Extreme saving gone wrong

At some point a fanatical devotion to saving is counter productive

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I enjoyed reading Laura Shin’s interview with Cait Flanders, who runs the Blonde on a Budget blog.

They discussed Flanders’ year of living frugally during which she spent about half her income on living expenses while the rest went to savings and travel. To cut back she imposed a shopping ban on most non-essentials that included takeout coffee, new clothes, books and electronics. Overall, the experience was so good that she expects to continue with it for another year.

I’m always a sucker for frugal living stories because I’m not a big spender myself. Mind you, that doesn’t stop me from ordering coffee at my local café or going out to dinner when I want to. But I generally live a simple life.

Flanders’ ability to save about 50% of her after-tax income got me thinking. While I keep close track of my net worth, I haven’t bothered to compare my expenses to my non-investment income. But, based on a quick back-of-the-envelope calculation, I figure I might be doing a little too well on the savings front.

At some point a fanatical devotion to saving is counter productive. After all, you can’t take it with you. That’s why extreme savers (with more than enough money in the bank) should have a spending goal rather than a saving goal.

(On the other hand, savers with generous spirits might carry on with their frugal ways and donate large estates to charity.)

The interview also inspired me to sit down, when I have a little spare time, and accurately count up my expenses for the last few years. It’s something anyone near retirement should do too because it will give them a better sense of how much money they need to live on.

In happy cases, an early retirement–without financial worry–might be in the cards. On the other hand, it’s also good to know when a bit more work is in order.

It’s something to think about when you’re at the beach this summer and dreaming of staying a little longer.

Safer Canadian Dogs

Investors following the Dogs of the Dow strategy want to buy the 10 highest yielding stocks in the Dow Jones Industrial Average (DJIA), hold them for a year, and then move into the new list of top yielders.

The Dogs of the TSX works the same way but swaps the DJIA for the S&P/TSX 60, which contains 60 of the largest stocks in Canada.

My safer variant of the Dogs of the TSX tracks the 10 stocks in the index with the highest dividend yields provided they also pass a series of safety tests, such as having positive earnings. The idea is to weed out companies that might cut their dividends in the near term. Just be warned, it’s a task that’s easier said than done.

Here’s the updated Safer Dogs of the TSX, representing the top yielders as of July 7. The list is a good starting point for those who want to put some money to work this week. Just keep in mind, the idea is to hold the stocks for at least a year after purchase–barring some calamity.

Name Price P/B P/E Earnings Yield Dividend Yield
Potash Corp (POT) $39.10 2.88 18.28 5.47% 4.97%
BCE (BCE) $53.83 4.12 19.09 5.24% 4.83%
CIBC (CM) $91.78 1.95 10.45 9.57% 4.75%
Bank of Montreal (BMO) $73.94 1.43 11.91 8.40% 4.44%
National Bank (NA) $47.05 1.74 10.48 9.54% 4.42%
Rogers (RCI.B) $44.04 4.17 17.55 5.70% 4.36%
Shaw (SJR.B) $27.45 2.65 16.94 5.90% 4.32%
Bank of Nova Scotia (BNS) $63.93 1.66 11.12 8.99% 4.25%
TransCanada (TRP) $50.28 2.1 20.69 4.83% 4.14%
Royal Bank (RY) $76.37 2.13 11.75 8.51% 4.03%


Source: Bloomberg, July 7

Price: Closing price per share

P/B: Price to Book Value Ratio

P/E: Price to Earnings Ratio

Earnings Yield: Earnings divided by Price, expressed as a percentage

Dividend Yield: Expected-Annual-Dividend divided by Price, expressed as a percentage

As always, do your due diligence before buying any stock, including those featured here. Make sure its situation hasn’t changed in some important way, read the latest press releases and regulatory filings and take special care with stocks that trade infrequently. Remember, stocks can be risky. So, be careful out there. (Norm may own shares of some, or all, of the stocks mentioned here.)

New & Noteworthy

The Evolution of a Value Investor

Tom Gayner, the CIO of Markel Corp, talks about his journey as an individual and a value investor.

Food for Thought

I Fooled Millions Into Thinking Chocolate Helps Weight Loss

Why it’s dangerous to believe the nutritional study of the week. A similar lesson applies to the world of finance.

7 comments on “Extreme saving gone wrong

  1. How can you not save a great amount of your income say 30% to 50% depending on your particular life and family situation. I am single right now and am pretty young, in my 20’s and have no pension plan through work.

    The ORPP, Ontario’s new pension plan is a joke because it is a small amount compared to inflation, cost of living in probably 45 years. I have to maximize my RRSP’s and TFSA’s. In many years from now, inflation, cost of living and taxes that will all add up just makes it more scary that not saving a higher amount is just irresponsible and financially dangerous.

    Especially with lower GIC, bond rates than just 5, 6 years ago. I am proud that I am saving this year $7,500 in my RRSP and $11,000 in my TFSA, $3,000 in savings account.

    Buying a house is not a priority right now and I would not be surprised if we see prices falling in the next 5 years. Take care great savers!


  2. Very good post! I agree that saving and investing is very important. But know how to plan priorities and when/how to enjoy life.


  3. Hi Mr. Rothery,

    Thanks for the read. However, I would challenge you on the implication that Cait’s experience was ‘fanatical devotion’–if you have read her blog, you’ll see that she is determined woman who has come to embrace minimalism and who prioritizes her spending elsewhere (ie: travel savings). I very much respect her journey and encourage you and others to read her blog and discover what she’s all about!



  4. You can’t take it with you. Tell that to the over leveraged, over indebted, debt ridden Canadians that have any or much of RRSP’s, RRIF’s, RESP’s, TFSA’s, GIC’s, dividend paying investments, REIT’s, stocks, ETF’s, bonds, savings accounts, term deposits, floating rate notes, bonds, strip bonds or zero coupon bonds, mutual funds etc. etc. etc.

    You can’s take your $500,000 to $1,000,000 condo, house, cottage, vacation property with you either but many more Canadians are addicted to mortgage financing, refinancing, line of credits, car, auto loans, credit cards, payday loans etc. etc.

    If someone gets joy from saving, investing and if that is extreme so be it. At least they are not deep in debt and financial stress pile on. Our country had a great savings rate of 15% to 20% and was doing just fine. Now, look at us.


  5. You can’t take your $500,000 to $1,000,000 house, condo, cottage, vacation property etc.


  6. For most extreme savers, the goal isn’t to accumulate a huge stockpile at the end of life. For most, early retirement is the goal. These people get to have their cake and eat it too. Living a simpler life during working years has been proven to reduce stress and increase current happiness. And then the big savings kick in and you get to retire really early, enjoying several extra decades of freedom to pursue your true passions while you still have some youth and vigour left.


  7. Sparing not a good way to get rich. In our country we have a saying: The economy is the mother of misery!


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