Tuesday, January 20, 2009

Buying Stuff vs. Investing For The Future

Occasionally on LinkedIn, a social networking site for business, I will answer questions posed about real estate, or personal investing, or wealth management, etc. Recently someone asked about how to save money. I have had several emails and comments come to me from my response that I thought it worth revisiting here.

So what you will read first is the question as it was posed, and a clarification from the person seeking feedback, and then my response.



"The U.S. savings rate -- for reasons I have not been able to understand despite living in New York for 20 years -- was until very recently below zero. Are you now saving money? Why now? Why not before? What are you doing differently to find these funds?

Clarification added 8 days ago:
"OK, not to sound deliberately stupid, but saving -- to me -- means apportioning some of your income (not your home equity!) for the future, and especially for retirement. Other than Social Security (which some won't get) what else will people live on in old age? I do not get what exactly people are spending every single penny ON... "

I replied:

"I agree with xxxx. These numbers do not include pre-tax monies diverted to 401(k) plans, of which there are MANY. These numbers only look at money in bank savings accounts.

"Here are some ideas on saving -- Go out to eat less frequently. If you are planning to take the family out to the movies, and change your minds at the last minute, put those funds aside as if you HAD spent them at the movies. That is how you force yourself to save money. When you get your paycheck, pay yourself FiRST. Put 5 percent of your net pay into a savings account. If no other reason than for emergencies. But of those who don't save? What do they spend every penny on?

"Let me answer it another way. I have many people who tell me they wish they could get into investment real estate, but they never have any money. Yet they bring home all kinds of goodies and toys all the time. At the same time, I have people who ask me "who is your competition?" They expect me to name other large commercial/investment real estate advisers. They are surprised at my answer (which answers both questions): Wal-Mart, Panera Bread, Lexus, Harley-Davidson, Rolex, Best Buy, etc. Our culture is one of buying "stuff."

"It makes people feel good to have "stuff." Me? I would rather buy properties where my tenants' rent buys my stuff for me. But then...thats just me."

Food for thought.

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