Austerity has become a dirty word in Europe after increased suppression of spending has resulted in astronomical unemployment rates. While we like to blame these issues on the current austerity measures, we should be looking at the irresponsible spending that preceded it as the root cause of the suffering. More importantly we can take this macro-economic issue and apply it to our own personal finances to avoid similar disasters in our own lives well before the going gets tough. Avoiding overspending, or more specifically under-spending, has some major benefits besides just keeping you out of debt. There are a lot of articles all over the internet about how to save money and how to avoid spending over about $20,000 a year. However, nearly all of those are specifically geared toward helping you get out of debt once you're already in trouble. Here are a few great reasons you should want to under-spend even when you're doing well financially:
1. The "Rainy Day" Fund
The first thing that happens when you stop spending your money is that it'll suddenly start piling up in your bank account. If you've been spending your entire life (because it's there!) this will feel strange, possibly a little threatening as though you're forgetting something. The other thing you're going to feel is a sudden unflinching of your stomach that you didn't know was there. If you get into a car accident, break your arm, or have the roof of your house collapse in during a rainstorm you're no longer going to have to go into debt to deal with it.
2. Large Savings Rate = Less Comfort But Less Stress
As money continues to pile up in your savings account you'll begin to wonder why you're not spending it. You might be tempted to get a new car, or move into a nicer apartment, or make a nice down-payment on a house. You'd be wrong to do so (unless the mortgage is about the same as your rent, then it’s smart). If you keep the comforts far away you’ll find that your money keeps growing. At this point you can start referring to your savings as your retirement fund.
3. Early Retirement/Financial Independence
Depending on how much you make you'll find that within a decade or two you've saved up several hundreds of thousands of dollars. If you invest it properly at this point the revenue generated by the money you have will be enough to live on, meaning you're ready to retire. If you're just finishing college as you read this and starting your first real job, that means that you could retire as early as your mid-thirties contingent upon how much money you make during that time. That means financial independence while you're still young enough to properly enjoy it.
4. Wealth (Sort of)
If you decide to keep working past the point where your investment makes just enough to support you, you'll get to the point where your investment produces more than you need. If you don't spend it, but instead add it on to your investment continuously the amount of money you make will continuously grow for the rest of your life.
About the Guest Author
Alan Brady is a real estate and financial enthusiast who loves to blog about personal finance, renting, home ownership and responsible practices for mortgage lawyers.
Tuesday, November 13, 2012
4 Ways That Austerity Can Improve Your Life
Posted by pfstock at 8:30 PM
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People like to play the blame game. A lot of fiscal responsibility lies with yourself, so you've got to take care of all your stuff yourself.ReplyDelete
Thanks for reading! Taking on personal fiscal responsibility early in life makes all the rest of life proportionately easier in that respect.ReplyDelete
With what has happened in the stock market particularly over te last 10-12 years it is hard to see how one can prepare for retirement the way it used to beReplyDelete
Nice read! Always a pleasure reading! Thank you for sharing!ReplyDelete
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