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#ESSADebate – to save or to spend?


Julia Pham and Justin Liu

By

May 21st, 2017


To save or to spend, that is the dilemma facing many of us today. Julia Pham and Justin Liu go head to head in an #ESSADebate on what you should be doing with your money in your 20s. Have a read and then vote for your favourite in our poll to crown the winner, once and for all!


Julia Pham 

Do we even need to have this argument? Come on people, act your wage.

This source of this argument is this Elite Daily article Justin and I came across, which makes a case for living in the moment and spending all of your money on things that make you happy. Stop worrying about the future, man. Accountants are losers. Be young, realise stuff and let go of your inhibitions. Experience experiences, yolo and oh my god have a little fun you freakin’ tightarse.

But you know what’s not fun? Financial hardship.

Do you really think adding to your mountain of HECs debt is fun? Does living paycheck to paycheck seem fun to you? Is maxing out your credit cards, and getting scary letters in your mailbox fun? Is the look on your mother’s face when you’re 28 and you ask if she can spot you a fifty worth all the fun? No, it’s not.

It may seem like fun at the time but there are consequences if you spend all of your disposable income. In 1996, MC Hammer famously filed for bankruptcy after blowing all of his U Can’t Touch This money on thoroughbreds, renovations to his mansion and plagiarism lawsuits. Spending carelessly will lead to huge debt, which can prevent you from applying for a credit card, loan or even a job in the future. You need to be living within your means, budgeting and keeping track of your expenses.

It’s probably no surprise to anyone that the growth rate of house prices in the last two decades has outstripped increases to weekly earnings. If Millennials don’t save up it’s going be nearly impossible for them to get a large enough deposit to enter the housing market.

But Julia, what if I don’t want to own a house, I hear you say through the void. I’m fine with renting and the Australian Dream seems like a nightmare. Also, Scott Cam is my idol and I can fix leaky pipes myself.

Alright, fair enough, if that’s your choice then I respect it. I like Scott Cam too. But people don’t just save because they want to buy property. They save for rainy days, for the unpredictable expenses such as a medical emergency that’s not covered by Medicare or private health insurance, or an event which causes you to lose your income. They save for when there’s a risk they might be a one-hit wonder and future royalties from said hit are uncertain. Savings are the safety net for when your car is unexpectedly written off, the government reduces welfare payments or when Dad says he’s cutting you off. Your savings help you to retire early, comfortably and with dignity. The Elite Daily article seems to think that taking care of your finances is a source of stress. If anything, it gives you peace of mind. The future is one big unknown and your savings are the cushion against potential shocks.

There seems to be a perception that if you’re saving your money it means you’re a stingy loser who never goes out and has any fun. You’ve just got to know your limits and stop trying to keep up with the Joneses. I’m not saying don’t treat yo self. I’m not telling you to stop buying lattes, smashed avo and whatever food item entitled journalists are going to ruin for us next. I’m saying you should think twice about your financial situation before spending big.

Say your friend Olivia asks if you want to go to Europe with her this summer. Sure, it sounds like it’ll be lit, can you really afford a two-month trip through Europe right now? Olivia’s just gotten a grad offer at Macquarie and you’re taking intermediate micro for the second time.

The solution is to politely tell Olivia you don’t have the money right now and she should take someone else. If Olivia makes fun of you for being poor then she shouldn’t be your friend anyway. You message your other friend Jess to see if she’d be up for a road trip to Apollo Bay. You and Jess have a lit time and it didn’t empty your bank account. See, it can be done.

Before anyone tells you to ‘live your life to the fullest’, look at your own finances. There’s no point comparing yourself to those people who look like they’re ballin’ on social media. Those Rich Kids of Instagram might be smiling on the outside but be dead on the inside. Do what makes sense for you.

There are very few cons to having a healthy savings account. Money in the bank can earn you a little interest, while most material goods will depreciate as soon as they leave the shop. The interest you earn on your savings this month could help to pay for the groceries, your next phone bill, or a coat like the one Olivia’s got.

There are no hard and fast rules to saving successfully. The 50-20-30 rule of thumb (50 per cent of your income towards necessities, 20 per cent to savings and debt, and 30 per cent for lifestyle choices) is not perfect nor applicable to everyone. Some experts suggest you should be putting ten per cent of your income into your savings, while others recommend putting aside 25 per cent. However, one thing all the experts can agree on is that you need to be saving some money.

 

 

Justin Liu 

Why do we have this obsession with saving?

Let me start off with this – saving is not inherently evil, nor should it be. However, those that choose to spend their money should not be demonised for doing so.

Why do we save? There may be several different reasons why. For most people our age, it’s to establish an emergency fund in case life throws a tough one at you, and you find yourself unable to work. motive for saving might be to get closer to that elusive dream of home ownership.

Coming back to the first point – an emergency fund is a highly useful resource to have. However, there are diminishing returns on the amount of money contributed. $2,000 in an emergency fund is highly useful, but $20,000 in an emergency fund is only ever so slightly more useful, assuming that the money isn’t reallocated anywhere. Through this, we can infer there are limits on how much you can save for an emergency fund, and there comes a threshold beyond which it no longer makes sense to contribute. This also applies to many other big-ticket items, such as electronics, or a car. Once you hit the savings goal, you’ve hit it and further saving has no impact.

Squirreling money away can feel like the responsible thing to do, but you may end up depriving yourself of valuable experiences and other possessions. We all like to half-heartedly mock that one person who keeps travelling around the world – “How do they afford it? They must be so broke and have no savings”. This can occur as justification for our own actions or inactions. We know at some level that what they’re doing is fun, and sitting at home with a fat bank account at that moment won’t seem fun. I don’t think its objectionable to state that spending money can result in building up new and valuable experiences.

Going back to the topic of housing, the affordability of purchasing a house is becoming an increasingly important concern among youth. To bring in the iconic avocado toast meme, it becomes easy to see why we shouldn’t save for huge purchases like a house deposit. Generally speaking, as a uni student, if you have income at all, it will most likely be through a part-time job. With the nature of part-time work while still in university, it probably pays a measly amount. Take away the standard costs of living, and the end result is a comparatively small amount of money to contribute towards a housing deposit. If someone is able to put away $100 a week, for a total of $5,200 each year, this barely makes a dent in the median house price of $1,000,000 in areas in Melbourne and Sydney. A $10 slice of avocado toast seems somewhat insignificant in comparison (had to put it in somewhere).

And let’s face it – working while at uni is hard. Whether you’re in retail or hospitality, it is often emotionally and physically demanding work. By failing to reward ourselves in the short-term, we run the risk of burning ourselves out. It’s also important to consider your age as well. At the risk of sounding cliché, university is meant to be the calm before the storm – this is probably the most freedom we are ever going to get, while still having a certain degree of control over our own lives. There’s a fairly recycled image; it lists time, energy, and money, but you’re only allowed to pick two. While against the spirit of the image, being in university will most likely give you the biggest combination out of all three.

I’ll reiterate this point – saving is good. However, it shouldn’t come at the expense of having fun. If you’re a student and work part-time, you probably work very hard for a measly amount of money. With your limited earning potential when you’re young, it’s going to be difficult to make an appreciable dent in your ability to save for big ticket items like a house. Browse Domain.com.au for success stories of young people buying property, and you’ll find that all of them have one theme in common – a “small loan of one million dollars” from the bank of mum and dad. Realistically speaking, $2,000 spent on a holiday will hardly make a measurable impact on your ability to purchase a house. $4 on a soy latte even less so. It’s important not to lose track of why we do things – are we saving for goals that we can have a measurable impact on? Life is short, and you should have fun while you still can.

 

Vote for your favourite, here in our poll, to crown the winner, once and for all!

#ESSADebate – who was your winner?

Julia Pham and saving
Justin Liu and spending

survey maker

If the poll is not displaying above, you can instead vote here

 

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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