BUY NOW, SAVE LATER

Buy Now, Save Later

BLOGGER:  BEN PIERSON

Seriously, if you have savings and good job security (even if we hit 11% unemployment that means we’re still at 89% employment after all), go out and spend.  I don’t consider this a civic duty or patriotic act – I consider this a selfish one.  America is on sale.

Barring us slipping into a depression – not very likely considering the scope of worldwide government intervention – this is the best all around sale event we’ll see for at least the next decade.  By that point if you follow the plan, you’ll have saved again and be ready to again take advantage of the next cycle of sales.

In economics there is a term called consumption smoothing.  Essentially what this means is that if we knew exactly how much money we would make during our entire life, we would be happiest spending the same amount every year.  We would find a lifestyle that fits and then ride happily (happiest) into our sunsets.  For the first time in my life (I’m 30), I now see the greater wisdom behind this.

Economic cycles have gone on for thousands of years.  There will always be a next “up” and there will always be another “down”.  End of story.  The angel (and angle) lies in the details.  During those “up” periods, everyone has money and is buying.  Supply and demand says:  if more people are trying to purchase a finite set of goods, the price of these goods will go up.  So during the up cycles, goods generally cost more.  Houses cost more, vacations cost more, and cars cost more.  In a down cycle, houses become cheaper, vacations become cheaper, and cars are cheaper….  And so if you have money during these times, go out and spend!  It’s all on sale!!

I know someone who just took his family of four on vacation to Jamaica.  7 days at an all-inclusive resort, including airfare:  $2,200.  Yup, only $2,200 total for all 4 people.  I’m not saying $2,200 isn’t a lot of money to most of us, but the point is this vacation would have cost him over $5,000 anytime during 2004-2006.  I’m sorry if you paid $500,000 for a condo in Palm Beach over the last three years, because you can now buy that same condo for $300,000 or less.  One friend who works in Manhattan lived about a 45 minute train ride away in order to avoid Manhattan rents.  Well guess what?  Several buildings downtown now offer two months rent free and the rental prices themselves have gone down.  Thanks to his having saved up over the last two years he is now living in Manhattan at 30% off what he would have paid two years ago.

I’ll be the first to admit that I’ve done a very poor job of this myself.  Like many of you, perhaps, during the good times of the last several years I spent more and saved even less… the exact opposite of what I should have been doing.  In the midst of an economic boom of course it’s tough to think prudently and save up for a rainy or opportunistic day.  It’s tough not to take the $5,000 vacation when that’s what your neighbor is doing.  Well, Love thy Neighbor but don’t act like them.  When times turn good again, save save save!  Practice prudence and practice patience.  The boom times may go on for years, but they WILL end once again.  You may get jealous of your neighbor’s tan once or twice, but you’ll last laugh when you pay half as much for the trip he just took.

Arin Goldman wrote a great post earlier (http://blog.imagineage.com/?s=spend) on this question of spending.  Not to ruin the ending but she bought a pair of boots on sale and, slightly tongue in cheek, considers it her contribution to economic stimulus.  Certainly every extra bit of stimulus helps right now, but that’s not what I’m telling you to do.  I’m saying be selfish.  That shirt won’t be 70% off forever.  That car might not be this cheap again for years.  Do be prudent and don’t spend money you don’t have.  But if you have it, now’s the time – America’s on sale.

To find out more about Ben, click here

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To Spend or Not to Spend, That is the Question

Out walking my dog this morning I ran into a former colleague from my investment banking days who was also out with her dog.  As our two pets tussled joyfully, blissfully ignorant of the dreadful state of the economy, we reminisced about our old banking days and the sad state of our former firm, one of the acquisitions that had been subsumed into the now teetering behemoth Citigroup.   Quietly she confessed that that she was close to completing a major renovation of her apartment.  Though her financial position is stable, her husband gainfully employed and their collective expenses under control she had considered cutting back on her apartment work, not because of any financial pressures on her family but because of the general economic mood.  She  didn’t want to be seen as insensitive, spending money while others were facing hard times.  Her embarassment at undertaking an apartment overhaul at this time made me think about expectations and attitudes in the face of our challenging economic times.  Without a doubt virtually all of us are substantially poorer, or should I say less weathy, than we used to be.  That said, do we all really need to cut back dramatically?  How will we get out of this mess if all of us, even those who haven’t lost their jobs or savings, stop shopping, going to the theatre, eating out, and going on vacation. I am not suggesting that we should all be throwing money away, but maybe now is a good time to take a realistic assessment of our financial positions.  If your expenditures were pretty reasonable to begin with and your job or income remains relatively stable, doesn’t cutting back now make things worse overall? 

Over the past few years I’ve gotten pretty lax about monitoring my spending.  With my income and savings impacted by the current environment I decided it was as good a time as ever to examine my cashflow. Essentially, I wanted to know precisely how much I spent last years so that I could compare it against what I expected to earn this year.  In mid-January I stopped thinking about this and began my examination.  Since I remain a Luddite when it comes to bill paying, my personal analysis involved pulling out my check book and calculator totalling all of my checks, netting out any offsetting deposits such as insurance reimbursements.  A tedious activity to say the least but still it didn’t take long to figure out how much I spent last year. The good news was that I hadn’t gone all that overboard.  After I netted out a few things that fell into the extraordinary category I felt even more comfortable.  Nevertheless, since a number of my 2009 expense items are on the upswing I wasn’t out of the woods yet.  Like most people my health insurance rates have jumped dramatically, followed closely by my apartment maintenance, a victim of the significant increase in New York City real estate taxes.  My garage costs, another uniquely New York City phenomenon, were also moving up for the first time in 20 years.  To help offset some of my expense increases I also took a look for places to shave a few outgoing dollars.  To this end, I cutback on my landline phone service and reduced the number of my premium cable channels.  Neither of these provide dramatic savings but still I’d rather spend that money on other things.  Net, net I’ve concluded that though I am not as well off as I used to be I can still maintain my standard of living without a draconian cut in my expenses.  Still like most people these days I’ve got to improve my own personal attitude because I have to admit though I am probably okay financially I am still stunned by the stock market’s swoon and the demise of the financial sector.  Last week I took my first step.  After avoiding all shopping during January and most of February,  in an effort to help the economy, I did buy a pair of not necessarily essential boots (on sale of course). Consider it my contribution to the economic stimulus!         

To find out about Arin, click here to read her bio.

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