How Saving Money Can Be Bad For You / by Alen Faljic

Roughly one year ago, I got my first job and consequently my first salary. Overnight my budget literally increased by 5x. As you can imagine, I was super excited to invest in different things on my long wish list, which I have built over time while living on a student budget. 

But four months later, I was feeling worse than before ... My old mentality was still here. I did not buy anything from my wish list, I was still buying low-quality student food, and overall I wasn't prepared to spend my salary on anything that was not 100% necessary. My savings account was getting bigger every month but I was not enjoying.  

The problem was in the process of how I was saving money. At the beginning of the month, I would usually pay for all monthly costs (rent, utilities, etc.) and transfer some money to my savings account. What was left on the account, was mine to spend. In general, that is a great idea. But mine had one problem. If I didn't spend all of that money by the end of a month, I have transferred it to the savings account. 

Here is an example. Let's say that my salary is 1000 units. At the beginning of the month, I would pay 350 for my rent, put 250 on the savings account and 400 would be left to me to spend. However, if I only spent 200 out of these 400, I would transfer additional 200 into savings. 

This basically created an incentive to spend even less money because If I didn't spend it, I would put it aside. And that frustrated me because I started to believe that spending is important.

Why is spending/wasting money important?

Lately, I came to realise that investing money in things, which are not urgently necessary, is urgently important. Making small investments in new knowledge, experience, food, etc., is very important to widen our horizon and create an environment in which we can grow. It goes back to the article I wrote last year about peeling your onion, learning new stuff, and finding new ways to express yourself. 

For example, last year I bought my first car. It was a hard decision. I didn't need it urgently but it was a nice to have. Initially, I bought so I could get back home for a weekend (I currently work cca. 500km away from hometown where I still have a lot of friends). But it turned out to be one of the best investments. Since then, I have discovered new passions for hiking and camping, which fulfil me greatly. And owning a car was an enabler that opened this new experiences. 

I think the big point here is that having some money that you can waste guilt-free gives you the freedom to try out new things and grow. So, I am trying to create a system that supports me in this. 

The new rule - savings limit

I have decided to tweak my money management by putting a limit on my savings. I have a plan of how much I want to save in a year and that is it. Not a cent more or less (hopefully). Whatever is left in my account is mine to spend. 

My monthly money flow. 

My monthly money flow. 

If we take the same example as above (1000 units salary, 350 rent, 250 savings, 400 guilt-free spending), anything left of 400 units at the end of the month, would be transferred to next month's guilt-free spending. So if I didn't spend 100 out of 400 units in this month, I would have 500 units of guilt-free spending. 

A side benefit of this system is that I always have enough money in the bank account for planned and unplanned big expenses such as vacation. So, I don't need to take money out of savings account (which I've always hated). 

Useful even for those who spend too much 

My problem was a tendency to save too much money but you could easily have the opposite situation. You might have no problem spending money but don't know how to save it. I like to believe that the system described is also helpful for you. By deciding on how much money you will save in advance and actually putting it aside at the beginning of the month, you are creating a structure that helps you spend the money guilt-free. On the other side, savings money helps you make bigger investments for the future (e.g. starting your own company, having freedom to quit a job you don't like, buying an apartment, etc.).

Saving money is just as important as spending it.