So many personal finance bloggers belabor the point of saving and frugality until you would think that is all there is to life. What about the joys of spending? The thrill you get when buying that new HD TV or the fun in creating a new wardrobe (whether you need it or not)? I work hard for my money, why can’t I just spend it and enjoy the fruits of my labor?
The Government Loves Spenders
At least in America the engine of growth over the past few decades (minus the past 5 years) has been consumer spending. Never mind that a good deal of that spending was on credit rather than in cash, the American consumers freewheeling ways have enabled corporations to amass huge war chests and have paid for the continued growth of the GDP and expansion of government.
As long as Americans continue to increase their savings rate they will not be spending and this will hamper any increase in the economic recovery…or so we would be led to believe.
Stop Spending and Start Saving like Your Grandparents
I found this interesting chart over at All Financial Matters which leads me to believe that consumer spending as a percentage of GDP needs to come down even more before a full recovery can take place. As you can see during the great depression consumer spending was a much bigger part of GDP than during any other time in the past 100 years. It wasn’t until WWII came along that consumer spending dropped and after the war came back in at much more reasonable levels. Coincidentally, this was also one of the greatest growth periods of the US.
Putting aside all macroeconomic discussions it is simply good common sense to live more frugally and to save a good portion of what you currently earn. If the past 5 years taught us nothing else it should have made it glaringly clear that growth is not forever and that your jobs are not as secure as you may have once thought. And even if you do manage to stay employed for you entire adult life what will you do when it is time to retire? Life spans are increasing and those living in developed Western countries may easily expect to live for 20 years after their retirement.
I know how easy it is to give in to instant gratification and to think that there will always be time to save, but the truth is that the best time to save is now. You might be surprised at how little you miss just 5-10% of your income when it is automatically deposited into an account separate from your spending money. And I have no doubt you will also be surprised to see how quickly that money can grow if invested wisely.
Take a lesson from your grandparents and learn how to save for a rainy day. Ultimately you should strive to save 30% of your income if you really want to put your money worries behind you. I know that sounds like a huge amount, but you don’t have to jump right up to 30%. Start with 5% and get comfortable with that. See if you can push it to 10%. Start using more coupons and shopping only when necessary to replace needed items. Haggle and buy used or at least wait for sales to come along before you buy. Add the extra money to your savings. Cut back on eating out and expensive habits and hobbies and add that money to your savings too. There are a multitude of ways to save money if you really start to examine your spending, here are 25 from KrantCents to get you started.
I’m personally nowhere near the 30% guideline (more like 10%), but I am looking for ways each month to increase my savings and so should you. Fortunately I don’t have to go it completely alone as there are many great folks writing about how to make a dollar stretch further. Maybe you can help by letting me know about some of the imaginative things you do to save more money each month?