If you’re really paying attention, life can be a very odd experience. Especially when it comes to money.
For example, in troubled economic times, front-page newspaper stories regularly quote economists expressing concern that the personal savings rate is going up.
I still vividly remember reading one such story during a recession. I had to blink my eyes and reread an economist’s comment. Sure enough, he was worried that people might start saving more.
Flip past the headlines to the personal finance section of your paper and you’ll find columnists regularly sounding the opposite alarm: Americans aren’t saving enough!
So, who do we listen to? The economists who seem to think it’s our duty to spend more for the good of the country? Or the personal finance writers who say it’s in the best interests of our families to save more?
A Simple, Radical Idea
A long time, I remember thinking that we would all be a lot better off if we would simply build a strong base of savings and then buy what we need and want out of that.
It’s such a simple idea.
Save for a vacation and then take a vacation that we pay for out of savings. Save for a car and then buy a car with cash.
So simple, and yet so rarely practiced.
Instead, we’ve bought into the lie that we are consumers, and consumers can’t be inconvenienced by waiting. Delayed gratification? Too much work, and not enough fun. Besides, you only go around once, you know? Better grab for all you can right now. And look! As luck would have it, it’s all on sale. We can get the computer, the car, the cruise — all for no money down and no interest payments until…
Back when I first had my quaint little idea about saving and then spending, the economy was strong. I remember thinking that if everyone suddenly started saving more, the fears of front-page economists would, in fact, come true. We’d go into a recession. There would be some pain, but maybe it would be short-term pain that brought about long-term gain.
Once people had a healthy savings account and were in the habit of regularly saving a sizable chunk of their pay, they could use a portion of that savings to buy the things they had been putting off.
We’d go back to buying stuff again, but we’d do it differently. We’d go from wanting something, getting it, and then paying for it over the next several years along with a bunch of interest, to wanting something, saving for it while earning interest, and then getting it.
Our household finances would be much stronger, and I’m guessing our country’s finances would be stronger as well.
During the pandemic, the savings rate has gone up dramatically. Will we see a shift from buying things with credit to buying things with savings? We’ll see.
How to get there
On a practical level, one simple step I’ve found especially helpful in saving for big-ticket purchases is to use separate savings accounts earmarked for specific purposes. For example, Jude and I spent about three years using such an account to save for a trip to Paris to celebrate our 20th anniversary. (We had to put that trip on hold, but are still hoping to make it happen at some point.) We used another account to save for the replacement of our 16-year-old van last year.
How are you doing with the idea of buying stuff—even big-ticket stuff—with savings instead of credit? And what have you found helpful in being able to do that in the face of a culture that doesn’t seem to support such behavior?