Spending vs. Saving – The Best Time to Choose Between

You would hardly have ever though to choose between spending and saving because financial experts generally emphasise stashing away money due to unprecedented economic changes. It is a general belief that you should spend money on necessities like food, rent, utilities and rest money should be put toward your savings to meet unexpected expenditure like a medical emergency.

You may be thinking that saving brings financial stability, and hence you should set aside money as much as you can. However, you feel this way because spending part is not usually apparent. There are times when spending money can help you save down the road, and saving money can cost you a fortune in the long run. Of course, it is not easy to come down on one side of the fence or the other.

The best example to understand this is saving cannot help you build your wealth as you get a nominal amount of interest while investing brings an excellent opportunity to become rich. However, it does not mean that investing at any time can give you a sound output. In short, there is no straightway answer to decide whether to save or spend. So, if you get stuck in this conundrum, you should consider the following factors:

Your needs

Most of your purchases fall into two categories: needs and wants. You need medicines for your migraine, and it is a necessity. You cannot live without medication. If you need a ticket to a musical concert, it is your want even though you have been regular to such concerts. Needs and desires vary from individual to individual. What is the necessity for you may be wanted for the others? So never make any decision under the influence of your friends and neighbours?

So, the next time when you have come up with this puzzle, you should ask yourself whether you need it. Is it something you need urgently? Is it something you cannot live without? If the purchase falls within the want category, you should put it off until you manage to set aside for it. By using this approach, you will be able to prevent yourself from dipping into money you will need for your essential expenses like the repayment of bad credit loans with guaranteed approval.

To make sure that you have money to fulfil all of your needs, you should already set aside money that goes toward such expenses. A good rule of thumb says that you should make a budget as you receive your paycheque. Since you know all costs fixed like debt repayments, rent, retirement funds, deposit for your mortgage, and the like. Whether these are current or long-term expenses, make that chunk already out and throw the rest money at your emergency cushion to meet any additional costs.

Measure the satisfaction

Whether it has been a significant investment in a good or service depends on the level of satisfaction you achieve or feel by using it. When you have to choose between Product X and Product Y based on the price, you may choose the former as it is cheaper – after all, it is worth saving a few pennies when financial uncertainty can throw a curveball anytime. For instance, you buy a professional blazer worth £300, you may feel like it is a splurge, but it is worth spending if you wear it daily for a couple of months.

The other hand, buying a professional blazer worth £200 is reckless spending if it goes threadbare just after one wash. So, sometimes spending more money can be a good idea because it gives you a sense of satisfaction. When you are unable to decide between spend and save, you should determine the cost per use. It will help you make the purchase based on the utility.

Spend to save

Saving is a must no doubt, but financial experts emphasise too much on saving for people who are under debt obligations. Since outstanding dues add upas the default grows, making your borrowing power weaker, you should give priority to your debt repayments. However, if you do not have any financial obligation, experts suggest that you should look at “Spend and save” riddle from a different point of view.

When it comes to investing money, you often think about stocks and bonds. You start to spend money to create your wealth as it brings financial stability down the line. However, with spending money, investors do not mean buying stocks and bonds only. It means utilising your purchasing power. Here comes the role of the economic principle that states if you have fewer obligations, you will tend to spend more and more money. Here are the examples that define the meaning of spending to save:

• Do preventive measures for your car. Regular maintenance can help you prevent spending a large chunk of money down the road.
• Buy energy-efficient goods for your home so that you can save on electricity bills.

Save to spend

Sometimes it is good to spend to save, and sometimes you should keep spending. The “Save to spend” philosophy works during the recession. The best example to understand this scenario is people had to rely on their savings throughout the lockdown recently. If you had not saved money before, you could have never been able to cope up with this worst economy hit.

Thrifty people play a paramount role to ease the circulation of money in the economy when it is doom. During the recession, the purchasing power goes weaker, and hence most of the people start feeling the need of taking out loans. However, the lending market struggles to meet the requirements of people, but frugal people continue to deposit money in their accounts that banks use to lend money.

To conclude, both saving and spending are paramount. You need to spend money to fulfil all your necessities, and you must have savings to survive financial hardships. A good rule of thumb says that you should maintain a balance between both.