Few things in life are truly free, except maybe unsolicited advice on how you should save and spend your money. Everyone has their own secret recipe for how to build up wealth, and there’s a whole industry of books who try to teach you the secrets of good money management.
You don’t need all that. And moreover, lots of that advice may actually be wrong. Here are the biggest savings myths, debunked by your friends at Vivid.
This is a frequently repeated piece of wisdom from personal finance experts, parents and everyone in between. Because you’re spending 3 to 4 euros a day on coffee, they say, you’re not able to save enough for the things that matter in life.
But while a coffee habit can certainly add up, the fact is unless you’re spending more than 10 or 15 euros every single day on your coffee, you’re not really breaking the bank.
You want to know what the real reason you can’t afford a house is? House prices in most major cities have exploded while wages have stagnated. No amount of saving could make up for the almost 11% yearly increase in house prices.
Sure, look at your coffee spending and see if you can cut down a bit to save a bit more money. But don’t feel guilty if it doesn’t suddenly change your life.
This is one of those myths that keeps people from saving in the first place. If you’re not able to save much beyond a few euros every month, it doesn’t make sense to do it.
While saving more money is of course preferable to saving less, even small amounts can make a large difference in your finances. And that’s not just because small amounts add up — though they do of course.
The real reason even a 10 euro monthly transfer into your savings account can make a difference is that if you invest that money, you can quickly grow it way beyond your monthly amount. Investing always carries risk, but if you had for example invested 10 euros a month into a basic ETF in 2010, and put in 10 more euros each month, you’d have 2,810 euros now, even though you’d have only put in just over 1,300.
Being frugal can often feel like a chore. And for many, it is, especially if you’re living paycheck to paycheck and trying to stretch every cent to make ends meet.
But if all you’re trying to do is cut back on your unnecessary spending a bit, it’s not as hard as it seems. Your best bet is to track how much you’re spending in each category and lower the ones that aren’t mandatory by 20%. Give yourself a limit for the following month, stick to it and you’ll see the habits form themselves.
The important thing is to eliminate the constant feeling that you’re repressing your desires in order to meet your financial goals. If you approach the problem from the other side, and set goals instead of limits, it’ll feel more rewarding and less stressful.