In the midst of all of this talk of financial apocalypse – which is probably a little bit overstated – I realized that the idea of saving money in times of crisis is a lot different from saving money in a time of plenty. Cutting back on Nintendo games is a lot different than learning how to heat the house with paper scraps.
A common debate that goes on in my consultant-infested workplace is the debate over “good” investments. I have some colleagues who cling to the stock market; some who swear by real estate; some who preach the mantra of gold and commodities; and some who have just decided to spend their money as it comes and damn the consequence. I fall somewhere in the middle – increasingly skeptical of the stock market but more skeptical of the idea that commodities or real estate can pick up the slack for the whole US market. I’ll beat that topic up a lot more in the next few days.
But in times of distress, learning to save money on things that make a difference can matter a lot, too. Learning to grow your own food is different than chopping off a few bucks on eating out. The former will create value out of nothing – the latter simply cuts out an expense you didn’t need to have. For the record, I don’t think we’re there yet. We don’t need to all start planting potatoes for the next great famine. And I’m not convinced that we need to hammer down on luxuries yet, either. If I dropped Netflix it equals less than .1% of my income. You might say, well, take .1% here and .1% there and soon you have a few percentage points, but you don’t – I don’t have that many minor expenses.
I do think now is the time to start focusing on stupid expenses. Nobody needs a new TV now. You might need a new computer, though. You don’t need a new CD – but a book (depending on the book) might be money well spent. Is it time to start wearing that crappy old shirt that’s out of fashion a bit longer? Yes. Is it time to keep wearing that worn-out old coat that doesn’t protect you against the cold enough – no. Spend money like a smart person. That means you need to apply a simple question to every expense: do I NEED this? If the answer is no, pass for at least a few days. You’ll see a difference in your bottom line in a hurry.