The Beginning of the Journey – Part 2
– Lynne Wilton
When you consider spending, you will be influenced by a variety of factors. The main factors will be your level of income, the cost of your consumer goods and the attractiveness of alternative goods and services or activities for you to enjoy. Interestingly enough, there will be a direct link between your household spending and your household saving. You won’t be surprised to learn that it is ‘savings’ that either increase or decrease are a direct link to your spending.
Your savings will be either accumulated from surplus funds, or be a planned and deliberate act to form any of your investment opportunities out of saving money, which you will hopefully do on a regular basis. They are essentially the same, but one has more of an ‘implied’ investment outlook. There is absolutely no doubt that savings is an essential ingredient in creating wealth for yourself.
When you consider how the four cogs move together in unison; it is the overall desire of the regulator to encourage household savings. It is household savings that fundamentally lubricate the economy and for this reason, it generally the central themes of the government to have you save within the home. This is why you will always hear about the fiscal monetary policy and the government wanting to either slow or stimulates inflation.
Household spending is a very large component of this and so too is consumer sentiment. So believe it or not, but how you feel about the economy or your finances at home shows and reflect within your spending and saving behavior; all of which influence our economy. Naturally when this type of thinking forms clusters, this is a movement within sentiment across our nation. This is why consumer sentiment is considered one of the measurements with the economy.
When you consider borrowing, you should think about it being divided up into short term, medium term and long term financing. You would use short term to finance the servicing of the household and you can generally pay it back in the short term. Medium term financing is usually for the purchase of your cars or to fund education for either yourselves or your children. Longer term is more in line with financing your mortgages. Generally speaking, the higher the interest rate you endure; hopefully the lower the levels of borrowing you will endeavor. This is why when money is cheap; it could wise to pay more off the capital than just service the interest. Remember, somebody else’s money comes at a cost!
In order for you to get ahead, investing will be the cornerstone of wealth creation after your savings. Hopefully, you will use investing as a way of forced savings to purchase capital assets, with the idea in mind that they will eventually create a cash flow of their own. Typical income generating investments are real estate, shares, bonds and the like. The primary difference between savings and investing is that savings is a forced restraint from spending and the accumulation of cash reserves. Ideally, you will embark on both….