When Saving Money Actually Costs You


If you’re like most Americans, your top financial goals probably include upping your savings game—whether that means topping off (or setting up) your emergency fund or pumping up your retirement accounts. And for good reason: A third of Americans haven’t started saving for the future, and 46 percent can’t cover an expected $400 expense.

Cutting costs is an obvious place to start when you’re looking for savings. “There are almost always a few expenses that are relatively easy to scale back,” says Matt Becker, a Certified Financial Planner ™ and founder of Mom and Dad Money . “That’s usually the best route to quick progress.”

Even a couple small wins under your belt—like negotiating a cheaper cable bill or canceling unused subscriptions—can motivate you to ramp up to bigger efforts. And before you know it, you’re making major strides toward your goal.

But there comes a point when obsessing over saving every last dime might not actually make sense anymore. “If that’s your only focus, you really limit the amount of progress you can make,” Becker says. “You can get stuck in the mindset of holding yourself back instead of opening up to all of the opportunities available to you.”

If you find yourself in one of these scenarios, you might be thinking about saving all wrong.

1. You spend more time “saving” than your time is worth.

If you exhaust hours every week hunting for coupons just to save $5 to $10 on groceries, stop and ask yourself: What’s an hour of my time really worth? ( Calculate your earnings rate , and you’ll probably discover it’s way more than $5 or $10.) When you consistently save less than your time is worth, it’s time to rethink your strategy.

Start by focusing on simpler savings strategies, like downloading apps and digital tools that essentially do the work for you. It’s possible you’ll still save just a few bucks here and there, but you won’t be wasting precious time. Another option is to zero in on opportunities that save you more than your time’s worth. For example, you might spend an hour or more researching flights and redeeming points and miles for an upcoming vacation. If your hourly rate is $50, and you ultimately save a couple hundred, that’s a clear win.

Finally, you may come to the conclusion that, overall, you can earn more in overtime pay, from a side gig or by doing freelance work than you can save by cutting back. If that’s the case, focus on those efforts instead. “There’s only so much cutting back you can do,” Becker says. “And if you never allow yourself to go the other way and think about how you can earn more, there’s only so much improvement you can make.”

2. An expert could do the job better—and on faster—than you.

When saving is your No. 1 goal, you might be tempted to DIY everything . But the fact is, you’re probably not great at everything. And that’s okay—because outsourcing certain tasks can provide you with better results, and even a better financial situation, in the long run.

Sometimes it’s less costly (time- and money-wise) to just hire a pro for a home or car repair rather than trying to do it yourself. Using a CPA for your taxes—one who can ensure your files are in order and suggest credits or deductions you may not know about—can also be worth the fee.

Related: When Is It Worth It to Hire a Tax Pro?

3. You’re missing out on big growth opportunities.

Eliminating areas of wasteful spending in your budget will always be a great idea. But it shouldn’t be your sole savings strategy. It’s far more powerful to also look for ways to increase your income.

Asking your boss for a raise or doubling-down on your side gig are relatively low-risk ways to do that. But don’t shut yourself off to other wealth-building opportunities that may require a little more upfront: “Once you get to a certain point, you have to take the next step and invest money in order to maximize your wealth-building opportunities,” says Eric Roberge, a Certified Financial Planner ™ who founded Beyond Your Hammock , a financial planning firm based in Boston.

When Roberge started his business, he kept costs low by living in the suburbs. But he ultimately decided that relocating to Boston would be a wise business move, even though it increased his expenses. “Moving to Boston allowed me to network and connect with people who helped me grow my business quicker,” he says. Since the move, he’s recouped his initial outlay, plus some, thanks to new business and increased revenue in the city.

Another example: If there’s a certification or additional degree you’ve been thinking about, but are avoiding because of the price tag, do some math. Could it eventually pay for itself by helping you command more money over your career?

“I’d rather see someone in their 40s or younger with many years of work ahead of them spend $5,000 getting a certification or training that will make them permanently more employable at a higher salary, than save it,” says Meg Bartelt, MSFP and president of Flow Financial Planning . “Diverting a portion of [your] money to maintain a relevant skill is prudent—and usually fun, too.”
4. You’ve already hit your emergency fund goal. So you’ve finally fully funded your emergency savings account. Nice! With that major goal checked off your list, you can shift your focus to other goals. Just one hitch: After living in serious savings mode for a while, it’s easy to fall into what James Matthews, a Certified Financial Planner ™ in Charlotte, NC., calls the “scarcity mentality,” or the belief that you’ll never have enough cash on hand. But Matthews points out that three to six months of expenses is plenty to pay for common emergencies, like temporary job loss, illness or injury. “So when you’ve reached this point, it is a great time to reevaluate and divert the amount you’ve been saving for emergencies to other goals.” That includes goals like investing. “Developing a diversified investment plan can supercharge any savings strategy,” Roberge says, “potentially allowing you to grow your net worth much quicker over the long term than just saving money alone.” The average interest rate on savings accounts has been hovering between .06 percent and .5 percent , which isn’t likely to boost your balance by much. Investing additional money in stocks and bonds once you’ve hit your savings goal could offer greater returns. Bonds present a relatively safe option for earning regular income and low-risk returns. Putting money in stocks offers the chance to earn even higher returns, but there are risks involved and you’ll want to allow enough time to ride out downturns.