” Just save more” or ”don’t buy that latte everyday” are some personal finance and saving advices I have heard. These advices are partially true and will help you save and invest a little more each month. Who knows you might end up with a nice pile of money in the future.
I have read a lot of posts about how people save a lot of money by ”just these few tips and tricks which they only will share to their loyal blog readers”. There is also a lot of ”quick tips how to save 1 000€ a month by doing this one thing”, those are the sexy and usually not so long lasting ways of saving money. Youtube has a lot of these personal finance gurus selling expensive courses without any refund guarantee (have not participated in those nor will I).
Let us dig a bit here, humans are dictated by their routines and behaviour. To change a routine or behaviour is not always as easy, as they have developed over our whole lifetime. A sudden big change, like New Year resolution of not drinking alcohol in January or to give up all white sugar for one month is challenging and as it lasts for a short period people have difficulty keeping the promise. The same relates to savings and investing, it is easy for a short period yet harder to do it consistently over many years. Warren Buffett has many times pointed out the importance of consistency. As well has Peter Lynch said that it is enough that you find a few five or ten baggers during your lifetime and that will make you wealthy.
Below is a graph displaying the development of a 30€ saving per month starting January 2021 and ending December 2050. You will have saved 10 800€ and with a 4% monthly return you will have 20 890,89€ (48,30% return) by the end of Dec 2050 while with a 7% monthly return you end up at a cool 36 812,62€ (70,66% return). Even with small amount you can achieve a lot. As we all know these are assumptions and over a long period it will hold, yet the monthly and yearly movement might be different as we can see from history and the last few years.
How to change routines and behaviour?
How do you create a new or better routine? Start small, a small change of something that is easy to give up or start is easy and can last longer. Set goals and raise the ribbon over time, this gives you a reason to focus more on the goal. Just as I have set goals on my portfolios market value and dividends it has to generate. One long-term goal and one for the shorter term, as you can see there is no limit how much I have to put in (own savings beyond dividends).
A note before you continue, always consider opportunity cost, if something requires a lot of time yet brings no or little value, then it is not worth it. If on the other hand it does not require a lot of time yet brings lot of value then you should go ahead (a little like indexing).
A few advices on how to save and invest more are;
1. Reduce daily small purchases
One example is if you complain over your finances yet buy a latte every day for 4€ then maybe change it to normal black coffee for 2€ a cup. Or buy a latte very two days instead of every day, it will reduce your expenses. If you get a discount for having an own cup then buy one that lasts (not the fancy expensive, a normal one with value for money).
2. Are all subscription payments necessary?
Do your own calculations of options, which is the best for you? Do you need a monthly subscription to Netflix, Disney+, HBO, CMore, Viaplay, Spotify and all the other services? Do you use the services for respective amount each month? Cut away some and move the sum to your investment account every month, just like the subscription with the difference that this time you will have more in the future.
3. Check your insurance
Ask your insurance company or broker for a new offer and from competing companies as well. If you are a loyal and good customer, they might (most likely will) lower your fee. This concerns car, home, travel, life and any other insurance you might have. Check if bundling all insurances to one party will reduce the fee (if you haven’t done it yet).
4. Credit cards
Credit cards are really good when used well, if you get cash back or any other benefits that reduce your monthly spend then using the card properly can be a choice. Remember never to overspend nor withdraw cash if it means extra costs. Read the small print in your credit card agreement, yes it is boring and a lot to read yet of huge value to understand your obligations and rights. Many credit cards have high interest rates which means if you are late with the payment then it will be expensive.
If the credit card gives you benefits you don´t use then why have the card? Change it to one that gives you more benefit, card companies will eventually adjust to peoples demand.
5. Living costs
Utility bills, low electricity costs, natural gas if you have, heating, grocery, snacks, tobacco and alcohol. You can save on most of these, for example buy grocer'ys based on per kilo price taking into notice how much energy you get from the product (candy has calories yet hardly any fibre, vitamins, protein or good carbohydrates). Usually big packs are cheaper then smaller ones however, spotted lately a pricing change where 400 gram pasta packs are 0,20€ cheaper then 1kilo pack per kilo. Strange and hopefully a temporary mispricing.
In some cases you can get Government subsidies for installing solar panels or other "cost reducing" (less fossil fuel) items at your home. Check the local policies and if it will benefit you. This can save you a lot in the long run.
6. Bank fees
Bank fees are hardly mentioned anywhere as we do have a tendency to stick with our bank no matter what. I am seeing the bank pressuring with higher monthly charges from time to time yet usually after a properly motivated mail or phone call they agree to old levels or a small increase. If you have an account in the U.S.A. then check with your bank the possibility of a Sweep account. A sweep account is a normal bank account with the exception that when the banks close for the day your bank borrows the whole account balance only to return it next bank day with interest. This happens every bank day and in some cases you might get some interest over weekends as other markets might be open. The benefit is that you get interest every day and not as many European banks do which is pay the interest once a year based on an average balance.
You also should look for the option of centralizing all your bank and if possible insurances to one party. This can give you additional discounts and room for negotiating fees and terms. If you have a large amount of money then distributing it among a few banks is recommended, over 1 million. The reason is, if the bank is in trouble then you like to be sure there is another party who has managed things differently and kept your money safe. Notable is the few largest banks which are secured, thanks to them being to big to fail and will be saved by taxpayers money.
7. Clothing and Accessories
Clothing does not need to be updated every season nor every year. We all might know one person who just has to buy the latest fashion all the time. This spending spree is temporarily good for the economy yet hardly good for the individual (in the long run). My personal opinion is to buy quality clothes at bargain prices, yes, I buy most of my clothes on sale which ensures I can invest every month. I buy when clothes are in off season as stores want to get rid of them, it is a good way of getting more bang for the buck (as they say). At one point I did buy some clothes from Jack & Jones yet the quality was poor, usually they lasted less then a year. Now I buy more brands like Polo, Barbour, Gant and Tommy Hilfiger and they have lasted many years and the cost per year and used days is significantly lower then for the cheaper brands I had.
Next part I need to be careful about, accessories such as bags (women's drug). Women love bags and shoes, a bag can be very expensive easily a normal women's bag costs over 800€ which is a huge amount of money. In these cases consider if you need the bag now or later and save the amount as it will show you how long it eventually takes you to afford a bag like this.
Summary of saving advices
If you prefer not to make any changes yet, complain that there is not enough money at the end of the month while sipping your latte and watching a Netflix series then don’t complain. This is your own decision, like it or not. With the mentioned small steps you will be able to save a little every day and it will in the long run ensure a pleasant amount of money.
Most of the advices take time until you will see a result, with the small steps you will move forward all the time. Remember to reduce your daily purchases (small adhoc purchases especially), reconsider your subscriptions, review your insurance contracts, check your credit card (or cards), review your living costs, reduce bank fees and you don´t need the latest cloths or accessories.
How do I handle my finances?
I do go out and eat from time to time (not that much lately due to the situation), mainly brunch and some coffee now and then. Because it is pleasant to have a cup of coffee with friends and family or to eat brunch with your girlfriend. What I don’t do is to go to the most expensive places just to be able to tell others about it, I want value for my money not temporary glory or fame from others. This also means that I do not buy a latte every day however, a normal coffee once a week is something I can pay for and the difference of the coffee and the latte will be invested.
Will continue this topic in the future as there will be more ways as well as tips and tricks to share with you.