“Falling housing market.” “Possible recession.” “Troubled economy.” These phrases have been buzzing around lately in the media. Real estate prices were going up and many people decided to buy more house than they could afford with unconventional mortgage terms. Now the house prices are falling in many areas and people can’t keep up with their rising mortgage payments and plunging equity. Many fear a recession. People aren’t spending as much money because they are trying to pay their mortgage. Time for the government to step in, right?
The government has been urging people to go out and spend money to get the economy going. They are sending the message by lowering interest rates on loans, hoping to encourage people to get new mortgages, refinance old mortgages and acquire new auto loans. And with that interest rate drop, along comes our savings rates. Lowering the yield people receive on their savings accounts seems to discourage people from saving.
So the economy is bad. So they are trying to prevent a recession. Does that mean that spending rather than saving right now is the right thing for you to do? The answer depends on your personal financial situation and not the condition of the economy. The government would like you to think that spending money will help the economy and save the country. But the fact of the matter is if you have credit card debt and you don’t have an emergency fund, spending money will have a bigger negative impact on your own financial situation than the perceived negative impact that not spending money would have on the economy.
So do you take one for the team and go out and spend money you probably shouldn’t spend?
Here’s what I think – though I am no expert on the economy: I personally believe that our country is better off with the majority of our citizens out of debt and a funded savings account for emergencies and unexpected expenses. I believe that more responsible financial habits will eliminate the need for many who are currently on welfare and receiving government assistance. (I say many because I understand that there are those who may still genuinely need the help and that is fine.) By cutting down on the amount of interest people spend on credit card debt and various loans, people will actually have more money to responsibly spend in the economy as well as more money to invest into that same economy.
The government recently decided that everyone will receive a tax rebate this year to “help” people go out and spend money in the economy. Extra money is always nice, right? The wonderful thing is that the government can advise us on what to do with the money, but they can’t force us to do anything with it. I’m going to go out on a limb and say that the majority of people shouldn’t spend their tax rebate. I sincerely hope that many people out there with major debt and/or no savings consider using their tax rebate wisely – in a way that will best help their personal financial situation – by paying down debt and increase savings. Those who have already paid off their debt and have their emergency fund stocked – go out and spend your rebate – if that is what you want to do.
I mentioned the concept of saving extra money you receive for later times when you may be short in a previous article that I wrote (Prepare For Your Financial Winter in Times of Plenty). This tax rebate is a perfect example of extra money coming in. I sincerely hope that some people out there decide to do what is best for their finances and their future and become the kind of person that TRULY helps our economy in the future and not just someone who spends money to help the short term of things, but neglects the long term of their own financial picture.
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