Sunday, June 7, 2009

When should I save and when should I spend?

Kmart has a heck of a deal on work pants right now, which provoked some debate around the ktnomics table on spending versus saving. That's a decision made differently when money is tight.

On the one hand, I could really use the pants. They're cheaper than blue jeans; they're pretty useful for some of the part time work I've been picking up, and the 10-year-old pair that I'd replace are two inches too big around the waist and looking ratty. Plus if the inflation hawks are right, this may be the best deal I'll get for a long time.

On the other hand, I could use the $16.99 too. I may need it more for something else later. I can make the old ones last longer, and an adjustable web belt from Mickey's Surplus will take care of that waistline adjustment. Plus, if the inflation hawks are right, that's already almost seven gallons of gas.

Some commentators say dilemmas like this help prolong the country's economic problems. They believe that, laudable as our new found commitment to thrift might be, somebody needs to spend something to get money flowing again. That's the whole point of economic stimulus.

Could be. But here on the home front, having a cash reserve becomes even more reassuring when income is unpredictable. Six months or more - to be tapped only in spurting-blood priority emergencies is ideal. But even having just a $500 stash will get you a long way through most jams.

The real question may be what will happen when we feel comfortable about spending again? There's a lot of money out there not circulating much. If prices rise because we try to spend it all at once, will we still be saving because we can't afford stuff? Maybe Yogi Berra would know.

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