Spending vs.
Saving
- Where
it All Begins
By Lance McElhaney
September 4, 2000
“Is that a Polo shirt you’re wearing?” came her question.
I answered that it wasn’t, then hoped she wouldn’t ask the next
question. “What brand is it?”
Ugh, I was pinned. “Club Room,” I murmured confidently, pretending that it
was a brand equivalent to Polo. Our
conversation ended due to mutual embarrassment.
She was a student at Jackson College of Ministries and one of the girls I
was hoping to impress. Did I bother
to tell her that the $30 I saved buying the J.C. Penney Polo knock-off went
toward paying off my college education? Or
maybe that instead of owning a fleet of Gucci
watches, I had a car that was already paid off?
Nah. I was toast with this
girl and I knew it.
What’s In It for Me?
When it comes to finances, there are
two types of people in this world: spenders and savers. Ultimately,
savers are the ones with real wealth. Relax,
both groups can go to heaven, it’s just that one group ends up creating wealth
on earth before they go. In case
you’re not sure in which group you qualify, here’s a quick test to find out.
(Simply answer yes or no to each question.)
1.
Do you pay off your credit cards every month?
2.
Do you contribute to your company-sponsored savings plan?
3.
Are your Christmas gifts paid for before the bows are taken off?
4.
Have you ever driven a vehicle you fully owned, even if it was that ’74
Civic you drove in 1994?
5.
Do you save for a vacation before you take it?
6.
Do you refuse to pay full price for anything in a department store?
If you answered yes to a majority of
these, obviously you’re a saver. If
you answered no, you’re a spender.
There are personality traits that
identify these two groups that have nothing to do with finances.
Spenders are often spontaneous, disorganized and a whole bunch of fun to
hang out with. Savers are often
conservative, over-plan their lives and have a
tough time getting dates. The
trick is how to get those with
spender personalities to manage their finances like savers.
Before we figure that out, let’s answer the obvious
question, “Why do I want to be a saver?”
The answer is primarily this: Through the creation of wealth, savers put
themselves in a better position to finance the work of God.
(August 21, 2000) Secondarily,
becoming more financially secure can translate into a host of personal benefits
like reduced financial stress and shorter work days will enhance anyone’s home
life. Obviously, reclaimed work
time can be parlayed into more time for family and church work.
The Buck Stops Here
“I don’t make enough money to
save anything!” Shirley I. Wantit said while surfing to a home shopping
network. Shirley and her friend
Anita B. Patient were discussing the new 401(k)
savings plan offered at their office. “I
mean, to participate in that new plan at work I’d have to do something
drastic, like give up my cell phone. How
would I survive?” Anita smiled
and nodded, “I’m not sure, but I guess it would require a sacrifice
somewhere.”
The key to being a saver is to save
first, then spend. Make saving a
non-negotiable priority, just like tithing.
Practically speaking, this equates to being able to live within your
means. Even if the amount is small,
steadily putting money into an investment account begins the process of building
wealth. Doing this requires
discipline and foresight. And,
unlike Shirley, one must be able to recognize the difference between true needs
and wants.
Interest - Friend
or Enemy?
Wealth is essentially created by two
mechanisms.
■
One is by purchasing something that appreciates, rather than
depreciates, in value. A house or
college education falls into this category.
Cars, clothes, and stereo systems don’t qualify.
Will Rogers once put it this way, “Buy land, ‘cause they ain’t
makin’ any more of it.”
■
The other mechanism is by putting the power of compounding
interest to work for you, rather than against
you.
Let’s look at the example of
buying a car. Cars depreciate in
value through time. They are also
relatively expensive, so the buyer typically has to borrow money to purchase
one. This means the
buyer is paying interest on an asset that is depreciating¾the
double whammy.
Shirley borrows $20,000 to buy a new
red sports car. She can afford a
$400 monthly payment, and pays 7.9% APR (Annual Percentage Rate) on her loan.
She ends up spending a total of $24,274 for her car over the five years
it takes to pay it off.
In contrast, Anita also has $400 of
disposable monthly income, which she decides to put into long-term CDs
(Certificates of Deposit, not Compact Discs) at an average interest rate of
7.5%. She spends $1,000 to repair
her existing car. In four years she
has saved enough to pay cash for the
same $20,000 red sports car Shirley bought.
During the fifth year she is able to continue saving $400 a month since
she has no car loan payment and finishes the fifth year with almost $6,000.
Anita’s willingness to delay
self-gratification for four years has
turned into a nice little nest egg. By
saving first, she has created personal wealth.
Knowing Anita, her next move will be to take that $6,000 and use it as
part of a down payment for a house. She
has sacrificed a short term want so that she could continue her monthly support
of a foreign missions student while fulfilling her lifelong goal of owning a
home.
Both Shirley and Anita got what they
wanted, but one has something eternal to go along with it.
Next Column: We’ll discuss items
that appreciate in value and how to go about owning them.
ninetyandnine.com
© 2000, Lance McElhaney
--------
Lance
McElhaney attends Calvary Tabernacle in Indianapolis, IN.
He received his B.S.E.E. in Electrical Engineering in 1985 from Tennessee
Technological University and his M.S.E.E. in Electrical Engineering in 1986 from
the Georgia Institute of Technology.
Have an opinion on an article? Let us know how
you feel! Click feedback & fill us
in. | 
