Try to think of a word that follows “too much of” that signifies a good thing. Harder than it sounds, isn’t it? The natural tendency is to think that more of a good thing is always better, but the reality is that you can get too much of anything. Think of good or positive things like nutritious food, studying, work, sleep, or exercise. Too much of any of these things can be excessive and have long-term harmful effects on our bodies. The key term here is moderation.
A few weeks back, my trainer gave me the green light to run 10kms again. He said that I could run a maximum of four times a week, and train at the gym a maximum of three times a week. Naturally, I did everything he said I could do. I trained for 15 days straight without a rest day, alternating between running and the gym. Day 16 came along and 1km into my run I felt a pinch in my achilles tendon. I immediately stopped all exercise cold turkey until I was due to see my trainer again. When I told him what had happened, he smiled and said that it was not surprising at all. He said it was normal for my body to react in this way – I had fallen into the same trap of overdoing it, not giving my body time to rest and recover. He explained that while it is important to push my body, it’s also important to do so in moderation.
Moderation means doing something in a reasonable amount that is not excessive. We like to think that the more we give or invest in something, the better off we will be. This is true, up to a certain extent. At some point, we will start to see diminishing returns from our efforts.
The concept of diminishing returns states that as an investment in a specific area increases beyond a certain point, the returns that arise from the additional investment will not continue to increase if all other variables remain constant. Investment is an umbrella term that can refer to effort, time, money, or anything that we contribute to in order to achieve a result. This can be observed in any area of our lives, in exercise, diet, our relationships, in perfecting a study, and of course, in our spending and saving habits.
When it comes to spending and saving, we are often advised to save more, spend less, and think about saving for our retirement. We are bombarded by tips and tricks to save money, reduce spending, and accumulate cash reserves. One of the more extreme approaches is the FIRE (financial independence retire early) movement. You can read more about the FIRE lifestyle movement here in an article we wrote recently. There are some useful applications of this approach, but it is not for everyone.
Studies show that fewer than 30% of Americans feel like they have their retirement savings on track. Nearly 40% of adult Americans will struggle to meet an unexpected $400 expense. As I explained in my previous article about sleep, a lack of money is a well-known cause of stress that can keep us up at night, and therefore saving is indeed a good thing. It is important to note, however, that the feeling of a lack of money is not reserved for when we do not have income from employment. Restricting your spending too much can also create the feeling of lack of money and impact your quality of life now. This can also become very stressful.
Quality of life is a subjective measure of one’s perception of their position in life in relation to their goals and expectations. Many financial decisions will be centred around your quality of life – often, quality of life may be decreased to earn or save more money, or improved by spending more money. As the proverb goes, “You can’t take it with you when you go”. Although it is important to be diligent with money and save for the future, for most people, both spending and saving must be done in moderation without too much detriment to your current quality of life and overall happiness.
Remember, it is only too much if you are unhappy. There is no perfect formula that is going to tell me how many kilometres I can run or how much money you should be saving. There are few things that manage to up my mood like a daily run, and even fewer things that stress me out more than the fear of not being able to do so anymore. I know that as long as I do it in moderation, I will be able to enjoy my runs consistently for a long time.
In a similar fashion, there are few things in life that will provide the peace of mind and joy that financial security can, or create the stress of a lack of money. The balance between living and saving will be different for everyone, but what’s important is that you strike one that allows you to live the life you want, both now and in the future.
Our two cents: aim to strike a balance between saving and living that is aligned to your objectives. For most people, that means saving for the future without compromising on the present. Remember, sufficient savings are only the first step towards financial freedom – for this, you require a solid financial plan. Contact Black Swan Capital to help you set up a tailored financial plan for your future needs.