By Jason Fittler
Why is it that we spend more money on our loved ones at Christmas? Why not buy our loved ones presents whenever the mood takes us? Simply put – conditioning. We are told each year that we should buy people presents on their birthdays and Christmas, eggs at Easter, flowers on valentines day and gifts on Mothers and Fathers day.
Do not get me wrong, I am not saying we should not buy presents for family and friends but merely pointing out how we are conditioned to spend. Some people find comfort in buying new things others relieve guilt from not spending enough quality time with their family by purchasing them presents. Whatever the reason, all of us have a spending pattern. What is important is to identify this pattern and control how we spend our money.
Accumulating wealth depends largely on your spending patterns, those who spend more each year than they earn will quickly go broke.
Since early 2000 this was the case for most Australians and Americans, this is why lending climbed to new levels and personal households debt levels climbed. When an economy bottoms (much like we are about to experience) you see the effects of living outside your means. Those who adjust to the new economic constraints, will survive, those who do not, will go broke.
The important thing is to change your spending patterns and not dip into your savings to prop up your lifestyle. Downturns in the economy can last many years, and will consume all of your savings. Most importantly make sure you continue to invest, it is true that in economic downturns, investments are cheap. This is due to people selling assets to maintain lifestyle.
Things to look out for in an economic downturn.
1. Higher interest rates – when the interest rate moves up increase your payments to the bank by the same proportion.
2. Holidays – take a look around the world, during these times you can normally get cheap flights. Also look to go to countries with devalued exchange rates. (The USA comes to mind right now)
3. Gifts – buy quality not quantity.
4. Food – cut out the junk, you will save money and weight.
5. Credit Cards – pay them out each month or cut them up. It is not a time to live on credit, the interest will kill you.
6. Motor Vehicle – think repair instead of new. If you must buy, second hand will save you thousands.
7. Media – do not spend because the media tell you the economy is recovering, they do not have a clue.
8. Investing – continue investing, assets you buy now will be the ones that look after you in retirement.
Our wealth is directly in proportion to our spending or saving habits, never lose sight of this. Long term care and attention to your spending habits will provide you with a wealthy retirement.
My favorite saying is “Look after the pennies and the pounds will take care of themselves”
Have a good Christmas.