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George, who has been reading Get Rich Slowly since it was a single entry on my personal blog, writes with a curious question. By adhering to sound personal finance practices, he’s reached the destination we’re all striving to reach. But he wonders if he might have gone too far.

If you’re just beginning your journey out of debt, saving too much may seem like a nice problem to have. You’d sure like to have all that money! But George’s problem highlights the need to maintain balance in your life. You can save too much. Here’s his story:

I’m 29, married with one child (and a second on the way), and work in an extremely stable job with an excellent pension plan. My wife has a similar income and also has an excellent pension plan. As we’re in Canada, we have excellent health coverage through the public system and through medical/dental plans from both of our employers. We each contribute equal amounts of our paycheques toward joint expenses.

I’ve followed the advice espoused on Get Rich Slowly, and as a result our family is in a very stable financial position. I have saved over $37,000 in my retirement account, put $6500 in an education savings account, and routinely contribute to an emergency fund (which now stands at $5000). Every two weeks I also put extra payments towards the principal on our mortgage, which has a current balance of around $135,000 on a house now worth about $380,000. At current interest rates and with our extra payments, we anticipate being mortgage-free in 12 years (when I’m 41). We have no other debts, and all credit card charges are paid off every month.

My take-home pay is around $1500 every two weeks, but after $200 to my retirement account, $300 to the mortgage (including the extra to the principal), $50 to the education fund, $200 to the emergency fund, $100 for groceries, $60 toward transportation costs, $215 toward child care, and $100 for utilities, I’m only left with about $275 for “discretionary” expenses like clothing, entertainment, dining out, and the like.

While I’m glad to be saving toward my long-term goals, I am starting to feel like I’m sacrificing too much in the present so that I can save for the future. By the time my next paycheque comes in, my bank account is usually hovering close to the zero mark. It feels like I’m living paycheque-to-paycheque, but I know that I’m not since I’m accumulating wealth and my net worth is increasing.

Am I saving too much? If so, where should I cut back on the savings: the funds for retirement, education, emergencies, or extra mortgage payments?

I’m impressed that George has made such outstanding progress at a young age. I hope to be in his position in a few years, by which time I’ll be over 40! Because I don’t have first-hand experience with his dilemma, I can only offer hypothetical answers.

For example, accelerating mortgage payments is great, but my opinion is that it’s “icing on the cake”. It’s something to strive toward. I don’t think making extra payments is worth sacrificing present happiness. If I were in George’s position, I’d stop the extra payments for now, but do so with the understanding that they’d resume with future salary increases.

Also, I don’t know how much George needs in his emergency fund. Each person has a different comfort level. Some people want twelve months of living expenses; others are happy with just a few weeks. I believe that $5,000 is a suitable amount at this point, and that George can probably afford to reduce contributions or to eliminate them for a while. Again, the emergency fund is something that can be increased in line with income.

Regardless, I would continue to make regular retirement contributions, and to add to the education fund. These accounts will realize enormous benefits from the power of compound returns, but only if the money is there for the magic to happen.

Do you have advice for George? How do you find a balance between spending and saving?