Why Save Rather Than Spend?

Why Save Rather Than Spend?

Spending is more in our selves and others than saving. Spending for wants now is uncontrolled. See this phenomenon in the following article. 

Why do people spend their money rather than save it? – Big Blue …

Banishing your money blues one day at a time

I have always wondered why is it that some people feel the need to spend their money as soon as it hits their bank account whilst others prefer to save or invest their income.

According to a survey, one in six Britons admits to having no savings at all. Whilst one in four would see their savings wiped out within a month if they lost their job. Those statistics are frightening.

Losing your job does not just affect people on low incomes. According to the same survey two out of five people earning more than £100,000 said they would run out of money within five months. That is slightly longer as these people should have some savings and investments that they can use. Ideally, though they should be able to survive longer than that given the size of their wages.

So what causes some people to spend their money as soon as they get their hands on it rather than save it?

Saving money is going to be almost impossible if you are not making much money. If you are barely making enough money to pay for essentials then it is easy to see where the money needs to go. Providing food, clothing, and shelter to yourself and your family today is far more important than saving for tomorrow.

Making extra money by taking on a second job or a side hustle can help. Every penny counts if you are struggling financially. Being frugal and cutting costs can help. If you living the breadline you will already be being extra careful in how you spend your money to ensure you make it go as far as possible. This leaves little room to save money.

It is only when you can afford to buy all the essentials that you need that you can think about saving money. Once you reach this tipping point you can build an emergency fund and start to spend some money on luxuries.

Around 50% of Britons said they felt pressure from social media sites such as Facebook to spend their money. Lots of people see their friends and celebrities buying the latest gadgets, going off on fancy holidays or buying trendy clothes and feel the need to do the same.

Read More: Why do people spend their money rather than save it? – Big Blue …  

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Economists urge spending to fuel the economy. How does this work?

Saving — not Spending — Is the Engine of Economic Growth | Mises …

Most economists concur with the view that what keeps the economy going is consumption expenditure. Furthermore, it is generally held that spending, rather than individual saving, is the essential condition for production and prosperity.

Savings is seen to be detrimental to economic activity as it weakens the potential demand for goods and services.

In this framework of thinking, economic activity is depicted as a circular flow of money. Spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual’s earnings.

If however, people become less confident about the future it is held they will cut back on their outlays and hoard more money. Therefore, once an individual spends less, this worsens the situation of some other individual, who in turn also cuts his spending.

A vicious circle emerges — the decline in people’s confidence causes them to spend less and to hoard more money. This lowers economic activity further, thereby causing people to hoard more etc. The cure for this, it is argued, is for the central bank to pump money.

By putting more cash in people’s hands, consumer confidence will increase, people will then spend more and the circular flow of money will reassert itself.

Read More: Saving — not Spending — Is the Engine of Economic Growth | Mises …

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Conversely, others believe that saving does bring forth growth in the economy. Carefully read the next article.

Does saving stimulate the economy more than spending?

When the 2008-09 financial crisis hit, my husband and I were debt-free and building our savings. We were proud of what we’d accomplished, and I used to stare at our savings balance with a smile after every payday.

At the time, all I seemed to hear was that we Americans had to spend our way out of a recession, that spending was the key to growth. Besides $862 billion in emergency government spending, everyday joes and janes were encouraged to spend through home-buyer credits and programs like Cash for Clunkers. (This wasn’t unique to the current administration, either; the former administration encouraged Americans to “go shopping,” as well.)

Some people say these programs were a success — that Americans are eager for their government to tell them what to do. Others believe that spending is what led to financial disaster in the first place, and more spending isn’t the answer.

You know what? I honestly don’t care. I’m more focused on my personal economy. My husband and I made great headway with our personal finances, and we aren’t about to stop and jeopardize our future by buying a new car or a flat-screen TV. We have goals, and we’re set on hitting them. Someone else is going to have to buy those cars and houses, because we’re focused on building our financial future.

But a recent article in Fortune, “The Naked Stimulus: Why Savings Stimulate More than Spending,” piqued my interest, and I came away with a different understanding of why some people argue that spending our way out of a recession doesn’t work.

Read More: Does saving stimulate the economy more than spending?

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Why Save Rather Than Spend?

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