Help Yourself, Not The Economy

Posted by Home Morgage | Personal Finance | Tuesday 17 November 2009 7:18 pm

There is a tug of war going on over your money right now. When you sit down and think about it, you know that you should save your money, pay off your debt and provide for your future. Unfortunately there are other forces coming after your money. Not only do you have to deal with the regular advertisements that do everything possible to get you to part with your money in exchange for a shiny new gadget, but now you have to deal with an even bigger force: the U.S. government.

empty-pocket

Photo by stuartpilbrow via Flickr

The U.S. government has declared war on saving since the recession began. Why? Because our economy is dependent on consumption and savings means that people are not consuming. While saving would be very positive for our economy over the long term, it is disastrous for an economy structured like the American economy.

Incentive to Spend

The government has enacted multiple programs to try and get you to spend your money. Cash for clunkers was an encouragement to spend money on cars, the first time home buyer credit was an attempt to get you to spend money on a house, Cash for appliances is a new program to get you to buy new appliances. Whether you need another car, a new house, or a new appliance is irrelevant. Our leaders need you to spend money so that the economy gets a short term boost and they can potentially get re-elected.

Government incentives to spend money are a terrible plan in my opinion. While I wish the government would not be involved in the economy, if they are determined to do so, why not incentivize job creation through something like “Cash for Jobs”?

Help Yourself

Unless you have been planning on buying a car, home or appliance for some time and have saved for it, I strongly encourage you not to take advantage of these programs. Instead, help yourself, and fund your retirement or your emergency fund or get rid of your current debt. These are the pathways to financial security, not a shiny new car.

Unless Americans start to get their personal balance sheets back in order, many Americans will not be able to fund their own retirements. The retirement that many envision will simply be unattainable for many people due to the lack of financial planning throughout their lives. Don’t let that be you. Start today and put money away towards your future.

Saving Will Help The Economy

Unfortunately, there is a common consensus that we need to get people to spend again to save the economy. The reality is that we need people to save so we can save the economy. Our economy has structural flaws and needs to be restructured. A drastic drop in consumption would force this restructuring. While there will be short term pain (a bad recession), a restructured economy based on savings and production will provide the opportunity for sustainable growth over many years.

The American economy has systemic and structural issues not because of a lack of spending but because of too much spending. Be smart and start saving money. Lots of it.

Americans need to view their money as capital, not as a ticket to spending. Their capital can be allocated in multiple ways. It can be allocated towards their future, towards investments, towards necessities (such as food and shelter) and it can also be allocated towards lifestyle. The problem is that Americans have been allocating their capital towards speculation and lifestyle for far too long.

Remember, your spending will help the U.S. economy this year and next, but it won’t help you. Help yourself, not the economy.