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Should You Save, Invest Or Just Spend It All Now ?
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Are you a Spender, a Consumer, a Saver or an Investor?
Each of us will likely occupy all four groups at various times in our lives. But at any given point in time, each of us likely fits mostly into just one of the groups.
#1 Spenders
Tend to spend all of their monthly earnings. Willing (or feel forced) to purchase furniture and even vacations on credit. Likely to run balances on credit cards. Preparing for retirement is either way in the future or consists of buying lottery tickets.
#2 Consumers
Likely to spend all of their monthly earnings but tend to avoid consumer debt. Will borrow for a mortgage and car but usually not for furniture, vacations and cloths. Do not run monthly credit card balances. Tend to have a pay-as-you-go philosophy. Not saving for retirement.
#3 Savers
Likely to live frugally and to regularly save a portion of their income. They like to save for a rainy day. The rate of interest that they get on their savings is not the motivation to save. First priority is paying off the house. Also typically saving some amount for children’s education and for retirement.
#4 Investors
These people have the same motivations as savers but they are more concerned about the rate of return, usually willing to take some risk in search of a higher return. May not live as frugally as savers and may even borrow to invest.
None of these groups is inherently better than the others. It’s a matter of personal preferences and circumstances. Most people will occupy all four positions at various points in their lives.
Let’s understand further…
Investment over indulgence? What’s your preference?
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It is crucial to understand the importance of investing before spending. They both provide gains but it is necessary to understand the pattern of your spending cycle in order to invest wisely and yield higher benefits from your investments. Find out the benefits of the two and make the right choice.
Spending before investing
There are some who believe in spending their earnings lavishly and invest whatever they are left with in the end. This is the first kind of person and is looking for short term satisfaction or short term gains. Spending more than investing will give you immediate satisfaction in the form of the purchased goods or service but it will not hold benefits or add value to your long –term financial goals. This type of person does not have discipline of saving or investing which one inculcates from his early days. His investment concentration is far lesser than his spending pattern.
It can be explained simply with this example: When he comes to own a bag of seeds, this person chooses to eat it instead of planting them.
Investing before spending
The other type of person plans out smartly. He invests first and then spends the remaining sum. He understands the importance of having future goals. He sets them as priority and makes sure his investment concentration is more than saving. He makes a conscious decision to invest a certain amount in various financial instruments while having a minimal expenditure margin. He has the sound knowledge that future expenses partly depends on his current financial plans and change of income in the future. He has the absolute understanding of changing lifestyle expenses and income in the future and safeguards himself by investing more than spending.
It can be explained simply with this example: When this person owns a bag of seeds, he chooses to plant it for future benefits.
Do you invest first or spend?
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Alex Song CFP
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