APMacro: Spending and Saving

Spend-Save-MoneyDisposable income is the amount of money that households have available after income taxes. Consumers do one of two things with their disposable income, they save it or they spend it. A budget is a device for keeping track of income and expenses. We begin by making a list of our income and expenses. After making the list, we subtract our expenses from our income. If there is any surplus cash, we can plan how we will use it.

When you save your income, the economy as a whole benefits. Saving provides money for others to invest or spend. Saving also allows businesses to expand, which provides increased income for consumers and raises the standard of living. Savings accounts and money market deposit accounts are two ways to save. Both pay interest on the funds saved in the account.

The idea of saving money is less exciting than the idea of spending it. Saving part of one’s income, however, does not mean never consuming it. Some economists define saving as consuming less now in order to consume more in the future. We all have goals for the future. Perhaps your goal is to become a lawyer, an engineer, or a teacher. To do that you will need a college degree. Maybe your goal is to buy your own car or house. Maybe you dream of traveling the world or starting a business. Whatever your goal, it is likely to require money. Setting aside a portion of your income now to cover later expenses is saving for the future.

Even when the economy is strong, financial misfortune can strike at any time. When a company lays off workers, when a business fails, or when a family gets hit with huge medical bills. Such events often come unexpectedly. Unless you are ready, you could find yourself facing real financial hardship. To be prepared for a financial emergency, experts advise building up a rainy-day fund, an easily accessible stockpile of savings.

Americans today are living longer than ever before. Many people starting careers today will live for 20 or more years after they stop earning a paycheck. To maintain even a modest lifestyle during those years will take a lot of money. The earlier you begin accumulating that money, the more you will have when the time comes to retire. Retirement may seem a long way off. But in just a few years you will likely be working full time, earning, spending, and, if you are wise, saving. If you are really looking ahead, you will be saving for your eventual retirement.

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