This is exactly the opposite of what the government would like you to do, but the honest truth is that it makes more sense for you to be save your money rather than spend it.
In order for the economy to recover people need to spend money. That is the beginning and the end of it. Even if they are spending money that they haven’t got, as long as they are making their payments, it is all good. That’s ‘people’ and that’s for the good of the economy, but when it comes to you and your own finances, it is a different story, and if you don’t look out for number one, nobody else is.
The Bank of England has done its best to discourage people from saving. It has done this by keeping interest rates at record lows. This has meant that in the majority of bank accounts money has been losing value in real terms as inflation has ridden high. In this situation it can seem tempting to spend the money today while you can still get the most ‘bang for your buck’, rather than wait until the future when it will not go as far.
There are undoubtedly some savings products that offer a better hedge against inflation than others. To understand the real reasons why it makes sense to save as much as possible right now it is essential to move beyond the concept of savings being an investment, and to see them as a lifeline.
All kinds of things in life can go wrong without a moment’s notice. It is for these eventualities that it is essential to have a little money put by. Unfortunately it really does seem that the way the wind is blowing these kinds of eventualities will be becoming more likely over the next ten years rather than less.
The mire that the global economy is in seems only to be getting deeper. Certainly by the metrics that are usually used to gauge these things, growth forecasts and the like, things are not looking good for the immediate future. In addition to this lots of people are now talking about the possible collapse of the eurozone and a wave of government defaults.
Why should you care what happens in Europe? Well one big reason is that the financial sector would be severely hit by any large scale sovereign debt disaster. Not every country can afford to bail out every bank. All kinds of the type of higher yield investments that may be more tempting than a conventional savings account could be hit. Badly. Money kept in a UK bank is guaranteed by the government (up to a level that is likely more than you have kicking about) so it is at least safe, even if the interest rate seems a bit pony.
Nobody has a crystal ball, nobody knows what is going to happen, and these a certainly unpredictable times financially. In that environment it only makes sense to have plenty of ready cash in savings accounts as a backup plan.