Simple Ways to Save, Let Money Work For You!
One of the biggest issues of our time is money. Let me put it this way, money as a phenomenon isn’t that complex actually. Money is money, it is buying power. Worth more today than it is tomorrow, most of us dont have an issue with money. The underlying issue is what the absence of money brings to our lives. Living from month to month, not being able to spend comfortably on leisure as we please due to financial distress and not being able to plan out our personal finances bring out the problematic side of money.
If money is so scarce for us, why do we spend so rapidly? Why does society push an individual to buy products in a given economy? As a society, we really enjoy spending money even though we are aware most of the time that it can be hard to earn. These unwarranted spending habits are a byproduct of years and years of free capital markets evolving and the aggregate state of marketing. You could say that the system is against us when it comes to how we direct our income towards products and services on a given month.
My aim with this peace is to push forward my understanding of personal finance in a way that possibly those who are reading can make more informed decisions regarding the aforementioned case. Effectively, this will help you to improve your personal finances and help you improve your personal state of wealth.
So let’s start
As market participants we make up the market. Most of us have a monthly income that is a salary on a yearly basis, albeit some work on hourly rates. Just for the arguments sake let’s assume you consume alcohol twice a week with friends, go on vacation for a week once a year, you consume tobacco at 4 packs a week, spend 100 bucks on your fortnite skins or League of Legends a year. By the way for most gamers that is a very conservative estimate, if you’re not familiar with purchases such as that just ask a friend around.
Above, we started four separate spending habits that are discretionary from an objective perspective. For one to build wealth there should be capital that the individual can allocate to income generating assets. Income generating assets help you make money without actually working, the only thing you did is make a investment decision out of the wide range of securities or physical assets in the investment realm, which included a level of relative risk.
Bad Habits
Just for fun, let’s calculate roughly how much your habits cost on a yearly-basis. I choose these just because they would be popular among my viewers, in which they could relate. So let’s crunch the numbers. I’m going to go off some dolar figures that I am likely of spending just so the assumptions we’re making are relative. Assuming you spend 40 bucks on a night out, going out two nights a week brings you to 80 dollars. Also let’s say you didn’t go out 5 weeks of the year for personal reasons, you still amount to $3700. Yes, you would save $3700 if you quit drinking for a year. That is a hard obstacle for most of us due to our leftover habits from Thirsty Thursdays while we were in college, but quitting drinking isn’t impossible and it would be pretty healthy; you could lose your beer gut.
Let’s look at another one, cigarettes! Assuming you live in a urban area, for the arguments case we’ll assume you live in Chicago. You spend $12 bucks on cigarettes, per pack. Amounting to $48 for 4 packages a week, ultimately $2,496 a year is what you would spend on cigarettes.
I’m not going to go through more than two hypothetical habits even though my average reader has more than two spending habits that they could avoid.
Big Picture
If you quit smoking and drinking for a year you would save up $6,196. You could then utilize this amount to purchase financial securities and have your money work for you, instead of you working for money.
If you invested in indexes that allow you to diversify risk away from your financial capital via it being a benchmark of a large section of the U.S equity market, your money would grow on average 10.56% looking at the 10-year trailing returns of the SPY index, according to TD Ameritrade.
Meaning that your money would grow on average 10.56% per year. The key is to allow the law of compounding to work for your favor. If you re-invest your gains back to your portfolio you could grow your portfolio 10.56% yearly and at the end of year one, you could be at $654.3 profit from just buying an index and not looking at it for months. This brings you passively generated income, to develop your finances you should take advantage of the rise of passive management in investing.
Save your money! Get rid of the bad habits!
