Recession in America – Building Your Savings

This is the final post in a series of ten focusing on the Recession in America and the impacts it is having on things other than your 401k and personal finances. Check out the first nine posts in this series titled -
Recession in America – What about our pets?
Recession in America – Home Foreclosures
Recession in America – Unexpected Landlords
Recession in America – Abandoned Subdivisions
Recession in America – Trading Stocks not Investing
Recession in America – Freelance Jobs
Recession in America – Gardening
Recession in America – Long Distant Families
Recession in America – Do It Yourself

Today’s post marks the final installment of the Recession in America series here on PFI. What better way to wrap things up than to discuss a topic that I am passionate about – Personal Savings. Yep, the statistics are starting to show that in the last year, Americans are starting to save more of their paychecks than they have for many years. Prior to the recession, personal savings was often unheard of for the average person. Why save when you can borrow the money just as easily seemed to be the mantra of most. Unfortunately, that mentality was a factor that led us to the worse economic downturn since The Great Depression.

There are several advantages and even disadvantages of increasing your personal savings. I have broken down these pros and cons below as well as offered a happy medium of balance that I believe is key.

Savings Benefits
Increasing your personal savings is a way to protect yourself from emergency situations like job loss or unexpected medical bills. In years past, Americans were spending more than they were bringing in, which hurt our economy over the long term. Instead of borrowing money to pay for items, one should avoid these behaviors and turn their focus on increasing how much they save every paycheck. This nest egg overtime will add up and can be used to pay your mortgage or car payment if you lose you job.

Living within your means is now becoming reality for most people who have been impacted by the recession. Part of living within your means includes taking responsibility for your finances and controlling your costs while increasing your savings. An important benefit of increasing your savings is that you can begin earning money off of that savings that can work for you. No matter how much your personal savings is, you should consider creating a passive income stream with it that can be used to generate additional income for many years. Consider putting your extra income into a high yielding checking or savings account. If you have over $1,000 worth of savings, then look at investing it into a certificate of deposit.

Downside of Savings
Unfortunately, the downside of increasing your savings is felt on the macro economic level. If everyone globally continues to hoard their cash and increase savings, then nobody is spending any money. If money is not being spent, businesses must cut back their workforce which leads to higher unemployment and job loss. When people are unemployed, they can no longer pay their bills, or at least until their savings runs out. This is a nasty viscous cycle that is starting to show up in our economy.

While saving as much as you can will probably benefit everyone over the short term, it really does not help the overall economy. Eventually it seems to trickle back down to the average person in the form of layoffs and other economic hardships.

Savings Compromise
It seems that we have almost swung from one extreme to the next. Years and years of out of control spending helped push us into a deep recession. Now the change in focusing on penny pinching and savings is accelerating this recession leading to struggling businesses and high unemployment. It seems like there must be a happy medium out there.

Instead of hoarding all of your cash, look at spreading your savings out across several different investments. As mentioned earlier, look at creating some passive income by investing your money into a high yielding account. As long as you are under the FDIC insured limit, your money will be safe. This money that has been invested can then be used by the banks and other lending institutions to conduct their business and lend that money back out to businesses and other individuals which stimulates the economy.

If you start to earn passive income off of your investments, consider using that money to purchase items that you may have done in the past or use it to go on a vacation. Since this money is not part of your true savings you started with, you can take a portion of your income generated and use it to stimulate the economy.

While the scenario noted above is not going to change the world on it’s own, it is just an idea to consider. There are many other concepts and ideas that can be practiced to find a happy medium between savings and spending. While both savings and spending are important in their own respect, too much of either is not a good thing over long periods of time. Hopefully we can find a happy medium along the way that will help turn our economy around.

Tagged as: recession in america