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Are You a Saver or a Spender?

If you know to the nickel how much money is in your wallet or purse at this moment, keep track of exactly how much you spend and where you spend it, buy only clothing that doesn't need to be dry cleaned, and eat pasta three times a week to stretch your food dollars, you're probably a saver.

If, on the other hand, you simply must eat at that little bistro with the great wine selection twice a week, can't imagine life without your $140 Nikes, haven't a clue as to where you might have spent that $50 you stashed in your wallet Saturday morning, and haven't had your Visa paid off for more than a year, chances are you're a spender.

Most of us probably fall somewhere in the middle of the saving/spending continuum, but plenty of people go to extremes.

Evaluating Your Financial Personality

When we talk about your financial personality, we're not making any value judgments. Whether you're a saver or a spender is part of your personality. It's sort of like whether you're outgoing or reserved, or whether you love Indian food or hate it. It's just something about you.

Being a saver or a spender isn't good or bad on its own, but either personality can cause problems if it's not managed properly. You probably won't need to look too closely at your own habits to determine whether you're a saver or a spender.

If you're a saver, good for you. It doesn't necessarily make you a better person, but you have a great start on managing your personal finances.

If you're a spender, don't despair. There's something to be said for living the good life. The only problem is, too much of the good life now is likely to mean less of the good life later. Your financial personality ties in directly to your financial situation, so spenders have to learn to exercise some self-control.

Savers Have It Made (Almost)

If you've determined that you're a saver, give yourself a pat on the back. Managing your personal finances probably will be a little easier for you. Now, get ready to assess your saving habits. Could you be saving more? Are you saving smart? Are you saving in the right places? Are you saving too much?

We've all heard the stories of elderly people who die in one-room apartments with few comforts, who, unknown to everyone, had savings and investments of a million dollars or more. They were saving their money to give to their children, or their church, or the local animal shelter. For whatever reasons, some people choose to forego comforts and even necessities (heat, air conditioning, even food) in order to save their money.

It makes no sense, of course, to save so much money that you don't have the things you need and some of the things you want. After all, that's why we work. It's a rare person who would continue to show up at the job every day if the paychecks stopped coming.

There are no guarantees in this life, and unfortunately, some of us won't even make it to retirement age. It would be tragic to deny yourself everything you want in order to save money for a day that never comes. It's important to strike a balance between extreme frugality in the name of saving money and a devil-may-care spending spree that compromises your financial future. You'll learn more about saving and investing for the future in the upcoming chapters on investments and retirement funds.

Spenders Have to Work a Little Harder

If you're a spender, you can console yourself with the fact that you're far from alone. Most people find it much easier to spend money than to save it. From the time we're children in America, we're sent a clear message: Go ahead—spend. Whenever we watch TV, pick up a magazine, or get on the Internet, we're bombarded with advertising telling us to spend. Buy cars! Buy beer! Buy shampoo! Buy jeans! Buy anything, but buy!

One hundred years ago, people made a lot less money than they make today. They spent a whole lot less, too. One reason was that there was simply less to buy. There were no malls, no television shopping clubs, no luxury vacation condos, and not many expectations.

Dollars and Cents

Try this exercise: Choose one room and identify all the things in it that are unnecessary and unused. Then, estimate the cost of each item and add them up. When you've finished, multiply the total by the number of rooms in your house. If you invested the total you just came up with, you'd no doubt enhance your retirement fund nicely. Think about that the next time you're in Pier One.

We are part of a society that pushes spending and consumerism, and we're bombarded every day with the message that spending money is good. Is it any wonder so many of us spend so much?

More on: Family Finances

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Excerpted from The Complete Idiot's Guide to Personal Finance in your 20s and 30s © 2005 by Susan Shelly and Sarah Young Fisher. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book visit the Idiot's Guide web site or call 1-800-253-6476.


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