InvestorQ : When are you better off spending than saving?
Bhavik Nehru made post

When are you better off spending than saving?

Priyanka N answered.
3 years ago
Yes, there are situations when spending is better than saving. What if investments do not give you anything? Say your bank FD only gives you just 4% and inflation is 5%, then you may wonder what is the point? As well keep under my pillow.
How inflation eats into your savings is an important point here. Let us take an extreme case! If your money is parked in a bank FD at 9% rate of return and if inflation shoots up sharply due to a big food shortage caused by bad monsoons, then what happens? The answer is; you may end up in a situation where your savings are earning 5% but the inflation rate is 7% resulting in the negative real return of (-2%). That means you are actually paying your bank to deposit money with them and that is hardly a very attractive scenario for you to be in. In such circumstances, it may make more sense to spend money than to save. Or at least, you must look at smart investment options that can earn more than inflation.
Consider another scenario where the economy is going through a slowdown. Prices may be coming down and that means you may be getting salivating bargains on purchases. If you’re Goa Holiday that was costing Rs.50,000 for your family is now available at Rs.30,000, then you are certainly better off spending on your holiday rather than hoarding the money in the bank. In an economic slowdown, most investments tend to underperform and hence you will be better off spending on bargains.