Sunday, December 28, 2008

Spend within your means

With the recession looming, there are many ideas floating around on how to survive through the recession. However, some of the ideas going around are actually detrimental to the economy recovery. The top most idea that was floated around:

Save as much money as possible until the economy recovers

However, this is one of the worst possible action that one can do during a recession. One has to remember. How does the economy function? It's a buyer, seller relationship. Why do we have jobs? Because some needs our services, or products that we create. Why do we have salaries? That's our payment for the services rendered, or products produced. This is the economy.

So what happens if you ask people to save as much as possible? People get retrenched. Period. There will be no buyers in the market, and left are all the sellers. Prices will be driven downwards (deflation), causing people to lose more jobs. Industries will be shaken up, and consolidated, leading to more jobs lost. The skills that you have acquired will be rendered useless. Depression will set in, causing the downward vicious cycle to spiral even deeper.

Just that simple selfish thought can cause this amount of damage that will inadvertly cause your own misery. And because this thought is the "easiest" way out for most, the herd mentality will follow, where everyone tries to do it. Singapore will be gone. Period.

Nevertheless, given the current climate, it's obviously not prudent to spend like no tomorrow. The key is to spend within your means. Spend when you can afford to. Pay down your debts when you can so that you have less liabilities. Contribute when you can.

Keep the economy going if it is within your power. The effects will reach you eventually.

If you still intend to be lazy, then I'll encourage you to read books about the Great Depression from the library. That will be the conclusion if you take the easy way out.

1 comment:

Anonymous said...

No job means no money.
No money means no money to spend.

And no money to spend, means no money to purchase.

So, sellers have not choice but to suffer from it.

Solution ONE, no matter how jobless it maybe, is

1. to create jobs,
2. to sustain jobs, and
3. to maintain jobs.

Solution TWO, no matter how bad the economy is, the Govt has

1. to enable strong cashflow,
2. to reduce borrowing interest rate,
3. to reduce interest charge,

Solution THREE, the Govt has to

1. to allow more debt
2. to pay for debt
3. to eat up debt

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