Setting up good saving habits is one of the best things you can do for yourself. But whether you’re just getting started on your savings journey or you’ve already got a pile of cash, you might be wondering: just how much, exactly, should I save? What if I save too much? Can I stop now? 

It turns out, you’re not the only one to be asking these questions. 

Why Do People Save Too Much?

“In my experience, my clients who either grew up in financially unstable environments or experienced financial hardship earlier in their lives are more likely to keep large savings accounts,” says Margo Sweany, a Certified Financial Planner with RMB Capital

There can be a lot of reasons for that. “There’s security and comfort in cash,” says Valerie Rivera, a Certified Financial Planner who works with people from economically disadvantaged backgrounds at FirstGen Wealth. In other cases, figuring out your alternatives can seem just too overwhelming. “So it’s that fear of making a mistake that can stop you from doing anything.”

Dr. Jay Zigmont, another Certified Financial Planner at Childfree Wealth, sometimes sees that people just have a hard time switching from saving mode to spending mode. “I’ve been tracking my clients and at least half, if not slightly more — I talk to them about spending more rather than saving more.” 

What Happens If You Save Too Much?

If saving money is such a good thing to do, you’d think that having more and more savings would be better, right? Not necessarily, says Dr. Zigmont. 

“There’re literally people with $100 bills in their mattresses,” he says. “One of my neighbors, his father, buried gold coins in the backyard.” With a setup like that, you could easily forget where your money is stashed, lose it in a house fire (or a banana stand) or maybe even to rogue pirates. 

If you have too much money in a savings account, another danger is inflation. The average credit union paid 0.78% APY in March 2022, whereas inflation is at an uber-high 8.6% right now. It’s essentially taking one step forward, and eight steps back. 

There’s also the danger that you won’t earn enough to meet your ultra-long-term goals, like retiring. Consider this: Let’s say you maxed out your IRA by saving $6,000 each year, every year, between when you start working at 18 and when you retire four decades later. If you invested that money in the stock market (earning 7% interest each year) instead of the savings account above, you’d have $1,327,439 at the end instead of $281,748 — over a million dollars more, just by investing instead of putting it in a savings account. 

Finally, by saving too much, you could be depriving yourself, too. We need to save for emergencies and retirement, but no one is guaranteed time here on Earth. It’s about striking a balance so you can still enjoy today to the fullest while preparing for tomorrow. 

How Do You Know the Right Amount to Save?

So, how do you know when you’re saving too much? It’s actually a lot simpler than you might think, and it’s something that’s good to do as a part of a larger budgeting strategy. Here’s what you need to know:

Use Your Goals to Create Savings Targets

Rather than having savings of indefinite size, take some time to consider your goals. The first thing Rivera asks her clients: “What are you trying to achieve three months from now, six months from now and longer timeframes?” 

For most people, that’s usually things like making sure you have enough money for the holidays, vacations, buying a home, and retiring, in addition to having an emergency fund. Make a list of your goals, and then figure out how much you need to feel comfortable with each goal. 

“It’s that sleep-at-night-number,” says Rivera. You want to have a number that makes you feel safe so that you’re not up at night worrying.  

Start With a Rule of Thumb … But Then Adjust

You might know how much you want to have saved for things like vacations or a new car. But other things, like emergency funds, can be a bit tricker. 

With these goals, it’s good to start with rules of thumb. A common one is saving three to six months’ worth of expenses for emergencies. But don’t be afraid to tweak these rules according to your own comfort and needs. 

“My wife’s a college professor, tenure track. They don’t go anywhere, there’s not as much risk,” says Dr. Zigmont. “If you’re running your own side business and you’re an artist, well, you might need more of a cushion.” 

Revise as Needed

Knowing how much to save gives you a firm, real number to work toward. In reality, though, we’re not robots. We’re humans; sometimes we change, and that’s totally fine. That’s why it’s a good idea to revise your savings targets every so often. 

“If you need to beef up your savings to curb anxieties you may be feeling about your job, expenses, the markets, etc., that’s OK,” says Sweany. “But don’t let fear drive your long-term decision-making.” 

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