This Month's Column:

• Your Degree In Economics In One Easy Lesson --- FREE
• The Year Of…
• Wooden Countertops – The Next Big Thing!

Your Degree In Economics --- In One Easy Lesson and FREE!

The commentary went something like this: "Most people have it completely backwards… when economic times are good, they spend money. In reality, when economic times are good is when they should save and invest." His credentials as an economist are impeccable, his advanced degree is from a prestigious college, so we should heed his advice, right? Perhaps. I think not.

It would seem, on the surface, to make sense that if we suddenly come into a one-time cache of cash, via a bonus at work, an extra-juicy side job, or a gazillion-to-one scratch-off win, we should do something boring but smart with that money… pay down or off a credit card, pay extra with this month's mortgage thereby reducing the principal amount owed, or invest it in a solid mutual fund. Human nature, however, fights that sensible thought tooth and nail, and lures us to things like catalogs, online retailers, and old-fashioned brick and mortar stores. Some of the more even-keeled and noble among us might rationalize a split of the money, some to something fun, some to something practical.

Figure 1 - The saying is often attributed to John F. Kennedy, but even his speechwriter says "no." Best guess is that it came from religion and missionary work.

Even more difficult is deciding what to do with extra money that is coming in every payday from a raise, lower taxes, or a better job. Committing to a long-term strategy, like paying an extra fifty bucks or so with every mortgage payment or sticking a hundred bucks a month into a savings account requires discipline. It is more alluring to think of that extra money in the paycheck as a new or higher car payment, a monthly club membership, a little more to spend each month on dining or entertainment, or just a bit of walking-around money left over after paying all the bills.

Regardless what the smart financial advisers recommend, most people will continue to do the "backwards" thing… we will spend any sudden influx of cash or in the case of extra monthly income, will adjust our spending upward to match it. It is generally not considered by experts as the way to get ahead. Logic and common sense would appear to support that. But…

In a lifetime in the business world, many sayings and so-called truisms come and go, but one that has always been, and will always be 100% accurate is "the rising tide floats all boats." It is simply an irrefutable fact, inarguable, not open to question. As the economy grows, money flows, and everyone who participates, benefits. Want proof?

Let's use the "rising tide/floating boats" analogy, and we will pretend that water is money. You may be in a little row boat, you might be in a fishing boat, a tricked-out ski boat, or you might be in a yacht, but you are floating along in that lake full of money. We can think of that lake full of money as "the economy." If you are working, you are getting paid, and since water is money, you get paid by the gallon. Perhaps the guy in the little rowboat "earns" 50 gallons of water a week. Maybe the lady in the fishing boat makes 100 gallons of water a week and the cool couple in the tricked out ski boat make 500 gallons of water a week. That guy in the yacht makes maybe 10,000 gallons a week. Regardless how much water each person makes, they spend at least some of it. They pour at least some of it overboard into that big lake called "the economy" and the level of the water rises… each boat floats a little higher. The row boat, the fishing boat, the yacht… they all float a bit higher because there is more money, i.e. water, in the lake.

Now if everyone floating in that lake decided to hoard the water they made and not pour it back, the level of the water would never rise and those boats would never float higher. This is just how it works. If you pour some of what you make back into the economy, the economy rises and everyone benefits. If you never pour any of what you make back into the economy, the economy will stall and everyone will be stuck, never rising higher.

Let's take the analogy a little further, and pretend that the water level in the lake determines how much water you get paid. If the water level goes up, you get a paid a bit more. If the water level goes down, you get paid less. If the water keeps rising, eventually the guy in the row boat will be able to buy a motor boat. The couple in the ski boat can get a bigger faster boat, and the yacht owner can get a bigger better yacht.

So, experts will tell you to save and invest any extra money you have. Human nature will lure you into spending more as you make more. But since the growth of the economy both benefits you and depends on you, the best course forward, and upward, is to do a little of both. Spend some of your rising income, and save some, too.

The lake we all share and float in is the lake of woodworking. Personally, I want this lake to rise. So, I've got a plan of action that is sure to please everyone. Buy tools. And don't buy cheap tools… buy expensive tools. Since quality tools are actually "investments," you can feel good about being prudent and "investing," and at the same time you can feel good about pouring money back into the economy and keeping the tide rising for everyone.

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Steven Johnson is retired from an almost 30-year career selling medical equipment and supplies, and now enjoys improving his shop, his skills, and his designs on a full time basis (although he says home improvement projects and furniture building have been hobbies for most of his adult life). Steven can be reached directly via email at sjohnson@downtoearthwoodworking.com

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