Here’s some real financial advice you can really use: keep spending

Frugality is the newest trend, but I’m tired of it already. Two reasons. I’m sick of millionaire financial advice gurus telling us that the solution lies in the kind of sensible spending that all but millionaire financial gurus and idiots already employ. More important, the new frugality is exactly the wrong reaction to the troubled economy. If we are afraid to spend or invest, things are just going to get worse.

Turn on those pulse-of-America TV shows Dr. Phil and Oprah if you want to see the financial advisers in full hectoring mode. The moneybags hosts, who have made a fortune by flapping their gums, drag on a hapless debt addict or some poor schmo who has lost his job and subject them to “advice” from people who make their living telling others to do the obvious. Don’t pile up credit card debt, they say. Live within your means. Take any job to bring in some money, even if it means bagging groceries. Don’t buy stuff you don’t need. Dr. Phil and Oprah pile on, tut-tutting about the financial misadventures of people whose annual expenditures on luxuries would amount to less than Oprah spends on a pair of shoes.

Canadian newspapers are full of the same kind of useful advice. Take a brown bag lunch. If you must eat out, do it at a cheapo chain restaurant. Drink the crummy office coffee instead of the good stuff. Cut back on TV cable. Rent a movie, don’t go to the theatre. Shop at the discount stores and look for sales. Watch for articles soon suggesting that women go back to sewing their own clothes and canning vegetables.

This would be life-changing stuff for the analysts and consultants who issue the advice. It’s hardly a revelation for ordinary people. Most of us don’t exactly have a lavish lifestyle.

Personally, I make my own lunch. Have for years. Restaurant meals are fairly rare, partly because I resent paying taxes for the privilege of eating. I rarely buy anything unless it is on sale. I doubt that I’ve ever paid full price for a shirt in my life. Let’s put it this way, the scope for additional frugality is limited.

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My wife has suggested that cutting back wine consumption would be appropriate, but that’s madness. Now is the time when we need to drink more than ever.

Frugality can be a bad thing, if everyone is engaging in it. Our economy is built on consumer spending and continuous growth. One could argue that it shouldn’t be, but it is. If consumers don’t spend, people lose their jobs. As more people lose their jobs, consumer spending drops further. More people lose their jobs. If people don’t invest, or at least hold on to the investments they have, the value of those investments keeps going down. Then there is more panic selling and the investments go down again.

We know all of this, but right now we are caught up in a fear-driven stampede that has become our worst enemy. It’s important to remember that you still own the same stuff you owned before, it’s just worth less. That’s two words. As long as you don’t sell, your investments will eventually start going up.

Source: Ottawa Citizen

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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