Devil's Advocate 
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Don’t Save Your Money

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This is a Devil's Advocate post.

If you read the news, you’d think that our economy was in shambles, that our financial world was ending, and that we should be buying toothpaste and toilet paper, preparing for the Thunderdome. As Devil’s Advocate in this post, I think that saving all of your money is a mistake. I believe our situation seems dire and that an emergency fund is, as always, a requirement for any sound financial plan, but saving every last penny is the last thing you should be doing. Now is the time to buy the things that you’ve been putting off because every signal is telling you to save.

The laws of supply and demand are in your favor because no one else is buying, which means the people who are will be getting incredible deals if they are willing to negotiate and put in the time. No one is spending their money, they’re saving… which means banks won’t be giving you great interest rates because they don’t have to, they have too much money! That’s only the beginning…

Negotiate Deals

The time to buy is when others are panicking. When you have the benefit of time, you control all the power in periods of economic uncertainty. I’m not talking about the stock market, I’m talking about everything. If you wanted a house, now is the time to buy because interest rates are low and home prices are low. If you wanted to make improvements to your house, start talking to contractors because business is slow and they will be willing to cut deals just to stay in business. If you wanted a car, dealerships will offer great incentives because they need to boost their sales numbers. Even if it’s something as simple as an appliance, you can negotiate the price down and get an energy savings tax credit! Don’t buy things you don’t need because they’re a deal, that’s reckless, buy things you need and negotiate it down to the bone.

Interest Rates Are Low

The federal funds target rate “range” is 0.00% to 0.25%, which means the government doesn’t want you to save, they want you to spend! The federal funds target rate is the target rate the Fed wants banks to lend to other banks on an overnight basis (to meet capital requirements). They achieve this rate by expanding or restricting the amount of money available. If a bank can borrow money from another bank for 0% – 0.25%, what incentive do they have to pay you anything for your savings? Almost none. The end result is that you get almost no interest from your savings. In other words, the government doesn’t want you to save your money, they want you to spend it and help boost the economy! And let’s be honest, unless you start spending, the government will only get worse in how it pumps more money into the system.

Spectre of Inflation

The government is pretty savvy, they know you’ll get upset if they raise the taxes without giving you a very very good reason. Fortunately they have another weapon, printing presses. When the government pumps more money into the money supply, the value of your dollars decreases. The government has made trillions of dollars in promises to financial institutions, automakers, and many other smaller profile parties through its actions the last few months and it will have to fund them somehow. Part of it will be funded by borrowing, but some of it will come through increasing the supply of money. Inflation won’t be an issue while we’re in a recession, but it’ll be a beast of a problem whenever we’re no longer scared of the recession.

Reward Entrepreneurs

The United States was built on the shoulders of entrepreneurs, reward them by giving them your business. Don’t overpay for things because you feel badly about their financial situation, that’s not necessary, but spend your money at the places you like and the business you enjoy dealing with. They won’t close a sale unless it makes financial sense to them but they do need sales. Giving them business will give them additional capital to work with and, if they’re doing well in the downturn, expand and add more available jobs to the system. I firmly believe, Devil’s Advocate or not, that the way out of this mess is through business growth spurred on by something, whether its consumer confidence and increased spending or a stimulus package that improves our infrastructure, it will be led by businesses and entrepreneurs.

{ 14 comments, please add your thoughts now! }

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14 Responses to “Don’t Save Your Money”

  1. How did we get into this depression? Not saving. How will we get out of this depression? Not saving!? Isn’t that the definition of insanity: Doing the same thing and expecting a different result.

    Thanks,
    Nate

  2. Dave says:

    I don’t think we got into this mess by not saving, we got into this mess because people spent WAY more money than they had, and bought things they couldn’t afford.

  3. Chuck says:

    As a devil’s advocate post, it sounds pretty reasonable. I’ve been thinking about taking advantage of depressed housing prices by buying a new house. Unfortunately (and fortunately) the prices in my area are not depressed all that much.

    If you have been saving, and you can use the economic disaster to make a deal, it makes sense to do it.

  4. BobV says:

    I would agree up to a point with spending. It certainly is a time where bargains can be found. But as a previous commentator alluded to: we are in this mess because people spent more then they could afford. Living within your means, having that emergency fund behind you, and the spending the money you HAVE is the best solution. Unfortunately, I suspect we will see more and more debt being acquired by individuals as the economy continues to falter.

  5. Dana says:

    It’s one thing to spend money that you don’t have, but it’s another to hoard it just because that’s what everyone else is doing. If one’s finances are secure, then there’s no reason why they shouldn’t spend money, especially when the deals are good. Given these people are in the minority nowadays, that should naturally drive a lot of businesses under as is. No need to exacerbate the problem by not spending when one needs to, and is able to.

  6. Rap Music says:

    Jim, I actually have to agree with you on this one. If you’ve got your emergency fund well in place and have some extra money, it’s definitely time to spend and enjoy the extra money.

    However, in my circumstances, as much as I want to take advantage of my extra savings which are pretty solid, I’m holding off because I know that I will have a span of 4-6 months without work and possibly no UI, as I’m going to be student teaching. To top it off, my wife is expecting in July, so I really need much more than just my emergency fund. :(

    I’m bummed though because I could really use a new car.

  7. Jessica says:

    I think that the dramatic increase in savings in the past months shows exactly how much people have been neglecting their finances. Those of us that have been steadily plodding along… paying ourselves first, paying off debt and in general being frugal aren’t having to change a thing about how we spend or save our money. It is unfortunate that many people are learning these lessons the hard way.

  8. Patrick says:

    Now is the time to invest in stocks. Even though interest rates are low, it’s a perfect time to take advantage of the record low stock prices. It seems almost too stupid to leave you money in banks right now with interest rates so low.

  9. Jim says:

    IF you’ve got an adequate emergency fund then YES I agree that now is a great time to be buying certain things cause of the deals and now is also a great time to invest in the market or real estate. Jim touched on the emergency fund but I think thats a point to be emphasized.

  10. Diane says:

    IF your debt is paid, AND you’ve got an adequate emergency fund AND it is something you need and planned to buy AND it is a good deal, then YES I do agree this is a good time to buy. Lots of ifs there…

    I will not spend a lot of money on ‘wants’ at the moment – it would have to be a totally outstanding deal, and I just haven’t found anything that wonderful.

    We’re looking to move in about a year when my younger son graduates from high school. I wish we were ready now, as there are many deals on houses in the areas we’re interested in, but I won’t pull him out of his school for his Senior year.

    I’m hoping there will still be good deals in real estate next year…

  11. JC says:

    Hmm one thing to also note is that a lot of stores are having a bunch of really good deals right now because of the downturn of the economy. Not a bad time to buy that tv you really wanted or whatnot.

    Also I think the govt is paying new homeowners 8k? Not a bad time to buy real estate.

  12. thomas says:

    We should have debt gladiators who battle it out till the death. Those who win get their debt erased.

    Are you not entertained!?!?!?!

  13. Mike says:

    It is always smart to put your money where the majority of the people don’t want to. Today nobody wants to buy stocks, so it is a good time to buy stocks. Few want to buy real estate, so it is a good time to buy a house.

    In contract, five years ago everyone wanted to buy stocks, everyone wanted to trade up to a bigger house. The smart thing to do then would have been to SELL stocks, SELL your house and downsize, and put the cash in the bank.


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