bad debt like credit card debt, and don’t succumb to lifestyle inflation.

Always set clear financial goals that are personally meaningful for you, but don’t forget about living and enjoying your life. You only get one of them.

There will always be tradeoffs when it comes to how you spend and save your money but don’t let yourself get locked in the trap of unhealthy saving.

Featured image: Fedorov Oleksiy/Shutterstock.com

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About the author

Total Articles: 11
Aubrey Chapnick is a Certified Financial Modeling and Valuation Analyst and has completed the CFA Institute's Investment Foundations certificate. He also holds an MBA from the University of British Columbia. His professional career consists of consulting for financial services companies, and working in product management and strategy in the investment industry. Aubrey also had a brief stint in investment banking and equity research. Aubrey is currently working in the capital markets intelligence industry and is a freelance writer for personal finance, business, and career topics. His work appears online and in print media outlets throughout Canada and the U.S. When not writing about finance, or the markets, Aubrey's busy watching Formula 1, staying active, and managing his investment portfolio. All thoughts and opinions expressed by Aubrey are his own and not those of his current employer.