It is all too easy to spend all one’s disposable income plus more, by utilizing the option of easy credit. Living for today has less appeal if circumstances change and there is no emergency savings fund in place to tide one over. Many people have changed their spending habits due to the climate of recession, cutting back and channelling disposable income into clearing down debts acquired when it never crossed their mind that the bubble may burst. Once debts are paid down, the additional income which went towards paying them off should be used to establish savings.
There are many benefits which can be gained by spending less and saving more. Imagine a typical scenario as vacation time comes round, but funds don’t allow for that much deserved break. Instead of forgoing the vacation the expense is put on a credit card or a loan taken out.
Returning from vacation a sudden change in circumstances such as unemployment or a medical emergency can result in one burdened with the debt of repaying the vacation costs, plus interest, whilst struggling to make ends meet. However if the vacation had been saved for in advance and bought without the need for credit, one can return free of worry.
By saving up for material things their value is appreciated far more, and there is less likelihood of impulse purchases being regretted. Consumer spending on credit cards and loans can invariably mean that the item purchased is still being paid for long after its sell by date, and the necessity of making the monthly payments pale as the item has lost its appeal.
Paying for goods with cash savings offers the advantage of being able to negotiate a discount for a cash purchase. Instead of paying the additional expense of compounded interest one can reap the benefits of an immediate saving oftentimes. Additionally it offers the security and peace of mind that knowing the item is paid for in full brings. There are no lingering worries that the funds borrowed against home equity are now secured by the home loan, and there is no risk of a cash purchased vehicle facing sudden repossession.
The security blanket of a savings nest should never be underestimated. It may sound boring for those used to living a lifestyle that left no disposable income at the month end. Learning to pay oneself first and accruing a tidy savings balance can bring its own rewards and even become addictive as the interest compounds in a positive, rather than negative way.
The most important benefit to saving more and spending less is the security in place if circumstances do change. Those who have already learnt to cut back and start saving will be in a better position to cope and adapt to changes. With the likelihood of a double dip recession now looming it really is time to implement changes in financial patterns and ensure that living within ones means becomes the norm.