There are three types of people who read personal finance blogs.
- Debtors seeking financial independence.
- New savers who are planning for retirement.
- Misers for whom the act of saving money is its own pleasure.
I've been all three at one point or another. Currently, I am out of debt, but I am not saving aggressively, even though I “know” that it is prudent to do so as early as possible.
Saving Now vs Later:
- Compounding interest over decades multiplies the effect of a dollar saved now
- Builds good, lasting habits
- Protects from unforeseen events.
But with stocks at record highs and interest rates at record lows, the returns on savings aren't great: It's always a good time to save, just not as good as it used to be.. Since good value is hard to find in savings, I look for value in how I spend instead. Earning $1 and not spending $1 is the same in accounting terms.
Among personal finance nerds, marketing gimmicks like limited-time sales are derided as cheap tricks that cause savers to spend while thinking they are saving. And from the seller's perspective, that is their purpose and they do it quite well- How often have you heard someone talk about how much money they saved by buying something?
But in some situations, the marginal benefit to the buyer is worth the extra spending. One such case is if the good is something that the buyer would have bought at regular price, and the good is non-perishable, like washing detergent or toothpaste. These are clearly different situations than a consumer being seduced into a boutique store by a Buy 1 Get 1 Free sign to browse for sweaters and jeans, or swayed into buying the value combo with fries and a drink instead of just a sandwich.
This case may not benefit the consumer as much as initially appears due to the tendency to overconsume when in possession of a large quantity of a good. Here I define 'overconsume' to mean using more of the product than would normally be needed to satisfy the consumer. Habitual drug users and alcoholics who are all-too-familiar with this effect will often purchase lower quantities at higher per-unit-prices to protect themselves from overconsumption. More about this here.
Another case where the consumer can benefit from an increase in spending is the whole business model behind Groupon. Groupon advertises discounted services for a limited time to new customers. The triad of reduced prices, limited time offers, and consensual marketing (consumers seeking advertisement rather vice versa) increase demand of these services. Though consumers spend more, they get to experience things that they otherwise would not have known about or been able to afford.
Having money is having potential to satisfy demands, but what good is that if you hold off on satisfying them indefinitely? Might as well do it now when
1. you have the time
2. you have the money and
3. interest rates are low
.91% APR in my savings account? I'd rather eat steak tonight.