Some define insanity as doing the same thing over and over again, yet expecting different results. I know some may say that is not the true definition of insanity, for today’s purposes I’ll pretend that it is…and after all, it is my blog right?! Anyway, what got me going on today’s rant was an article I read last week on Bloomberg which said that in January consumer spending went up regardless of the fact that incomes fell more than they have in the past 20 years. What was even more ridiculous was that the savings rate is going down. Now I know that the payroll tax holiday expired at the beginning of 2013 and that does have an impact on incomes, but the larger issue is that we are going right back to our old habits in terms of not saving enough money.
However You Do it, You Need to Save Money
I know that saving money isn’t sexy and that you can always find a reason not to do it, but statistics show that those who have even a small $500-$1000 emergency fund are much more adept at being able to handle financial ups and downs. Not to get all Dave Ramsey, but why would you not want to be prepared for the most basic of what life has to throw at you? I know that times are tough; we feel it ourselves as we see income fluctuating from month to month but that does not mean we are not saving money. We have it set up automatically so we do not even “feel” the money leaving our account and it goes into our savings account. Not certain you can save that much money now? Then start with something simple like $50 per month and you’ll be there by the end of the year.
But Interest Rates Are Too Low
One of the first arguments against saving today is that interest rates are wretched. I completely cede that point, but why let what interest rates are doing (or not doing) affect saving money? Some will say that putting it into the stock market is an option, however how is that saving money? You’re opening yourself up to the risk of loss plus the fact that it’s not entirely liquid. I am not trying to say that you should not be investing in the stock market by any means. Anyone who has spent any time reading my thoughts will know that I am a huge proponent of investing in the stock market as a means of being properly diversified, but that has to be something that is separate and done in addition to, not in place of, saving. Saving is after all, the best way to prepare for what life has to throw at you.
Have We Not Learned From History?
Grayson shared an intriguing infographic several weeks ago that pointed out a number of unsurprising but still very eye opening money saving statistics. What it showed was that while savings rates went up during the height of the recession in 2008, they have since declined and are showing no signs of turning around anytime soon. What stood out to me in the infographic was the fact that, yet again, we are tempting fate by trying to make history repeat itself. It shows our unwillingness, as a whole, to look past our nose and plan for tomorrow, next week and next year. It is this same foolish thought that generally got us into this mess in the first place and will only lead us back if we do not adjust our attitudes towards being wise with our money. This is also not to mention the fact that we have a great responsibility to our future generations to teach and model for them wise money habits. Otherwise, history is doomed to repeat itself.
Stop the Insanity!
I may be dating myself here, but when I read articles like the one I cited earlier the first person that comes to my mind is Susan Powter who was the infamous talk show host/motivational speaker who would yell her catchphrase “Stop the Insanity” in the early 90’s. The fact is that we need to stop it. We all know that there are many philosophies out there in terms of how to handle finances, but there are some basics that need to be gotten back to. We need to move back towards saving money, towards saving for retirement and taking responsibility for our financial actions. As an aside, I think this is something that should be taught at a basic level in today’s educational system, as well as at home. I am not talking extensive finance and economics, but simple honest to goodness finances. This would cover such things as balancing one’s checkbook, forming some type of basic budget/spending plan and saving money. This would hopefully be a good beginning foundation that would help future generations so they do not repeat the same mistakes we have made. Otherwise, history can and probably will repeat itself.
If you could scream “Stop the Insanity” at something financially, what would it be?
Photo courtesy of: Kirida
I wrote about this a few years ago when people were cutting back on spending because of the wounds from the bubble bursting and the market crashing. I wrote then that I hope this is a new trend but only time will tell. Unfortunately, it looks like saving more and paying off debt isn’t the new trend. The thing I don’t get is that it is happening now, after paychecks were “cut” because of the payroll tax holiday expiring. I understand that is why the income number is down, but it doesn’t explain the uptick in spending.
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Unfortunately I think that trend was short lived Jon. I agree that it makes no sense after the “cut” that people continue to spend, but it’s still going on. Hopefully history will not repeat itself.
If I lived in America I wouldn’t want to be saving at the moment as Ben Bernanke is punishing savers to protect over leveraged risk takers.
If they keep devaluing the currency at the current speed, they are essentially telling you to go and buy houses, stocks and to not keep your money in the bank.
Glen @ Monster Piggy Bank recently posted..Game of Thrones Season 3 – Piracy is Coming to Australia
Ah, The Ben Bernank.
Savings is a loser for sure. But I’m with John in that everybody should have a least something saved. My wife and I don’t have much in savings beyond what we would call our “credit limit.” In other words, we’ve created our own credit card w/ a $1000 balance. I even set it up in a completely different bank and created barriers to make it a real pain in the ass to access.
It works for us. We use it when we have to then pay it back – occasionally with interest if I’m feeling spicy. Point is, we’ve figured out mostly through trial and error what works for us.
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I agree Glen that Bernanke is doing nothing to encourage saving and that he wants us to put it in the market. However, my larger point is that we’re not learning from our past mistakes. We continue to spend money on needless things and then just get ourselves in debt. Something has to stop or history will unfortunately repeat itself.
John,
Good as always, my friend.
If I could yell “stop” at anything it woud be the federal budgeting process. BTW, after 13 years plying the ocean for the US Coast Guard, I am now a budget weenie expressly because of the insanity I’ve perceived. I had to choose a staff tour, and this is mine.
What I’ve discovered is that we have a network that is littered with truly brilliant, dedicated people desperately trying to prop up a breaking finance system. It’s both frustrating and inspiring if you can follow that… But, I can report that I work in a small core of people that take tax dollars and spending very seriously. We write a budget for $8.7 billion that is constantly fluxing, and we bend to the will of a really strange political system. It’s a fight, man. It’s insane.
But, the lessons I learn from constant analysis has had a profound impact on my personal habits. To a man, everybody I work with is frugal as hell. We live and breath dollars and have a deep respect for the amount of effort it takes to be productive. In this way, I love the Coast Guard deeply. These guys take the exact same spirit from off the water and throw themselves into something complex and mostly foreign. It took me a year to learn this job!
Anyway, thanks for cyber-listening. Love you insights, my brother. Keep on rockin’ in a free world.
pat
Patrick recently posted..Winning the Long, Slow Lottery
Thanks Patrick! I completely agree about the budgeting, or lack thereof, process. It’s crazy to think that our government has lived three years without one, no wonder we’re in such deep doo-doo. Thanks for your insight!
While you do technically lose money when you save (if you are taking interest and inflation into consideration), it still makes sense to save SOMETHING. Saving isn’t really for the return, it’s more to protect you against large unexpected expenses. Sure, it’s easy to borrow these days (trust me, I personally am thankful for this option when I’m in a bind such as our $7k sewer repair…even though we were lucky enough to put it off for now) but I think losing a bit of value is worth it if you are exchanging it for peace of mind and being able to pay for those expenses up front. It’s something I am working towards getting better at, and I hope others are as well.
The thing that I think is insane in finance is the federal reserve. As you know, John, this is no conversation that can be done via comments (and maybe not even through a blog post! would take a series of posts to get anywhere), but their destruction of wealth via inflation really is immoral and, quite frankly, insane!
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$7k sewer repair? That’s shitty, man. (ba dum bum).
Yeah, I have to fix a roof on a rental house, but I have quite a few different accounts that I compulsively keep separate. Although I love to mix my food on my plate, I hate mixing my money.
Even in the days of an all-cash system, I kept envelopes and put the precise amount in for every purpose. I did this just to form a mindful, pusposeful habit that was completely opposite to my prior 30+ years employing the “zen method” of finance…. (as in, I FEEL like I should have money.)
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I knew you’d have something to say about this DC!
I agree that talking about the Fed is something that can’t be done in a few short words and would not do it justice. You bring up a great point about the morality of this all. Not that I care for the man, but Romney brought up a very similar point during one of the debates. He said that passing on so much debt to our younger generations was a moral issue and I think you’re both right.
Great point about saving, I could not agree more. It is protect yourself in time of great need.
Insanity for me is people who don’t know where their money is going and make a really good living yet are always broke. They pretend they can’t make ends meet but within 5 minutes of talking to them you can name 10 things they are doing wrong with money. It is crazy because if you work hard to earn something you should want to preserve it bad.
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Great one Pauline! That always just makes me wonder what those people are doing. It just goes to show you that just because you make good money that you know how to spend/save it.
Preach it John. Thanks for including my infographic post. I think people forget that savings is not there for the return. While it is nice to get rewarded for stashing your cash, the reward should come from knowing that you are well prepared to stave off life’s little messes. It saddens me to think that we don’t learn lessons and that we are on a downward spiral toward debt again. If I didn’t learn my lesson from getting into debt, I would be doing it all over again.
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Not a problem Grayson! I agree that it would be nice to make something off the saved money, but that is not really it’s purpose. You should have other money working for you doing that very thing. It saddens me as well o see us go downward and hope that it does not continue down that path.
I mentally lose it at people who borrow from others knowing that they have no intention to pay it back. And then to put salt on the wound, the person spends the money on frivolities (trips, clothes etc…) when they said the loan was for more important reasons.
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Yep, I just read something about that the other day. Just another reason why I don’t loan money to friends, but give it to them if they’re in genuine need and I have the resources.
Hi John,
I couldn’t agree with you more that people should have emergency funds regardless of what interest rates are currently doing. My wife and I set aside a small amount each month. Occasionally I dig into the emergency fund but not to just spend. Like this past month my wife and I were trying to recover for an unexpected expense due to a death in the family, and Christmas. At that time we used what we had in the emergency fund to try and offset the expense but with Christmas on top of that, our credit card we normally pay off each month got a little out of control. This past month, I saw an opportunity to dig again into the emergency fund to pay off the remaining balance on that credit card probably a few months earlier than I had anticipated. No more interest accruing is a good feeling.
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That’s just it Alan. Too many people get caught up with the low (ie no ) interest rate. I hate that too, but it’s not an excuse to not save. Glad you were able to get your card paid off, especially getting the interest knocked out.
People getting into money problems, but then not taking the simple step of tracking their spending to see where it actually goes. Even if you tell them what worked for you it usually falls on deaf ears.
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That is a crappy one too. I know change is not a fun thing, but it makes me wonder if people like that even care that they’re up to their eyeballs in debt.
You opened a whole can of worms, man. I totally agree with you it being insane that people are reverting back to the old habits that contributed to the economic mess we’re still trying to dig out of. A lot of it is the entitlement mentality. You know, “I work hard and deserve a new car, iPhone 5, and cruise once a year.” It doesn’t matter that they can’t actually afford any of those things.
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That’s the purpose Justin!
I love your point on the entitlement mentality, it is one that permeates our culture. On a variety of levels, from marketing to our felt need to have the latest and greatest we fool ourselves into thinking we need everything.
Insanity is taking out a HELOC to pay credit cards off or to buy something stupid like a new car or a vacation. All is well and good as long as you can make the payments, but putting an unsecured debt on a secured asset is a good way to lose that secure asset, your home!
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I agree with Kim! I don’t get HELOCS at all. It just seems like another excuse to buy something you can’t afford.
Holly@ClubThrifty recently posted..So, You’ve Received a Windfall…Now What?
I second the motion on HELOCS! I just don’t get it…
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Great minds think alike.
Exactly Holly. Not to mention adding debt to do it.
Ooh, that’s a good one! I never thought of adding that, but very valid. I worked at a bank for a year right after college and it never made sense to me why people would do this.
I agree with your first comment that insanity is people doing the same thing and expecting different results. I have a brother-in-law who is always wondering why he never has any money. He purchases everything he wants on credit and is swimming in payments. Duh, if you want to have money stop using debt and creating payments for yourself!
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It always saddens me to see people do that Nick. I used to do it and thankfully I got the stern wakeup call that I was being incredibly foolish.
It’s so easy to fall into an “insane” financial mentality. I’ll admit that I’ll occasionally backslide and do something financially insane. Jumping into financial blogging has actually helped me in this respect. How can I make a financially stupid move when I’m writing and reading so much about personal finance!
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It is Jose, that’s a great point. We all make mistakes, me to be certain, that’s why it’s so vital to be disciplined so you can recognize the symptoms. I agree that PF blogging can really help.
John, I read a similar story in WSJ. My first thought was HOLY CRAP, it’s 2008 all over again. How can people watch home after home be repossessed without learning an enduring lesson? Makes me want to shake them until the silly falls out.
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That’s my exact thoughts Jerry! It makes no sense and 2008 was only five years ago!
I think it is easier to save money when you don’t have debt, but even with my immense debt I’m still putting peanuts away for my retirement which is better than nothing at all
Great post John!
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That’s exactly it! You’re going about it the right way, in my opinion at least
. Having debt to pay off can be an easy excuse to use, I used to use it. But, don’t let it hold you back from saving…even if it is in small amounts. Time will do wonders with it plus it establishes that much needed discipline.
Stop the insanity came for me when I realized I was still hanging onto some debt. I was paying for school and had an emergency fund, but kept hanging onto some debt. I might have taken the more insane route by emptying my entire emergency fund and starting a no-spending challenge to pull every penny out for debt. It paid off and next month I will start my emergency savings back up, so either way I look at it (insane or not) I am happy to have tried something new.
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That can be a tough call to make, and you have to do what is right for you. Kudos to you for wanting to get rid of the debt and then getting back to that E-Fund, so many would not do it that way…but it’s the way to go about it.
My ‘stop the insanity’ scream would be directed to those who patronize payday lenders regularly. I know some may have no other option, literally, but many do but choose this most costly form of borrowing anyway. Crazy!
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Ah, the Payday lenders. Yes, that is definitely insane to use them…especially over and over.
Insanity is taking out a payday loan to go on vacation or get your hair and nails done. Or get a $6,000 income tax refund and blow it on useless stuff within a month while putting nothing in the bank to help you out on rough months. I think everyone should save in some form. It’s not about interest rates, it’s about security.
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I like that one! I’ve seen that too many times to count and it never makes sense to me. Having a little fun is one thing, but throwing that kind of money away is just craziness.
I don’t mind the rant whatsoever and completely agree with you. Saving isn’t sexy either, you are right. But big bank accounts ARE sexy. Something is lost in the middle though, because people want to have a lot of money, but they also want a lot of stuff. Generally you can’t have both.
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You’re exactly right, you generally can’t have both. Those that do have a lot of money because they generally are not spending it on a lot of stuff.
Seeing a picture of Susan Powter brought a smile to my face and reading your post made my smile even bigger. You’re preaching to the choir with me, my friend. I understand habits are hard to break, but not having an emergency fund and spending more than you have IS insanity. The sad thing is so many people really don’t understand how debt really impacts their financial well-being. For me, my “stop the insanity” scream would be those who feel they have to keep up with the mythical Joneses. Live your own darn life, people!!
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Glad I could bring a smile to your face today Shannon.
Great point on the Joneses! The fact is many of those Joneses are up to their eyeballs in debt…that’s something I do not want.
Great post about keeping common sense at the forefront of your finances. Thanks for this!
Thanks Tony! That’s what a lot of it boils down to, common sense.
Stop the insanity, interesting and you know for me it would be not knowing where the money is going and that sense of entitlement. So many people are suffering with debt loads that are causing so many problems in their lives yet not doing a thing about it. I agree with Pauline that there are many people that make a decent income who are deep in debt yet have no idea where they spent the money. Things need to change or we accept what path we make for ourselves. It’s as simple as that. Great post.
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Great points Mr. CBB! Pauline brought up a great point, I think, that many just do not know how to spend their money. Sadly I think a lot of it comes down to plain common sense, but so few really see it that way.
Nice old picture of Susan. I so remember her!
I know you are talking about personal spending but when you wrote about history repeating itself it reminded me of this great (huge) chart that banks have that outlines all of the changes in the economy dating back 50 years or so. It includes interest rates, mortgage rates, unemployment, and all kinds of factors. I find it very interesting to watch how history does in fact repeat itself every 7 to 10 years. It isn’t always to the same degree but you can almost predict the future of the economy by analyzing this report.
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I’ve seen some of those same charts before Sicorra and it really is interesting how history does repeat on so many things. You’d think we’d learn why, but I think we often miss it.
Pretty much everything related to medical spending. That my gallbladder getting removed cost $22,000 is bad enough. That my insurance has a $4,000 deductible is bad enough. But the fact that the hospital wouldn’t take payments was ABSOLUTELY RIDICULOUS!
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Yes, the good ole’ health insurance and medical system. Definitely something crazy going on with that.
“Stop the Budget Insanity”! In fact I wrote an article using that exact title to be published tomorrow. Nice timing!
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Great minds do think alike!
I’ll have to remember to check it out.
I’m in agreement that people need to start saving more. When people explain that money in the bank isn’t earning interest I just want to ask them if they used their auto or homeowners insurance last year. Savings should be viewed as the same vehicle. It’s insurance against becoming poor due to bad economic times.
Sure you could invest it, but that’s not what an emergency fund is for.
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That’s a great analogy Justin! I could not have put it better myself. I agree that investing should be done differently so you do not take on too much risk.
Stop the insanity indeed! Insanity to me is taking out hundreds of thousands of dollars in student loans expecting that you’ll get that dream job making 6 figures right after college (sure that happens for some people, but for many it doesn’t and then you’re overwhelmed and overburdened with debt). I wish I had taken out far less student loans, but at least I was able to pay them all off in a couple of years. I have several friends who have literally over $100k in student loans and no real plan to pay them off. Ekk!
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That’s a great one KK! I can’t imagine having that much student loan debt. I understand for a doctor or some specialized engineering, but that is few and far in between.
GREAT post, John! Personally, I would scream “STOP THE INSANITY” at the denial. It literally hurts my heart as I watch dear family members living in total denial of their financial mess and just living financially like they don’t have a care in the world. My daily prayer is that they’d “wake up and smell the coffee” before the dollar crashes and they can’t afford to put food on the table.
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Thanks Laurie! That’s a great one. We have a few family members in the same situation and it really is difficult to watch them go through it. You just want to shake them, but they need to see the need to change first.
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I’m right there with you! I shake my head when I read things like that–spend more when you’re making less? Spend because interest rates are poo–really??
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I know Jen, it just makes no sense.
I’ve been pretty good financially although I’ve got to admit a lot of it was when I was not dating anyone
Now that I’ve been living with my fiance for some time, it seems way to easy for money to get away from us. We try to be careful but we have our own insanity where if I splurge, she splurges to get me back and vice versa leading to a lot of wasted money. We’ve been getting better though, for example I put a hard limit on the number of shoes she can own 
Listen Money Matters recently posted..Plug Your Spending Leaks
It definitely can be easy to have money get away from you, especially when you’re living with another person. The key is to recognizing that and be willing to make changes when needed.
I totally remember those commercials. LOL! My guess is that people kind of feel we are past the recession and on to better times. Regardless, I know the s can hit the f at any time, and this time I want to be a lot more prepared. Having a lot of “stuff” may seem like you are captain awesome, but I think saving is super sexy. (can you tell I’ve had a glass of wine?)
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As can I sadly. I agree that being prepared is a much better option as opposed to piling up more and more stuff.
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I completely agree. We have to stop the insanity. You cannot spend more than you make and find success, the federal government notwithstanding.
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That’s exactly it Thad. We think we can and it’s just so foolish and short sighted.
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My ‘stop the insanity’ shout out will definitely go to my mum. She has been engaging in activities that hurt the household finances. Will have to put this to a stop soon. Thanks for the sharing this great post.
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