The Hidden Downside of Being a Super Saver

There's no debating that saving money is an important financial habit. If you don't do it, you're bound to run into financial issues. A popular guideline is to save 20% of your income and divide it between your savings and your investments.

Some people get very good at this. They may set aside an even larger portion of their income and end up with an impressive amount in their savings accounts. This puts you in a strong, secure financial position, so it might seem like you can't go wrong if you do this.

Surprising as it may be, there is a common issue with being a super saver. It doesn't get discussed that much, but it can drastically impact your quality of life. If you focus on saving at all costs, you should know about the hidden downside of this lifestyle.

The best savers often find it hard to spend money

Saving a large amount of money takes financial discipline. The people who accomplish it often get into the habit of living with less and cutting expenses wherever they can. This habit is hard to shake, no matter how much money you save.

As a result, the best savers can be bad at spending money. Not bad in the sense that they spend too much. It's the opposite -- they worry so much about spending money that they hoard it. They never use their money to improve their life.

My favorite podcast right now is Ramit Sethi's I Will Teach You to Be Rich, where he talks to couples about personal finance. He has spoken with people from all kinds of backgrounds, and at just about every level of wealth.

One of the most fascinating aspects of these money conversations is the number of people with a high net worth who are reluctant to spend any money. Sethi has spoken with couples worth millions, who still do things like:

• Not going to the restaurant they want because it's too expensive
• Driving across town to get a slightly better price on groceries
• Booking a flight with two layovers just to save $20 per person

If you're strict about your spending, you might assume that you'll loosen up once you have more money saved. You probably figure that you wouldn't be one of those people. You'd spend more if your net worth was in the millions.

But people's financial habits and worries don't necessarily change as their savings go up. What often happens is you continue thinking that you need to maximize your savings, and you keep feeling guilty at the thought of overspending. So while knowing how to save money is important, it's also important to know how to spend it.

How to get better at spending money

Spending money is a skill, and getting better at it can make life much more enjoyable.

Start by thinking about where you'd love to spend your money, and how you can use money to raise your quality of life. This can be anything you want. For example, you could decide you want to hire a housecleaner so you have more time to relax, go out for dinners and drinks with your friends more, or take a luxurious vacation for two weeks every year.

Next, set aside a portion of your income to spend wherever you want. Ramit Sethi calls this "guilt-free spending," and he recommends setting aside 20% to 35% of your take-home pay for this. If you take home $5,000 per month, that means $1,000 to $1,750 to spend guilt free. Here's exactly how he recommends you divide up your take-home pay:

• Fixed costs: 50% to 60%
• Investments: 10%
• Savings goals: 5% to 10%
• Guilt-free spending: 20% to 35%

You can adjust those guidelines to fit your current income, expenses, and financial goals. If money's tight, your fixed costs may be higher, which means you'll likely need to pull back in other areas. If you want to retire early, then you'll need to invest more. But make sure you dedicate at least some of your income to guilt-free spending.

It's smart to save money, and being a super saver is better than the alternative. However, it can become a problem when your identity gets wrapped up in saving as much as possible. Find the places where you'd love to spend money, and remember that you'll still reach your goals with a healthy balance of spending and saving.