saving to spending

Making the Emotional Shift From Saving To Spending

Building wealth does not necessarily depend on factors like how much people earn, their education, the career field they choose, or whether they invest in real estate or the stock market. Based on my decades of experience with clients, I’ve found only one common denominator—frugality. Spending less than you make is a really important component in building wealth.

I also have seen the downside of frugality taken to extremes. This is what I call Frugality Syndrome.

Frugality can be somewhat natural, but it also can be an acquired habit. Many of my older clients have been practicing frugality all their lives, and as a result they have accumulated more than enough to live comfortably and do things they enjoy in retirement.

Yet it can be really hard to pivot from the mode of accumulating and being frugal to the mode of using what they have, going from saving to spending. Retirement can be defined as the time when you’re not working for an income. This means the money needs to come from somewhere. One source for all of us is Social Security. A few retirees have pensions from governmental or private sources. But, by and large, we need to draw our income from what we’ve saved.

Making this shift can be an incredibly emotional event. Typically, a frugal person has all sorts of money scripts like, “It’s better to save than spend,” and, “Never spend down your principal.” These served them well in their earning years. So reaching retirement and realizing it’s time to spend what they have accumulated can be difficult.

I’ve even worked with people who have not been able to retire and are still working well into their seventies, not because they love their work or need to work financially, but because they are afraid to quit. They just can’t make that transition from saving to spending.

Obviously there is an opportunity for financial therapy to help someone in this position look at all of their money scripts around this issue. Some of them can be deeply ingrained. I’ve seen people uncover an unconscious belief that “Retirement means you die.” I’ve seen people who have retired with ample means but are living so frugally that it endangers their health and safety. They could spend two or three times what they were spending and never run out of money, but they couldn’t do it because the emotions around their fear of spending were so deep.

If you’re stuck at that point of transition from saving to spending, here are a few suggestions that might help.

1. Understand that Frugality Syndrome is quite common. It’s normal to have anxiety around retiring and starting to depend on your retirement savings for your income.

2. Get a second opinion, a financial checkup. If you don’t have a financial planner, find an advisor—a fiduciary, fee-only planner, not someone who sells financial products—who will help you set up smart withdrawals from your portfolio. There are advisors who will do one-time consultations for an hourly fee.

3. Try having a conversation with the part of yourself that is so afraid of drawing from your saving. Imagine that part of you sitting across from you. Start by asking, “What are you afraid will happen?” Write down the answer, then ask another question, and keep the dialog going. You play the role of yourself, then the role of your inner part, and talk back and forth as you explore this fear. You may find that the fear traces back to childhood experiences.

This can be an incredibly powerful exercise. I have used it for myself as well as clients, and I teach it in my graduate course at Golden Gate University. Typically, several students in every class tell me it was one of the most powerful tools they learned.

4. Prepare a spending plan to help you address the fear of running out of money. Create a plan with clear spending guidelines that will encompass everything with retirement, even a budget for giving to kids or other family members. So if someone has a need, you can respond based on the amount in your giving fund, and you know you’re not going to blow your retirement plan.

5. Finally, if you’re approaching retirement, start preparing for the shift from accumulating to using what you’ve accumulated. Look at your money scripts around this issue instead of waiting until the reality of retirement hits. It’s important to prepare for the emotional as well as the financial aspect of this transition.

Check out The Financial Therapy Podcast by Rick Kahler concerning this topic.

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