I'm saving money too fast. What should I do?

Question

[Apologies if this sounds (and is) like a first world problem]

I get a very generous salary and I am not a spender. I am able to save $2000-$2500 every month.

I've invested part of my money in some stocks but I have the feeling that I saving faster than can find new stock picks... I've already put aside an emergency fund, money for vacation, charity, 401k, I have no debt, (luckily) I'm healthy, etc.

I don't want to blindly throw my money in the market just because I have them and I really don't feel the need to buy anything. What should I do?

Answer 1

Remember that a salary is temporary.

Until you are independently wealthy—that is, until you can live off the income generated by your invested capital—there's always more investing you could do with the excess.

Invest outside your 401k if you are at the limit for contributions. Plain investing accounts continue to exist.

Learn more about doing it yourself by studying the benefits of diversification. There is far more to it than a bunch of stock picks. Else, hire a professional fee-only financial adviser to assist you with making a plan and selecting suitable investments.

Beware of commissioned salespeople in advice clothing – although they can be a quick solution to the having-too-much-money problem. ;)

Answer 2

There is no 'saving too fast.' People who start out by having a goal of retiring young might save 50% of their income or more. If your lifestyle is what you want it to be, fine, I won't suggest a bigger house, better vacation, etc. Once the usual accounts are funded (The 401(k) and IRA for a $23K total, you won't have much left if your income has $2000-$2500/mo to save.

Take that extra $1000-$7000/yr, and just put it in a brokerage account, a money market for now. Many have done just fine by buying into a broad index, the S&P for instance, regardless of the market. You mention "stock picks." I am in my early 50s, and learned long ago that stock picking is a tough game. Less than 10% of my retirement money is in individual stocks, and over time I lag the S&P by just enough to calculate the cost of my 'having fun picking stocks.' If you just throw that extra money aside into the money market, you'll have the funds to buy when an opportunity presents itself, either the S&P or other index if you go that way, or individual stocks that meet your criteria.

There are people that manage to invest 100X the money you're talking about for their own savings. Be patient.

You don't mention your marital status. If you plan to marry and have children, college is expensive. You can open a 529 college savings account in your own name and change beneficiaries when the kids arrive. I'm expecting my 15 yr old's college bills to exceed $200K. This is for one child. That will absorb your 'excess reserves' pretty fast.

Answer 3

What is your Walk Away number? The amount of money you need saved and invested in order to live off the returns indefinitely?

Can you live on $3000/month?

• Suppose you need $3000/month to be happy ($36,000/year)
• You would need about $1M invested (returning 4%) for $3000/month
• How long would it take you to save $1M at your current savings rate?

Can you live on $5000/month?

• Suppose you need $5000/month to be happy ($60,000/year)
• You would need about $1.5M invested (returning 4%) for $5000/month
• How long would it take you to save $1.5M at your current savings rate?

Decide an amount you could live on each month, pick a time horizon (number of years), pick a rate of return you expect, and determine the savings amount to reach that value.

When you have reached that amount, you have wealth (defined as not having to work to earn a living), and thus freedom.

You can still work.

Once you have enough investments to live off the proceeds, you can still work, but you can use the money to help others.

Help others

What do you do with money that you do not need? When you have financial independence, or financial peace, you have the freedom to help others.

Ideas to help

• Donate to charities or causes you believe in
• Loan it to startups looking for funding
• Create scholarships for students
• Bailout or payoff student loans for deserving students and graduates
• Bailout deserving underwater homeowners
• Buy medical debt and forgive it
• Provide funds for micro-loans in third-world countries
• Pay additional taxes to reduce the national debt
• Sponsor a deserving musician or artist
• Random acts of kindness or generosity

Answer 4

I'm in a similar position where I make more than I spend by a fair bit (since I don't value possessions).

I've put money into the following, in this order. You are in the United States, this is fairly specific to there (limits are for the 2020 tax year):

• 401k - you can contribute up to $19,500/year
• HSA - as individual, up to $3,550/year. Depends on your health plan.
• IRA - do Roth if you are in this position, $6,000/year

After this I - and you apparently - still have a fair bit to play with, so I am splitting it 50/50 between:

• Taxable investments. I am investing into index funds as I have no interest in gambling and have considerably more faith in index funds longer term than my abilities. See here for a good resource about this.
• Cash savings. I have no idea what large expenses I will have in the next few years. I understand I lose some money here in inflation/opportunity cost but I also get some significant benefit from having a large cash reserve, I could quit my job and be fine for a year, etc.

You may also find this blog post interesting given your situation.

Answer 5

If possible, you might want to consider to work less. In other words: to buy time. Money is not a goal in itself — money is a means to acquire goods and services that you need.

I don't know if you're working hard, but many people are. Working too hard risks stress-related health problems not easily solved by money. If you're burnt out at 40, money is of limited value to make you happy. In many parts of the world, this is a serious problem. If working 75% of the time is possible with your employer (perhaps consider asking for strategies at The Workplace), you could spend 3 months per year traveling around the world or enjoy a 3½-day working week and spend time on other things you like to do. If you don't really consider yourself young any more, consider what others said related to early retirement.

I realize employers may be inflexible, but working 40 or even 60 hours/week to earn a lot of money that you don't need — looking at it from the outside, it does seem foolish.

Answer 6

I said this in response to a similar question, but keep doing exactly what you're doing.

Save as much as you can, while you can. Because as you do all of the things that people suggested in the comments to solve your "problem," it does indeed get harder to save.

I know from experience. I was in exactly the same boat right after school. I was living by myself, with my first real job. My gosh, it was so easy to save! Now, with a wife, a daughter, a house, and now in-laws in the house, it's much, much harder to save anything.

Saving too much is not a problem. It's a gift. Exploit it for all it's worth!

Answer 7

My thoughts are, what is your housing situation? If you do not own, and are looking to own in the short term, you may want to start a housing fund. Something like a simple money market, or very stable mutual fund will do the trick depending upon your time frame.

Also if you go for mutual funds for "excess money", they are "bottom-less", then can accept as much money as you can pour into them.

Congratulations on your problems! :^)