Monday, February 8, 2010

Lowering Our Propensity to Consume

First off, I apologize for the title. Being a straightforward personal finance blog I shouldn't use the big economic terms. However, I have to admit that I just love saying propensity. Go ahead... try it... you'll like it!

"Propensity to Consume" is our natural inclination to spend. I figured at some point I'd steer the conversation towards ways that we can save a few dollars here and there. All personal finance blogs eventually do, so this is just the heads up.

The goal of any personal finance blog is to try and help others (and myself) become more financially educated. The ultimate purpose of that, is to of course become wealthier. If you weren't interested in that, there are better things to do with your time than read this. Like researching the next coolest gadget to buy.

I'm not referring to getting wealthier so that we can all roll around in money. Money is just a means to an end. Wealth gives us options and the freedom to follow our dreams. To not live in fear of losing your job, to stop working altogether one day if you so choose, or to travel the world if you so desire. Each person will have his or her own reasons for doing so of course and the list goes on and on.

There are only 2 ways to become wealthier. Either make more money or spend less. If you're always increasing your spending as your income increases though you never get further ahead. Also, for most of us making more money right now is not an option. I will of course discuss making more money from time to time, but I imagine the majority will be more about saving.

I didn't use to be frugal at all. This has actually just been a gradual change for me. I used to hate using coupons and shopping around for a better deal. In fact, frugal is sometimes seen as a negative trait (i.e. cheap). However, frugal just means to not be wasteful. Let's face it, we all have unlimited wants, but our income will always be limited. By carefully managing our funds we can ensure we are working towards our goals and not wasting our limited funds on items that don't truly make us happy.

In the book "The Millionaire Next Door," it describes a typical millionaire driving a used domestic vehicle, living in a rural area in a modest home, and still cutting out coupons. There is a good chance that the people you see driving the fancy cars and living in the expensive homes are living pay cheque to pay cheque and are constantly in fear of losing their jobs. These people probably have a great income, but their propensity to consume exceeds their income.

So, when I am bitten with the consumer bug, I ask myself if this purchase is worth delaying my goals for. Very rarely is the answer "yes."

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