Whatever happened to saving up and paying cash?
This is an interesting concept that seems to have been lost over the last couple of generations. I remember when my parents did this. You may too. Maybe it’s worth stepping back in time and taking a look at just how different it is today compared to our grandparents/parents time.
The following data comes from the U.S. Department of Commerce Bureau, www.mises.org. We’re going to take a look at the percentage of American household income that gets spent, saved, and/or invested in four key areas: debt service, taxes, lifestyle, and savings. We are comparing 1940 and 2011.
Taxes, including federal, state, local, and property taxes, totaled 15% of household income in 1940. In 2011 it was 18%. Not a big difference.
Lifestyle expenditures were 47% in 1940, and only 40.6% in 2011. You could say we’re living a less “lavish” lifestyle now. It might not seem that way, but the real question is “why” is it that way?
In 1940 we put 27% of our income into savings compared to only 3.4% in 2011. And in 1940 we only had debt service totaling 11% vs. 38% today. We are not saving and we are massively in debt! Our lifestyle is being financed by debt, and that’s why the previous paragraph might seem odd. We absolutely have more “stuff” today, but we “owe” on it.
This is something that requires serious discussions and thought, and decisions that are thoughtful and reflective of what our real goals and visions we have for our lives. Holiday food for thought.
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