The economy is the collection of transactions. The transaction you made when buying tomatoes in the local market or the time when you buy a house, either you buy it with cash or credit. All transactions drive the economic machine.
1. Your spending is another person’s income, and vice versa
It’s pretty simple, you buy goods, services, or financial assets with cash/credit, and the seller gets the income from your spending. The more you spend, the seller’s income increases. This simple transaction is the foundation of the economy.
2. Economy without credit
Many people consider credit as a bad option, but without credit, the only way to increase income is to boost productivity. It implies that everyone must be more productive for a country’s economy to grow, which is a hard process. Credit can help the economy grow as long as it is used for productive purposes.
3. Low Purchasing Power
The economy suffers as people’s purchasing power falls. Low spending means lower income, and the trend will continue all over the nation. During Covid-19, the company was forced to shut down, and employees were encouraged to stay home. As a result, money circulation decreased. Therefore, governments from various countries provide monetary assistance to the community to keep the economy running
4. Excessive Spending Leads to Inflation
However, excessive spending is a bad sign for the economy because it leads to inflation, as is currently occurring. As prices continue to rise, the government raises interest rates to encourage people to save their money in the bank and to reduce the number of people who take out credit due to high-interest rates.
That’s the big picture of how spending affects the economy. So, what should we do with this information? How do we ensure that our cash flow and our economic machine are always secure? The first step is understanding your money behavior.
What happens when you have a lot of money? Do you frequently waste money on snacks or buy unnecessary stuff? If this is the case, try to figure out why you are acting this way and how to fix it. Self-control is key.
We indeed need to have an emergency fund, prevent debt, and start to invest in something we understand. But in my opinion, one of the most important is to control our emotions toward money, don’t let money control your life.
Everyone is talking about the recession and economic turmoil these days. But I believe we can survive this difficult situation if we understand our money behavior and at least a little bit about the macroeconomy.
I’m doing 7 days writing challenge starting today, and this is my first article! Thanks for reading, cheers!
