A call for persons to spend more might seem like very strange advice for a financial coach to give in these challenging economic times. The typical recommendation for weathering this tough economy is to cut back on consumption by buying only the basic necessities and channeling as much money as possible into savings.

First, let me qualify my comments by indicating that my discussion on the merit of spending is not intended for persons who are in unmanageable debt or unable to make ends meet. If you are in that position (as too many of us are) then you need to focus your attention on aggressively reducing your liabilities and earning more money to cover your budgetary needs.

However, a fear of all the gloom and doom surrounding the global recession has prompted some consumers who are financially capable of maintaining their normal buying habits, to choose to keep their money close to home instead.

Consumer Confidence Affects Consumption

Consumers’ comfort level with the state of the economy plays a large role in their spending decisions. When times are good, people are optimistic about their financial prospects and spend contently; when times are bad, they get worried about the future even if they are not personally affected, and hold back on their discretionary spending.

The reality is that our financial system will depend on robust consumer spending to overcome the negative effects of the current economic crisis. We have already seen the results of the reduction in consumption – businesses experiencing decreased sales and profit, workers losing their jobs as their employers are forced to cut back on expenses, and persons without a steady income depleting their savings.

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This vicious cycle of events has wider implications for the economy; financial institutions will see a decline in savings and borrowing, and government revenue will fall off due to the reduction of persons on the tax roll. Therefore, when consumers succumb to a fear of the ‘recession’, it can actually be a self-fulfilling prophecy resulting in the destructive situation that we would like to avoid.

So how can the average consumer play a part in reversing some of these negative effects of the economic downturn?

Smart Spending Can Stimulate Growth

It is possible to spend wisely and maintain your consumption levels, thereby playing your part in keeping the economy afloat. In fact, given the challenging times now being faced by many businesses, it’s a great time to get better value for money. Here are some smart spending tips:

1.  Stick to your budget

Your desire to help the economy doesn’t give you a license to spend beyond what you can truly afford. You must be mindful of all the expenses that you might incur over the course of a year, and put aside money to meet occasional bills and emergency needs. It’s also important to remember that your savings should be your first expense item. Using the personal budget found in the financial tools section of www.financiallysmartonline.com, you can plan for all your spending needs, including casual shopping. The budget also helps you to choose where you would prefer to spend your discretionary allowance, whether to increase salon trips at the expense of dining out, or to cut back on the cable bill so that you can visit the theatre more often.

2.  Choose your purchases with caution

Many people get carried away when faced with an array of beautiful things, especially if they are on sale. Just because an item is discounted, it doesn’t mean that you have to buy it. Consider each tempting acquisition and think how it would fit into your lifestyle. Don’t purchase a fabulous dress with a distinctive design that you can only wear once. Don’t buy fancy glassware if you have two active children at home. Don’t get another pair of black shoes if you already have five pairs in your closet. It’s also better to shop for one quality item even if it costs more, than to spend less on many inferior pieces.

3.   Support businesses that are responsive to your needs

Remember that it’s now a buyers’ market, and storeowners should be quite willing to go all out to get your business. Don’t be afraid to politely ask a shopkeeper for a discount, or for a customized package deal that can give you more for your money. Make special effort to continue to spend with small businesses that really depend on your dollars, such as your barber, manicurist or the small restaurant where you buy breakfast. Support the efforts of companies that have developed innovative products and services that can help you to save money in these times.

So play your part in stimulating the economy with your smart shopping!

Copyright © 2009 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, November 5, 2009

Cherryl is a financial consultant and coach, founder of Financially S.M.A.R.T. Services. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl