The Great Debate: Diaries of a "Saver"

Having an interest in personal finance (obviously), I hang around a few websites focused on communities of people asking for and giving financial advice. To me, it seems there are two basic schools of thought for those who claim to be in the know about personal finance:

• Financially savvy - These are the people who live and die by the numbers. Interest rates, inflation, tax implications, cost-benefit analysis, liquidity and many other over-my-head words all factor into their carefully formed financial plans. The more financially savvy, the higher the smugness factor of their advice (and intolerance of other's advice). They typically embrace more risk in hopes of more reward. In my mind they all look like this:

• Savers - Savers are the boring cheapskates nobody likes. They never spend money, and if they do, it's to buy something boring and gross. Savers are low-risk and low-maintenance, they don't like to owe anyone money and are willing to take a cut in lifestyle to keep that. Thought by the financially savvy to be simpletons because they largely ignore the numbers, man! The numbers! Here is an artist's representation:

Obviously I took some liberties poking fun at both groups, but each represents one side of the spectrum. If we would consider the two on a numbered scale, with 1 representing the tightest of tightwads and 10 being the smuggest of internet financial planning emperors, I would consider myself a 3.

I'm a saver, and I think that works best for me. If nothing else I don't have to worry about stressing over money. Also, I don't have to deal with the hassle of learning the finer points of finance. I have the time, but I really don't care that much.

Even though it's in my nature to save, I do like to buy things. Or at least think about buying things. Not a day goes by without me yelling "Hey dear, look at this un-necessary item we don't need but I still want on craigslist, pretty good deal" while she rolls her eyes and nods patiently. The saver mentality wins out (thanks primarily to the lack of disposable income at the moment) and I go on living my life without a Red Bull mini fridge. I don't like owing anyone money so, in theory, all my future purchases will be with money already earned (and therefore risk-free - because they're already paid for).

In the end, I don't really care what everyone else considers themselves so long as they've thought about it and have, at least, a general plan regarding their finances. It's all about what you're comfortable with while weighing that against what your (realistic) financial goals are.

That said, this being somewhat of a debate, I'm going to represent the saver side and argue as to why I think it's the better approach when it comes to money.

Financially Savvy Point: Paying off your debts as quickly as possible is foolish, student loan and mortgage debts are good debts and typically are low-interest so there is no point in paying them off early. You'd be better investing the difference and having mad stacks in the future.

Counterpoint: I don't think any debts are good debts. The only thing debt is good for is establishing credit, which is only good for borrowing more money, which is only good for paying interest.

Debt equates to risk. If you lose your job and can't afford your mortgage or student loan payments (which aren't dischargeable in a bankruptcy, by the way) you can be in a world of crap if you don't have enough money saved to tread water long enough along until you can find work again. The more payments (risk) you have, the worse off you will be if you have an income crisis.

Financially Savvy Point: Hey broski, your student loan payments are locked in at 3.5%, I can make more than that doing xxxxxxxxx!

Counterpoint: Yea, maybe you can get a little ahead by doing some sort of investing but it's much harder these days (uncertain market, CDs/savings paying very little interest) to get any sort of guarantees. I'd argue that then I'd owe that much less money and that would minimize my risk, but again thats and obvious argument suited for people who are ugly and can't play sports good.

What you can't forget is factoring in your time and what it's worth to you. Let's say you took $5000 you could have applied to a student loan and did some short term investing (index fund maybe?) and it grew 8%, so after a year you'd make $400, which is effectively $225 more than you would have "made" by paying off your loan at 3.5%.

So great, you're $225 up! Sweet, brah. Oh wait, here comes the tax-man. He wants his cut. Quickly that $225 turns into $168.75. Is the time invested into picking a right fund/stocks/CD worth $168.75 to you? How about if you factor in the risk of the awful investment returns the past few years? To me it's a no-brainer. I decrease my debt, increase my net worth, with no risk and no time invested. You know, so I have more time to be ugly and bad at sports.

Financially Savvy Point: You're losing your liquidity by paying so much on your debts!

Counterpoint: This is a fairly moot point as any true saver is going to have some money socked away for emergencies, anyway. And these days, even the financially savvy can't have $50,000 in a money market account because the numbers dictate that your "return" is higher by paying your debts since money markets and CDs are paying next to nothing at the moment. Even a very low interest on a student loan is still going to be 3-5% so your effective return is still higher.

Financially Savvy Point: I got my new car/laptop/carpeting/bed at 0% interest, can you even comprehend the extent that I am gaming the system and sticking it to the man simultaneously? No, you cannot. It's FREE MONEY!

Counterpoint: This is where the bulk of my argument lies. Where the financial-savvy will see these opportunities as too good to pass up and/or justification to buy things they want, the savers will ignore the age-old "what will my payment be" and look at these items to decide whether or not they need them or just want them.

Car:

• Financially Savvy: Brand new Honda Accord with some bells and whistles (I mean you gotta, ZERO INTEREST HOLMES - FREE MONEY!) - $30,000 paid over 5 years. Pay no mind to instant depreciation of new cars, even one that holds it's value as well as an accord. They are instantly upside-down on their loan. At least they're not paying interest, I guess.
• Saver: I also like Honda Accords, but I think I'll buy one a couple years old with 30,000 miles and a few less bells and whistles on it and pay cash - $15,000 paid - hyper-depreciation is already bottomed out, the remainder of the depreciation will be fairly steady for the rest of the life of the car. Remember: Cars are a depreciating asset, why would you borrow money for something that loses value (quickly)?

Computer:

• Financially Savvy: Best buy is offering 0% for a year for computers over $800! I don't need one that fancy, but have I mentioned the free money?
• Saver: Eh, I only really do e-mail and web stuff at home anyway, I'll use my 4 year old computer until it dies.

Carpeting:

• Financially Savvy: Well, we wanted to redo the carpet at some point anyway, might as well do it with our lowes card! Thanks to my opportunistic new car and computer I miss a payment and now my butt hurts from accrued interest.
• Saver: Though this carpet is the bane of my existence I will allow it to crush my soul for a little while longer until I can find the best deal possible and save for it.

Ignoring the obvious risk of missing payments on these 1 year same as cash plans and retroactive interest out the wazzo, the savers will be better off in the end because they will (shockingly) spend less money on unnecessary items. Any potential ground gained by the financially savvy and their fancy numbers will be lost to opportunity and impulse buys when they come across a good deal. This will increase their risk, and it doesn't take anyone savvy at anything to acknowledge what a risk it is to make short term investments in our current market.

As a saver and a payer of debts, you are getting a guaranteed return by paying off your debts. Your blood pressure and net worth will thank you later!

Again, in the end, whatever way you go you'll benefit from being more involved in your finances. I get fairly annoyed being a saver and having that sound in any way bad. Are the theories and practices of a saver a bit un-refined? Sure, maybe, but slow and steady typically wins the race.