Saving too much: Is this why you are always in debt?

It is the American billionaire businessman Warren Buffet who said: “Do not save what is left after spending; instead spend what is left after saving.”

But what happens when what you remain with after saving is not enough to cover your expenditures? How much should one save anyway?

When it comes to personal finance, the importance of saving cannot be emphasised enough. 

Save, they say. No matter how little you earn, they insist.

As noble as the idea is, the push and emphasis to save may be piling too much pressure on individuals who fear being broke when they retire. 

There is a wise saying among the Swahili community that says: "Usijisifu una mbio bali msifu anayekukimbiza" which can be loosely translated to how fast you run depends on whoever or whatever is chasing you.

Ideally this means if you are 40 and you have not saved, then you better save more since you have just 20 years of employment remaining. If you were in your 20s, you have the liberty of starting small.

Fidelity, a brokerage firm for a start, advises that one should save 15 per cent of their annual salary for retirement.

How much is enough?

Whether this is enough, is another question.

“That depends, of course, on the choices you make before retirement—most importantly, when you start saving and when you retire. Any other income sources you may have, such as a pension, should also be considered,” says Fidelity in an article titled How much should I save for retirement?

Personal finance expert and Fortune Sacco Nairobi branch manager Alexander Ngotho says saving should not be a painful affair.

He says it does not make any sense for one to save only to find themselves broke afterwards. Saving should be enjoyable, he says.

“I do not believe in that (saving being painful). Saving should be enjoyable. It should be an exciting journey,” said Ngotho during an interview with a local media.

He says one should look at their income and ask themselves: "What amount can I save comfortably and live my normal life?"

He advises that saving also should not largely alter your standards of life.

“It is not like when I am saving, I put away Sh50,000 then I do not have rent and the landlord is knocking on my door,” he says. “It should be; what is that amount that I can comfortably set aside and live a normal life? That will make savings exciting.”

The rationale of saving is that the more money you make the more you should save says a report by Enwealth, a financial services company.

A research which was done in partnership with Strathmore University and Institute of Human Resource Management shows that 87 per cent of the respondents indicated that they regularly save and put part of their income into investments.

“Generally, the data collected shows a correlation between the amount of income earned and the percentage of income saved,” the report reads.

The report says the respondents who reported to earn the highest level of income, that is above Sh150,000 also reported to save above 30 per cent of their income.

“This indicates that these individuals have sufficient income to cover their basic obligations like food, shelter, medical expenses, education and also have a surplus to into savings and investments,” the report says.

However, respondents who earn below Sh60,000 reported a low percentage of income allocated to savings which indicates low disposable income.

The 50/30/20 rule is the most commonly used guide by financial experts to help individuals manage their expenditure hence develop a discipline in saving.

This is where 50 per cent of your earnings go to necessities like food and rent, 30 per cent to wants like entertainment and the rest to savings and investments.

Main barrier to saving

The main barrier to saving, according to the report, is ‘not having enough funds’ (56 per cent) followed by ‘having obligations that require regular funding’ (27 per cent).

According to an article published on nationalnews.com, one sign that one is saving too much is when they deny themselves social activities. The rule should be if you work hard for your money, you should enjoy it too.

One cause why people save too much that they put themselves to suffer is unrealistic goals as Ngotho explains. Saving should be SMART that is with goals that are Specific, Measurable, Achievable, Relevant and Time Bound.

“For example, you can say you want to live in Runda in the next five years. Ask yourself, is it possible? Is it something attainable, based on your income level,” he says.

Being practical is key in attaining your savings goals.

 “The challenge that we have is that we are compelling ourselves too much. Like now I look at my colleagues and say: She is living like this and I also want to live that way. If people are saving Sh10,000 do not copy them for the sake of it. If you can manage Sh1,000 do it and live by your means."

To some extent, the push to have many people save, and save more has been seen as a ploy by the financial services industry. 

As such, they (insurance firms, pension managers and the likes) will say individuals are not saving as much in order to make them have a larger pool of funds to invest in other areas like real estate for their investors. 

Lisa Smith, in an article about about saving and budgeting titled Are you saving too much for retirement published by Investopedia in September 2021 argues that the problem with this type of saving is that it is not as fun as spending.

"The "saving-too-much" theory blames the financial services industry for scaring investors into saving so they can profit from managing all that money," the article reads.