Do you think that saving is important? (here’s a simple rule to note if you need help)
If your answer is yes, read on.
Many young professionals proclaim that they save 30 to 40% of their income, but have barely $5,000 in their bank after working for a couple of years.
Do you know someone like that? Why is this the case even though most of us know that saving is important?
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Let’s start by answering the following question:
How can we make money?
There are only two ways known to mankind – “People at work” or “Money at work”.
Besides creating money through your job, we all know that saving and accumulating capital for investment opportunities is the key that opens the door to financial freedom.
Therefore, for your long term happiness, it is extremely important to save more today!
Your first responsibility is to work hard at your profession. Find ways to increase your value to your company, so that you will be handsomely rewarded for the value you bring (that’s “people at work”).
But how much money you make does not matter very much if you don’t have any savings by the end of the month.
Now, let’s discuss what savings are and what savings aren’t.
There are many definitions of the word “savings”. In this article, savings is referred to the money set aside for the long term, money that you have no intention of spending in the near future.
In other words, only long-term savings apply here.
What does this mean?
There may be short-terms goals that you have set for yourself, such as going on a holiday at the end of every year.
Saving a few hundred dollars each month so that you can go on a trip at the end of the year does not equate to long-term savings.
Putting aside money and then spending it on things that give you instant gratification, such as shopping or eating at a fancy restaurant, does not equate to long-term savings either.
Having such short-term goals is not the problem. We all need to slow down and smell the roses sometimes.
However, it is important to differentiate between delayed spending and true savings so that you don’t find yourself wondering “What happened?” when the fun is over.
True savings are those that you set aside for your long-term goals, or money intended for the purchase of assets that can generate more money for you (that’s “money at work”).
There is a huge difference between saving to buy assets for your long-term happiness, versus saving to go on a cruise at the end of the year.
When you spend all your hard-earned savings in the end without purchasing any assets that put money in your pocket, what you have done is simply delay your spending. And thus you are no different compared to someone else who spends all his money each month.
For the sake of your long-term happiness, it is better to delay gratification now and channel your savings into meeting your long-term financial goals, be it to invest in property or to retire by age 40.
When you have little money to save and invest, it doesn’t matter which way the market moves, you cannot afford to purchase anything anyway!
Go ahead and spend (or delay-spend). Make it a point to have fun. But do not neglect your long-term savings while pursuing the joys of today.