Five signs that you are saving too much

The Covid-19 pandemic resulted in a sharp increase in savings globally as government stimulus cheques, strong stock market performance and spending cutbacks during movement restrictions resulted in more disposable income for a majority of households.

Many people created a financial safety net to protect themselves from the economic consequences of the pandemic, leading to a huge spike in funds held in savings accounts.

When asked how much money they need to save to consider themselves financially healthy, Americans put the number at $516,433 (Dh1.89 million), on average, a July 2021 report by financial services company Personal Capital showed. About 20 per cent said they would need more than $1m.

We asked personal finance experts to share five key signs that might indicate a person in saving too much.

1. Your emergency fund is overflowing

If the size of your emergency fund is too large, it means that you are saving more than is required, says Vijay Valecha, chief investment officer at Century Financial in Dubai.

“By definition, an emergency fund is supposed to have three to six months’ worth of expenses in a liquid, high-yield savings account. So, if the fund size is large, the person is missing out on good investment opportunities,” Mr Valecha says.

If three to six months’ worth of emergency savings does not seem like it will be enough, another rule of thumb is six months’ expenses for a dual-income household and one year of expenses for a single-income household, says Sophia Bhatti, a partner at Hoxton Capital Management.

“People tend to keep a lot of cash on the side just in case for a rainy day,” says Ramzi Khleif, general manager at digital wealth manager StashAway Mena. “However, all you need is six to nine months’ worth of essential expenses to put aside.”

People tend to keep a lot of cash on…

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