That’s the question I asked myself when I finished reading through this week’s Carnival of Personal Finance to determine which one article is most worth sharing with you. (In addition, of course, to my own article about the endless correspondence I received related to the economic stimulus.)
Well, here it is: the best (completely subjective) article of the week from the carnival: Consumption Smoothing and You: Save While the Saving’s Good by FivecentNickel. Nickel discusses the concept of saving more while you can afford to while spending more when you need to. Consumption smoothing, in my mind, is something that happens automatically to those who save at all (but it’s good there’s a name to describe it).
Yes. People who save aggressively from an early age learn that once they have kids it’s nearly impossible to save as much as they did earlier in their lives. (Note: Personal experience: kids are expensive, even if you’re cheap. Even if you focus on the free stuff. After all, a family of four eats about twice what a married couple eats. Plus, if your child likes organic strawberries – look out!)
On the other hand, if you didn’t save when you were younger, consumption smoothing really won’t apply to you. Instead, you’re more likely to simply struggle to save your whole life as you slowly realize that, despite a growing income, your needs increase even faster.
Net: consumption smoothing works great – so long as you save when you can most afford to. For most people (even those with student loans), that means when they first start out in the “real world.”
Tags: consumption smoothing