Spending smarter and saving more – just not all of us at once!

04 Jan Spending smarter and saving more – just not all of us at once!

With the economic downturn and less income to go around, our natural instinct is to reduce spending.  And, by all means, we should.   However, if we all stop spending at the same time, we could make matters worse.  Most consumers are overextended – but we can’t keep spending as though there is an unlimited amount of money and expecting our homes to be ATM machines.  We, as consumers, have spent like there was no tomorrow.  Unfortunately, for many of us, tomorrow is now here.  But reining in our spending may only make matters worse.  This is because almost three-fourths of our economy still relies on our spending, and if all pull back at once, it will deepen the recession.

Economist John Maynard Keynes asserts that if everyone tries to save at once, they would actually save less, because the mass saving would reduce demand for goods and services.  That decline in demand would lead to job losses and result in an economic slowdown.

So, what do we do?  We need to do both – spend better and save better.  This means we need to reduce frivilous expenses and make more prudent choices for the things that are necessary.  For instance, rather than eating out every day, eat out every other day – or better yet – take your lunch with you to work. Instead of going to the moview,  rent a DVD. Other options are to do your own yardwork, work out at home instead of a paying a gym fee, buy a used car instead of a new one. 

When creditors start lending again, and they will, be smarter about going into debt.  Buy what you can afford and need.  Live beneath your means.  Just because a computer may tell you you are qualified for a credit card doesn’t necessarily mean you are.  Only you know if you have the ability to pay back the debt. 


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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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