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?

So why is it that this past Sunday and Monday you would have found the Money Infant and Mrs. Infant happily staring at the one armed bandits in Atlantic City NJ? You would think that even an infant would have learned that gambling is a definite no-no when it comes to personal finance, saving and building wealth.

It’s true, I do know about the evils of gambling and normally wouldn’t even think of such a trip, however Monday was Mrs. Infants’ 28th birthday and when asked what she wanted for her birthday she gleefully replied “A trip to AC!”. Always the loving husband I happily complied and immediately looked into our budget to see what kind of damage such a trip would make.

Now, if we were still struggling month to month or paying down significant debt I never would have considered this trip. If we didn’t have a clear budget and goals I also definitely wouldn’t have considered this trip. However, since I know where we stand in regards to paying off our remaining debt, saving and what our budget is, I felt we could safely take a moderately priced weekend getaway.

I firmly believe that no person or couple can continually keep saving or paying off debt without being able to occasionally blow off some steam as well, whether that means a weekend in the wine country, a day (or week) at the beach, dinner at that expensive new restaurant or in our case a weekend gambling away our hard earned cash in Atlantic City. While financial freedom is the most important goal for all of us, balance in our lives is important too and I don’t think it’s healthy to obsess too much on one aspect of your life. If you’ve gotten to the point where you have some discretionary income each month it’s not always necessary to stick that extra money into savings or use it to pay down debt…sometimes you can splurge. One of the beauties of financial freedom is being ABLE to do this occasionally without hurting your budget or feeling guilty.

One of the things that scares people away from budgeting is that it makes them feel trapped, like they have to robotically follow their budgets no matter what. A budget is not designed to trap you into spending or saving. It is simply a guide to your personal finances. A road map to your destination of financial freedom. Sometimes you’ll follow it towards the expressway and you’ll be closer to your goals faster and other times you may want to relax a bit and take the scenic route. Either way is acceptable, it all depends on your personality and goals.

Plan well with your budget, but don’t feel that you’re trapped by what your budget says you should be doing. As long as you’re moving towards the goal of financial freedom; paying down your debts, saving for retirement, building your emergency fund and most importantly spending less than you earn, you will be fine in the long run. Your personal finances are not a sprint, they are a marathon and a budget is by no means written in stone. Take the slow road occasionally and you’ll likely find that you come through refreshed and ready to take your finances to the next level.

Oh and the end result of our trip to Atlantic City was not too bad at all. After gambling for about 15 hours over 2 days we were down just $50. So basically the cost of the two days was our room at Caesars ($140) and a wonderful birthday dinner for Mrs. Infant at Dock’s Oyster House ($120 and worth every penny). All other meals and drinks are included in the $50 loss, so gambling was actually a bit better than break even. I would consider that a pretty cheap 2 days in Atlantic City!