What is Dissaving? | Definition, Causes & Examples

Financial planning isn’t just about saving, but it’s also about managing how and when you spend your savings. One concept that often gets overlooked is dissaving. So, what is dissaving? Dissaving occurs when individuals or households spend more than their current income, frequently tapping into their savings, selling assets, or borrowing money to meet expenses.

It’s a financial behaviour that can happen during retirement, job loss, or times of unexpected expenses. While it may sound negative at first, dissaving isn’t always a bad thing. It can be part of a planned financial strategy. However, unplanned or frequent dissaving can disrupt long-term economic stability.

The Working of Dissaving in Real Life

Dissaving typically begins when your outflows exceed your inflows. You start using your emergency fund, liquidating fixed deposits, or withdrawing from long-term investments to cover daily costs. For example, if you’re retired and no longer earning a regular salary, you might rely on your pension, savings, or passive income. When these sources fall short, dissaving kicks in.

It can also occur during phases of high inflation, economic slowdown, or a major life event like medical emergencies, job loss, or education expenses. During such periods, people either draw from their previous savings or resort to high-interest credit options, which may eventually lead to debt.

Why do People Dissave?

There are several common reasons why people dissave. Understanding these can help you prepare and avoid dissaving where possible.

1. Retirement

One of the most common phases of dissaving is retirement. With no active income, retirees use up their savings or investments to manage daily expenses. While this is often planned, inadequate retirement planning can lead to early dissaving and financial stress.

2. Job Loss or Career Break

In the event of a job loss or an unexpected career break, your income drops instantly. Until you find a new source of income, dissaving becomes a means of survival. It’s especially hard if you don’t have an emergency fund in place.

3. Medical Emergencies

Health issues can cause a financial setback. Not everyone has a comprehensive health insurance plan, and in such cases, people dip into their savings or take loans, contributing to dissaving.

4. Overspending

Sometimes, dissaving is the result of poor financial habits. Living beyond your means, buying expensive gadgets, or travelling on borrowed money can lead to long-term financial damage.

5. High-Interest Debt Repayment

If you’re paying off loans with high interest, a large chunk of your income may go toward EMIs. When your income can’t keep up, you start using savings to pay off the debt, i.e., classic dissaving.

The Effects of Dissaving on Your Finances

While dissaving might seem like a temporary solution, it comes with long-term risks:

1. Reduced Financial Security

Frequent dissaving drains your safety net. Without sufficient savings, you may struggle with future emergencies or unplanned expenses.

2. Delayed Financial Goals

When savings are used up prematurely, goals like buying a house, children’s education, or retirement plans get delayed or compromised.

3. Increased Financial Stress

Constant dissaving can lead to mental and emotional stress. The uncertainty around future expenses and the lack of resources can make one feel financially insecure.

4. Debt Traps

In cases where dissaving is not enough, people turn to high-interest loans or credit cards, pulling themselves deeper into a debt trap. It’s difficult to recover from such financial cycles without substantial income support or financial restructuring.

Smart Ways to Prevent or Manage Dissaving

Dissaving is not always a sign of bad financial health; it’s a part of financial life, especially during planned phases like retirement. But unplanned or excessive dissaving can put your long-term financial health at risk. The best way to avoid dissaving is by building strong financial habits: create a budget, maintain a robust emergency fund, diversify your income sources, and review your spending patterns regularly.

If you’re already in a phase of dissaving, it’s never too late to reassess. Start small, cut back on non-essential expenses, focus on building passive income, and gradually build back your savings. Financial discipline and planning can help you bounce back stronger.