Kuta Beach

Kuta Beach

Thursday, 18 March 2010

Money is Made to be Spent?

I think I am capable of saving 80 per cent of my net pay. That is my target savings rate. One friend of mine criticized me by saying the following: "Money is made to be spent. What is the point of saving money if you're not going to spend it? You get satisfaction from spending money, so by not spending you are denying yourself satisfaction. What if you died tomorrow? You would not get the opportunity to spend and you will have missed out on so much satisifaction."

I happen to think that my friend is not correct. The sentence I have issues with is the sentence about how you get satisfaction from spending money and so therefore if you don't spend money you deny yourself satisfaction. I find personally that spending does not give me much satisifaction. Saving money, on the other hand, seems to give me a lot of satisfaction. Saving money is a form of insurance because it allows you to be better off in the event of an emergency. An individual can spend money and receive satisfaction by buying income protection insurance. In the event of a job loss, that individual will not starve to death. Alternatively, instead of buying income protection insurance, an individual can save money and in the event of being fired from his job he will have a pool of money leftover to spend on necessities like food, which prevents him from starving to death. Hence saving money or spending money can both give satisfaction. That spending may give you satisifaction does not mean that not spending does not give you satisifaction.

If I died tomorrow, it is not as if I have missed out on an opportunity to achieve a very high level of satisifaction. If I spent all my money now and was broke, I would become fearful because I no longer have a safety net in the event of some unfortunately event. This fear would decrease my satisifaction. Therefore, if I spend all my money now till I was broke, I would become fearful, my satisifaction would go down, and then I would die. If I kept my money and saved it, I would be happy because of the insurance and security this cash gives me and even if I die, I die a happy man.

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