Saving money does not depend on our income only and goes far beyond accumulate. Here we will explain the relationship between spending, saving and investment so that you understand what it means and how you can apply certain principles to intelligently save and meet your financial goals.
Personal finances can be as simple or complex as we want; However, at the end of the day, these are reduced to the decisions we make on four variables: the amount of money we save or spend, the interest rate we pay or pay us, the risks we face and, above all, the weather. One or more times when we can best see this in practice is when it comes to saving money. What does it mean then and how to save intelligently?
The first major obstacle that we have to overcome to do so has nothing to do with the amount of money we earn, but with the ability we have to endure the temptation to receive an immediate benefit and, instead, obtain a greater benefit in the future.
The second obstacle we have is that there are many ways to understand what it means to save money. For some it means earning a discount when making purchases, for others it means saving coins and bills in a piggy bank or leaving money still, for others it means investing it as they accumulate it. Well, saving intelligently involves those three things and focusing only on one can make us miss good opportunities.
Save money free by spending it
One of the easiest ways to save money is to look for discounts or ways to pay less for what we “normally” consume.
This seems too logical and yet it is not easy to put it into practice. The reason is that most people when they find a discount end up spending money that was saved on something else immediately. Saving intelligently is to take advantage of the fact that we had already decided to spend $ 100 in the supermarket and, that, if it finally came out at 50, those 50 are the ones that we should release from spending.
Beyond saving water or saving energy
Despite how important it is to take care of saving on public services, the most significant savings can be achieved through the proper management of our cash. In another post we talk about strategies to reduce our consumption and lower the energy or water bill at home; However, there are two limitations with trusting to save only through this strategy: the first is that there is a point after which it is virtually impossible to lower the account further, the second is that since we do not physically see the money we release from spending, We will simply pay the bill and unconsciously spend the part we save on something else.
Our recommendation at this point is to start developing habits to save money of the style:
- All the coins left over at the end of the day in your pocket will be used for savings and not for other expenses the next day.
- Every time you make a purchase with a credit card you will save the equivalent of a percentage of that purchase.
- If you planned to pay something for an item and they gave you a discount, you will avoid spending what you saved.
Save money by accumulating it
At this point, we can connect saving through discounts with saving accumulating.
One of the big problems we have when saving money is that it is very difficult to rely on the cumulative power of small amounts. In other words, we believe that saving a currency is such a small thing that we believe it may be more useful to use it in the next minute to buy something. However, one of the secrets of smart savings is to choose a product or a means to accumulate every peso that we can free from spending.
In this step, what is worth doing is finding ways to save the money saved that will keep you away from our temptation to spend it. The vast majority of us understand how to save money and it is fine: in fact, piggy banks work very well as a means to remind us that it is important to do so. However, our suggestion is also to take advantage of means such as savings accounts, applications that function as simplified accounts or collective investment funds with very conservative profiles to do so.
Now, at some point, staying alone in the piggy bank or the savings account is not enough. First, because you accumulate a lot of money or for a long time you face one of your worst enemies: inflation. That is, the fact that you will lose the ability to buy things because of the fact that, of course, the prices of goods in an economy tend to increase over time.
Accumulating money and leaving it still is a good strategy while achieving the minimum basis to take it to any investment product. If you accumulate in excess and have, for example, 5000 dollars in your savings account … congratulations on that saving! but from a certain point it can be a wasted opportunity.
Save money by investing it
It is here that savings understood as accumulating money should be connected with investment. Savings and investment are not different things, not necessarily.
Investing is a way to take advantage of what we have accumulated so that it begins to produce more money for itself, and once we reach this point, it will be a matter of continuing to feed our savings with what we do not spend and that we could accumulate. After that, patience and perseverance will be the keys to continue growing.
Just as it is important to start saving, even if it is separating the coins that remain in our pocket at the end of the day, it is also worth starting to look for basic investment products that are, in principle, very visible, that is, when We need the money, we can withdraw it. I say this, because the first savings that I think we should all have is our emergency fund, money for “just in case”; Once we have achieved that fund, we can look for new products for longer-term savings, and as we get more capital we can seek more attractive advice and options in terms of profitability.
Another option that is worth considering is collective investment funds. Mechanisms through which we can begin to invest in the stock market, in international markets or even in real estate projects from just 10 thousand dollars .
Basic principles to save
Saving money intelligently means understanding that all forms of savings are connected; that a discount can be translated into money that we are accumulating and then in money that we can invest and continue feeding that process every week; It is a skill that can be trained step by step, weight by weight and that we can strengthen by understanding why money is important to us and what is the purpose or purposes for which we are willing to save.
This word contains a clue in itself, if what we want is the much desired financial freedom, regardless of how we understand it, let’s not forget that saving comes from the Arab Hurr which means “free”, which is not a slave; The first step, then, towards financial freedom is not to buy all the books that promise it, it is to release the first 10 or 100 dollars tomorrow or the day after tomorrow that they pay. Let’s do it.