(Bloomberg Business) — A 36-year-old makes as much as $130,000 in a day, yet still lives at home. He buys sandwiches late in the afternoon to save 75 cents. He organizes his life around commuting only in cheaper off-peak hours.
Impressive frugality? Or something far more complicated?
That’s Navinder Singh Sarao, the trader/skimper who allegedly contributed to the 2010 market “flash crash.” Few of us would go to such lengths to save money. But what if you just keep 20 or 30 percent of your assets in cash? Or hold on to an investment you know you should get rid of, but your late father gave it to you and you can’t seem to sell it?
Aren’t you being just a little bit eccentric yourself — and losing money in the bargain?
When a positive behavior, like saving, is taken to an extreme, it can turn into a negative, said Anthony Canale, a certified financial planner and author of a paper about financial hoarding in the Journal of Financial Therapy. While people like the ones on the television show Hoarding: Buried Alive have an emotional attachment to physical objects, financial hoarders “develop a similar emotional attachment to cash,” he said, “and eventually feel a real, deep anxiety about letting it go.”
The classic example of financial hoarding: keeping more cash than necessary, even if you’d be better served by paying off debt or investing. Carlos Dias, Jr., founder of Excel Tax and Wealth Group, worked with a client with about $25,000 in her checking account who nonetheless used a home equity line of credit to make purchases. “She accrued almost $13,000 in debt,” he says. “She had the money [she needed] but kept coining it as a ‘rainy day fund.’ Instead, she created this additional stream of debt.”