Saving is a skill that has almost evaporated in our present society. These days our children grow up knowing how to spend and how to use credit cards and plastic money before they know how to earn money and how to save money.
When my children were very young I remember them asking my wife and I for toys that were fashionable at the time. When we explained that we had other priorities for our money they told us that all we needed to do was to go to the ATM and use the plastic card and the money would just come out. We had to explain to them that we had to put the money in first before we could take it out. In the same way, children see adults buying almost everything on credit and they are bombarded with advertising telling them that they can have everything they want now - simply by borrowing.
The whole concept of immediate gratification is very ingrained in our society. It means that rather than saving for what we want, we borrow money and pay interest to the financier. This means that the financier becomes richer and the consumer becomes poorer. Consumers put themselves onto the debt and monthly payment treadmill and then often find that they are only working to pay the bills. This is very demoralising and I frequently hear people complaining how depressed they are over their money worries. They fail to acknowledge that their money problems are of their own creation and that they also have the power to change their situation.
Before the advent of plastic money, people used to save for major purchases. In doing so, they watched their savings grow through the extra interest they earned and they had time to consider how badly they really wanted the things they were saving for. These days we are far more influenced by advertising which tells us that we can afford it with so many easy payments and therefore many purchases are made on impulse. Consequently our houses are full of clutter and things we don’t really need. When it comes to giving presents we are often giving and receiving things we don’t really need or particularly want.
As a result of the large amount of personal consumer debt, we find that at a macro level our national savings have been in decline for quite some time. The level of debt has also been rising at an alarming level. Consequently, in most western countries, the economies are not quite as sound as the politicians may have us believe and the number of personal bankruptcies continues to rise. In some cases people are going bankrupt owing relatively small amounts of money.
If you want to be rich and happy you need to be aware of this situation and decide for yourself whether or not you want to play the game this way. I encourage you to take control of your finances and consciously plan your spending. I suggest that instead of spending on impulse, you save up for major purchases and earn interest rather than pay it.
I realise that some people may describe this approach as old fashioned and conservative. I have no problems with borrowing money as long as it is used to increase your investment base and to increase your cash flow from investments. My objection is purely towards the ever increasing use of consumer debt.
Many people think that it is not worth saving because the interest earned is quite low. I am the first to agree that interest rates at present make it less exciting to save. The point is that through the power of compounding, small amounts can grow to substantial sums. The rich build a financial reserve that will cover them during a downturn and will support them later on. Poor people on the other hand do not build reserves and spend more that they earn by living on credit.
The first rule of saving is the sooner you start, the more you will have. Habits are established by starting and doing. It is important to start the process of saving now. Even if you are in debt, establish the habit of saving even small amounts regularly. By doing so, you will create a financial reserve for yourself and you will have money for the special things you want. In order to build wealth, you will invest your savings in income producing assets which you can then use to pay for your luxuries.
About Hans Jakobi
Hans Jakobi is an educator, author and investor. He is the author of six best-selling books including,
How To Be Rich & Happy On Your Income which is available at:
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