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Saving is only the first step: this is what you should do with your money

In our country there is no culture of saving. In a recent article we commented that the savings rate in Spain is only 5.1% . In other words, only 5 euros out of 100 that go into your pocket are saved. For someone with a net payroll of 1,500 euros the savings would be 75 euros per month, that is, only 900 euros per year.

With these figures, as soon as an unforeseen expense arises, such as a car breakdown or the need to replace an appliance, the numbers no longer come out. If what is intended is to enjoy a certain economic stability and not live overwhelmed because the current account can turn red, the solution is to save more .

As hard as you think it sounds, there is always room to increase savings. Just leave behind the typical excuses and get down to work by reducing expenses and looking for some extra income. But this article is not about that. After this very extensive introduction, what we want to explain today in the blog is that saving is only the first step . There is much more later.

Why is saving only the first step?

Why is saving only the first step?

Imagine that you do your homework very well at home and get a 50% savings rate, the dream of many families. Normally, you would save those savings in a bank account, perhaps a savings account. This has three consequences:

  1. That money is worth less and less. It is called loss of purchasing power and is caused by inflation, that is, by the general rise in prices. For an inflation rate of 2%, for example, if your savings are 100 euros in a single year they would be worth 98 euros. The accounts do not come out.
  2. You stop making money. If you have the money immobilized in a checking account instead of investing it, you give up the possibility of earning more money thanks to your money. This is called opportunity cost.

Therefore, saving is not enough. One more step must be taken and, as you can imagine, that step is investment.

Without investment there is no paradise

money cash

You have to put your money to work for you . It is a rancid phrase until exhaustion but that is why it is still true. In the words of Albert Einstein, compound interest is the most powerful force in the universe, so you better get familiar with it.

The concept refers to the fact that when the interests generated by an investment are added to the capital of the investment itself, those interests start to generate new interests, so money growth is faster.

There are many investment possibilities: investment funds, currencies, real estate, cryptocurrencies, art, gold, startups, crowdlending … but if we had to keep only one we would choose the Stock Exchange.

The Stock Exchange is the most accessible long-term investment for anyone and which has offered the best historical results. Long-term money has never been lost in the history of the Exchange.

And if you don’t want to have too many headaches and prefer as passive management of your investments as possible, then keep the index funds (ETFs) and the investment through roboadvisors.

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