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It’s time for bed, but there’s no sense sleeping. Our neighborhood is crazy about fireworks, and this year the guy next door has purchased an arsenal of illegal — and very loud — explosive devices. The bombs will continue bursting in air for several more hours. Kris is staying up to read Harry Potter; I’m using the time to share a few links that Get Rich Slowly readers have forwarded.
- Writing for Newsweek, Robert Samuelson argues that the biggest threat to the U.S. economy is a steep rise in the personal savings rate. That’s right — he believes that the country’s negative savings rate has bolstered the economy, and that consumer fiscal responsibility might have a damaging effect. Is he crazy? [via The Tim]
- Nina at Queercents asks: “Would you risk your life to get out of debt?” She writes about Nick, a young man who volunteered to serve in Iraq “because of the extra money I earn while here. I’m using that money to get out of debt and get a new start on my financial future.” Nick keeps a blog in which he describes how he’s gone from $70,000 in debt to $14,000 in debt in just six months. (But he’s had to dodge mortar shells to do it!)
- Over at The Simple Dollar, Trent has ten frugal tips for a great grilling experience. Kris and I use our grill all summer long, but I’ve never bothered to compare costs between grilling and cooking indoors. I suspect there’s little difference. But Trent has some great tips for good cooking, whether the grill saves money or not.
- Finally, Vincent forwarded a Los Angeles Times article about frugal weddings. There are lots tips here, including advice on inexpensive flower alternatives, and ways to save on the wedding dress. If you’ll be walking down the aisle sometime soon, you should check this out.
Now it’s time to head out on the back porch to watch the show…
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July 5th, 2007 at 6:12 am
Robert Samuelson is half-crazy: the personal savings rate may go up and the economy may suffer for it, but the personal savings rate is NOT headed to 5%.
I think it’s going to stick around 0.
Americans have been spending beyond their means, so their savings rate has been negative. As cheap, plentiful credit dries up they won’t be able to continue doing that. However, they aren’t likely to cut their lifestyle back any more than absolutely necessary — which means going back to spending every dime that comes in: 0% savings rate.
Yes, the PF blogging community is filled with examples to the contrary, but I think we’re actually a pretty small group. Joe Consumer is going to keep on spending to the limit of his ability. That ability is just going to be a little smaller now.
Will the economy suffer? Yep! If the average U.S. consumer has been overspending by 1% and has to stop, then the economy is going to reflect that average 1% drop in spending. That’s a definite drag.
Now, if Joe Consumer does suddenly wakes up, educates himself about personal finance and develops discipline… well, who are we kidding? That’s about a likely as me winning the lottery (and I don’t buy tickets!).
July 5th, 2007 at 7:00 am
I agree that it’s not likely savings rates will go up. If you are into personal finance and saving it’s easy to think that most people are concerned with having a positive rate of savings and investing, but it just isn’t so. I know most of my friends are in debt and I was shocked when one of my close friends told me how much they were in debt. Yet they continue to charge clothes, expensive things for their home and eat out at fancy restaurants on a regular basis.
I also think having an economy based on people spending beyond their means is just sad.
July 5th, 2007 at 7:27 am
I think Robert Samuelson is right that an increased savings rate would be a huge drag on the economy. If all of that money that was being used to buy consumer goods that kept so many companies in business and people in jobs suddenly disappeared, there would be a contraction.
That is only a short term outlook though, its not as if the wheels will come off if American’s stop spending. If people become more interested in Certificates of Deposit than Compact Discs, the makeup of business and industry will change as a response (much to the chagrin of the Chinese), but it will take time.
July 5th, 2007 at 8:05 am
I’m honored to be mentioned on your blog, J.D.! It was some of your articles that really inspired me to get out of debt in the first place. From reading your blog and other PF blogs, I learned how and why I should turn my financial life around. Thank you for the mention, and keep up the inspirational messages.
July 5th, 2007 at 11:10 am
If consumers stop spending money they don’t have, obviously it will impact the economy in the short term. But the thing is, spending money you don’t have and going deeper and deeper into debt is not a viable course of action long term. At some point you have to pay back the money you borrowed (unless you’re the government), and the deeper you are in debt the harder it’ll be to pay back.
The economy is basically a mirror of the housing bubble. Prices were driven up artificially by looser and looser lending practices, allowing people to buy a house with 10% down, and then 5%, and then 0% and finally negative amortization. If the brakes had been applied three years ago, it would’ve “negatively affected” house prices, but it would’ve prevented the even bigger mess we’re seeing now.
The negative savings rate has artificially boosted the economy for the last couple of years, allowing it to grow faster than it would’ve in a healthy state. At some point that boil needs to be lanced, and the longer the debt is allowed to build up the uglier it will be when it drains. It comes down to whether you think it’s better to have a small decline now or a bigger decline down the road. And furthermore, who cares about “the economy”? Obviously it’s better for the retailers if we all rush out and buy stuff on credit that we’ll be paying off for years to come. But it’s not good for consumers, the ones who have to pay it off. And it’s not really good for the retailers either, because the party has to end sometime.
July 5th, 2007 at 11:50 am
Don’t laugh but I joined the army to help pay off my student loans. Even though my husband stayed behind in Oregon and we payed $100-$200 a month in long distance phone calls, I was able to save thousands while staying on base without a car for two and a half years. They paid $15k of my $18k in student loans and I was easily able to pay the rest before interest kicked in.
As far as savings is concerned, I insist on always having at least $5k in savings no matter what. Without car payments, student loans, etc, it is much easier to build a savings.
One thing I’ve never figured out is why people need large houses. I’ve lived in apartments from 600 sqft to homes just over 3000 sqft. Smaller is always best! You don’t keep as much junk, you don’t need to get more furniture, and repairs cost less because there is less. With a smaller house, I think it is easier to save money, too. Just my 1 cent…
July 5th, 2007 at 4:59 pm
I honestly believe grilling saves money over indoor cooking. Maybe not in a direct cost comparison bit in energy bills. If you use your stopve and have your air on you just drastically increased your costs. Not only are you paying for gas or electricity for the over but now you air conditioning has to run for an excessively long time to re-cool your house. At this very moment I’m asking myself why my wife is cooking in the kitchen when it is 90 degrees outside.
July 6th, 2007 at 12:35 pm
I agree with the newsweek article to a degree. If spending was to go down domestically keeping all things equal abroad, yes, the economy would suffer. However, if spending was to go down domestically and China and India increased their spending to more than compensate, then no our economy would not suffer. I don’t think this should be a fear though unless Congress were to impose much stricter constraints on lenders.