Monthly Archives: March 2014

Spenders vs Savers

Before understanding what separates spenders from savers, you have to know the attributes of each.  First of all, a spender enjoys the rush from buying stuff.  Nothing feels better than buying the latest fashions or the newest gadgets that let everyone know they own the best of the best and are part of the “in” crowd.  They believe in immediate gratification and don’t worry about the long-term financial consequences of their actions.  Finally, they save only what’s left over after covering all their expenses.  On the other hand, a saver is someone who finds enjoyment from minimizing expenses.  They avoid wasting money and always get the most out of their possessions before discarding them.  In addition, they are very proud when they get a super deal and aren’t ashamed of letting everyone know about it.  Finally, they spend only what’s left over after achieving their savings target/goal.  

After digesting the attributes of a spender versus a saver, it’s clear that these people are the complete opposite of each other.  You might tell yourself that you’d be better off if you were somewhere in the middle.  Unfortunately, this isn’t the story of Goldilocks in which you’re looking for that “just-right” mix of spending versus saving.  At the end of the day you mostly identify with one philosophy or the other.

Household Debt to GDP

Table 1 – Household Debt to GDP

Personal Savings Rate

Table 2 – Personal Savings Rate

When it comes to most Americans, it’s obvious which category we fall in.  Based on the graphs (tables 1 and 2), Americans have overspent and under saved for years.  As you can see in table 1, U.S. household debt as a percentage of GDP (Gross Domestic Product) has increased every year from 1983 to 2009.  It wasn’t until the tightening of lending standards by the banks that we saw our first decline in 2010.  Of course the impact of all this debt has directly led to a lower savings rate (see table 2).  With the exception of the great recession of 2007 through 2009, our savings rate has been on a steady decline.  And as much as I want to believe that Americans have seen the light and will start saving more and spending less, I have my doubts we’ll stick to these recent trends as every recession has eventually been followed by a reduction in savings rates.  Rest assured that once unemployment and the housing market turns around, banks will make credit easily available again and the old habits of spend now, save later will resurface.                                                 

After looking at this data, the question you need to ask yourself is which one are you and do you need to change the way you spend and save?  If the answer is yes, you must change your habits as well as understand your weaknesses in order to avoid any temptations.  For example, if you’re a spender, don’t go to the mall and window-shop or look at weekly ads in the Sunday paper.  There’s a reason why stores put the most appealing products in the window or provide super sales in their ads.  Marketing is a science, and most advertisers know that if they can entice you, there’s a good chance you’ll buy.  Temptation is all around you, and you need to stay away from those situations that separate you from your hard-earned money. 

I know I’m probably oversimplifying it, but you have to want it bad enough if you’re going to change your habits.  It’s like trying to lose weight.  If bad food isn’t in your house, you’re not going to eat it.  And at the end of the day, we all know there’s no shortcut that compensates for watching what you eat and regular exercise.  So when it comes to saving for your future, stop looking for a shortcut that doesn’t exist.  The sooner you stop spending your time looking for a quick and easy solution to saving for your future, the sooner you’ll be on your way to achieving your retirement goal.