Saving, Wealth and the Rat Race
January 29th 2008 10:57
Do you ever feel lured to save your money? If you do, you will consider that there are at least three purposes with regards to saving: (1) saving to buy something; (2) saving for the sake of amassing money, and (3) saving to invest.
(1) Saving to buy something: when you save to buy something, like an airplane ticket to Thailand, you sacrifice alternative expenditure to the extent of that amount. Once you've made the ticket price, you stop saving, buy the ticket and return to your normal spending patterns. You have then as much wealth as when you started saving, assuming that you couldn’t re-sell the ticket. Obviously, this is saving to spend and keeps you in the rat race.
Saving to spend might much motivate some people and it is probably the most quickly rewarding form of saving. It depends on how much you're saving and how hard it is but, if you're a big spender, you will be rewarded for saving once you buy the prized good. But, unless you are spending your money in something durable, your enjoyment will be brief.
Probably, at the end of it the big spender re-makes its plans and re-starts saving to buy something else. So, saving to spend can be a chain activity like some cigarette smoking. Saving to spend may give you much excitement but does not make you any wealthier, not even by a penny.
(2) Saving for the sake of amassing money: when you save money for the sake of having a lot of it aside, you hoard money. I imagine the hoarder as having an intense fear of being caught cashless, and this is probably true. In this category, besides currency, I put gold and also other precious metals because they have a ready market for sale and might generally retain their value.
I think that having a lot of money power in cash form is reassuring to many people. I like having money aside because it gives me a sense of security and preparedness for the unforeseeable and so do a lot of other people.
It seems to me though, that the hoarder has little imagination and no ability to run risks that would bring him greater returns. On the other hand, if inflation ensues his money value may get quickly eroded. The hoarder is over concerned with safety and liquidity. His mass of money increases more by the amounts added to it from his saving than by the yields it could earn.
(3) Saving to invest: when you save to invest, be it shares, bonds or property, your objective is to grow your wealth and, provided that you do so wisely, your wealth should increase in value in a continuous fashion. In fact, allowing for short-term oscillations in worth, your investment should go up in value according to the money you put into it and the expertise you use.
What is interesting here is that the investor is content with keeping only a certain sum in cash form and is happy to put the rest of his saved money into higher yielding securities. In a way, the investor hoards some money but then he also goes shopping for investments, being that his wealth should increase continuously and, as a consequence, he is the most likely of all the above to get out of the rat race.
(1) Saving to buy something: when you save to buy something, like an airplane ticket to Thailand, you sacrifice alternative expenditure to the extent of that amount. Once you've made the ticket price, you stop saving, buy the ticket and return to your normal spending patterns. You have then as much wealth as when you started saving, assuming that you couldn’t re-sell the ticket. Obviously, this is saving to spend and keeps you in the rat race.
Saving to spend might much motivate some people and it is probably the most quickly rewarding form of saving. It depends on how much you're saving and how hard it is but, if you're a big spender, you will be rewarded for saving once you buy the prized good. But, unless you are spending your money in something durable, your enjoyment will be brief.
Probably, at the end of it the big spender re-makes its plans and re-starts saving to buy something else. So, saving to spend can be a chain activity like some cigarette smoking. Saving to spend may give you much excitement but does not make you any wealthier, not even by a penny.
(2) Saving for the sake of amassing money: when you save money for the sake of having a lot of it aside, you hoard money. I imagine the hoarder as having an intense fear of being caught cashless, and this is probably true. In this category, besides currency, I put gold and also other precious metals because they have a ready market for sale and might generally retain their value.
I think that having a lot of money power in cash form is reassuring to many people. I like having money aside because it gives me a sense of security and preparedness for the unforeseeable and so do a lot of other people.
It seems to me though, that the hoarder has little imagination and no ability to run risks that would bring him greater returns. On the other hand, if inflation ensues his money value may get quickly eroded. The hoarder is over concerned with safety and liquidity. His mass of money increases more by the amounts added to it from his saving than by the yields it could earn.
(3) Saving to invest: when you save to invest, be it shares, bonds or property, your objective is to grow your wealth and, provided that you do so wisely, your wealth should increase in value in a continuous fashion. In fact, allowing for short-term oscillations in worth, your investment should go up in value according to the money you put into it and the expertise you use.
What is interesting here is that the investor is content with keeping only a certain sum in cash form and is happy to put the rest of his saved money into higher yielding securities. In a way, the investor hoards some money but then he also goes shopping for investments, being that his wealth should increase continuously and, as a consequence, he is the most likely of all the above to get out of the rat race.
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