Hello! Financial education covers a lot of topics that together are meant to provide more value throughout our lives. What I’m getting at is that the topic of today’s article has the potential to be the most important topic about financial education: savings. Why do I say that? I believe that if you don’t get in the habit of saving regularly, it’s almost impossible over time to lead a more financially relaxed life. Even if you advance professionally and earn more money, that doesn’t mean you’re more relaxed with money.
So what does it mean to save? Basically, to use money or other material means wisely; in other words, to try to avoid or reduce repeated overspending or overconsumption. At the same time, we can associate saving with the delay of the immediate satisfaction we experience when we buy something new.
Nowadays, you are exposed non-stop to ads for products/services you think you might need. In most cases, you don’t need a particular product immediately. Resisting the temptation to buy a product/service means saving money. You give up the immediate satisfaction it can give you to use those resources in the future for something else.
1. Why should you save?
Firstly because this is how you can create wealth in the long term, and secondly you need to save for any expenses that may arise that you haven’t considered. You certainly don’t want to be in a situation where you have to borrow to solve a financial problem that you didn’t consider might arise when you took your salary. So saving becomes quintessential for anyone if they want to lead a better life financially.
2. How do you start saving if you haven’t done so before?
A popular way to “save” is when you put aside the money you have left at the end of the month. If you use already this method, I want to tell you that it is not the best way to save. You can get to the end of the month and realize that you have no money left, so you will save 0. And this can be repeated month after month, year after year.
A much better way to save money is to change the order in which you divide your money. Instead of saving the money you have left at the end of the month, you put it at the top of your spending list when you get your paycheck. So, once you’ve taken the money, the first thing you do is save and then pay the rest of your expenses.
In personal finance, this way of saving is called “pay yourself first”. Author Robert Kiyosaki expands on this concept in his bestseller Rich Dad, Poor Dad. If you haven’t read it, I recommend it.
3. How much to save?
DEPENDS. It is more important at first to save than to set a certain amount. Maybe you want to save 25% of your salary, but at the moment it’s not possible because you have too many expenses. It is, therefore, better to start for example by saving 5% of your salary and gradually work your way up to 25%. At the same time, you are more motivated because you can see that you are making progress. To start with, it is indispensable to set yourself a target that you can reach, that you can achieve, however small it may be. Even if you raise in a month, 50 euros is more than nothing.
However, coming back to the question of how much to save monthly, one amount I have come across in several books I have read is 10% of your monthly salary. I want to insist that this is just a figure, in the end, you have to see how much you can save month by month so that is not a very heavy burden for you.
If you set a target that is too ambitious to start with, there is a high chance that you will not be able to meet it and this will frustrate you. You may later give up on the target you set and even the idea of saving altogether. You certainly don’t want this to happen. Try to set a target that motivates you but at the same time is not too ambitious.
4. About goals when you save.
It’s important to start saving as early as possible. To start, how much is not relevant as long as you save. One step you should consider once you have started saving and have experienced how much you can save each month without it being a burden on you is to at least set a goal with the money you save.
For example, if your goal is to become financially independent in the next 5-10 years, you must be willing to give up spending money today that will help you be financially independent tomorrow.
Managing and planning your savings is fundamental for anyone who wants to be financially better off in the future. You need to set clear goals divided into weeks, months, and years to get a more holistic view of the money you are saving and to see how your decisions evolve.
5. What do you do with the money you save?
Saving just to save is not enough. As you probably know, keeping a significant amount of money in the bank without doing anything with it is not the best idea. In the long term (5-10 years), due to many events (inflation, financial crisis, war, etc.), your money depreciates, so ideally you should invest your savings. At the moment there are countless options to invest in, adapted to everyone’s pocket, but we will talk about this in a dedicated article.
To conclude, saving is paramount to both your present and future financial situation. If you haven’t saved before for various reasons, try doing so now. It’s never too late to start. If you’re already doing it, I can only congratulate you.
If you would like to share your experience of how you started saving and anything else that you think would be valuable to our community, I encourage you to do so in the comments section. At the same time, if you found the article interesting or helpful to someone you know, feel free to share it.