HOW many times have we come home after buying something and told ourselves, or others, how much money we’d saved?
Usually such a claim is made when we have bought an item that was on sale, or used a voucher or a coupon that reduced the price. Or we might have done some price comparison shopping and got ourselves the cheapest price on offer.
If we didn’t go out with the intention of spending money, but come back with €10 in our wallet/purse when we started off with €50, then we haven't saved anything. We’re just deluding ourselves; we are actually worse off.
The problem is that while people feel better off emotionally, in a financial sense they are not better off. We confuse paying less with saving money. Just because we buy something for less than what it was originally priced at doesn't mean we are better off financially if the savings achieved are spent on something else instead.
If you spend €100 less each month because you have cut back on takeaways, spend less on groceries, reduced a utility bill or two, but redirect the €100 towards something else, you are still spending that same €100 every month. There is no real saving.
Consider discount vouchers/coupons for example. What they do is help us stretch our spending; they do not help us save money. If a coupon reduces our spending by €10, unless we put that €10 into a savings account/glass jar, then you have saved nothing.
There is nothing wrong with stretching our spending if it improves our quality of life and that of our family. But it has nothing to do with saving in the purest sense.
Author and financial advisor Joe Atikian goes as far as to say bargain-hunting actually distracts people from saving money, because saving money only ends up as a side effect of – as he puts it – “some other action instead of something you deliberately set out to do”.
He is absolutely right because some people focus too much on looking for discounts. I am not suggesting people shouldn’t do this, but when it overtakes deliberate saving and becomes more of a priority, this is when I begin to see people struggle financially. They are constantly “saving” money but yet have nothing in their bank accounts.
Saving money for some people isn’t exactly an exercise they get immediate joy from; they make sacrifices in their monthly budget, money is lodged into their account - whoopee!
It would be nicer to buy something, go on holidays, renovate the house – things you get happiness and pleasure from right now. So what people do is choose to ignore saving for a while, and who could blame them? We don’t tell people how great we are at saving, or how much we have in our savings accounts, do we?
The silence around this doesn’t make us feel good about ourselves. But when we show people around our house, show them our new car, our new clothes and so on, we feel much better about ourselves.
I wrote about poor financial habits last week and one very bad habit I didn’t refer to was comparing yourself to others.
When you compare what material possessions you have and what others have. You will always lose because someone will always have more than you. But what happens is people begin to suffer from financial envy and what happens to them? They spend more to keep up with others and begin to eat into their savings, ending up with none, and deeper in debt. One person I know only wears designers clothes, as do her children. She drives a big SUV, wouldn’t dream of being seen in Lidl or Aldi, but hasn’t a bob to her name. Everything she and her husband earn, they spend.
And some people are 30 days away from being broke because if they lost their job or became ill and couldn’t work they only have one month’s worth of savings in reserve, which would pay for their typical monthly outgoings. This couple are one day away from being broke and how they sleep at night is beyond me.
So don’t automatically think people with fewer possessions are financially weaker than those who have lots because you are probably wrong. Maybe they have things that money can’t buy, like financially being able to give up the job they don’t like, or going back to college and retrain, or taking a sabbatical from their job to look after ageing or sick parents. All the things the person with the big jeep and loan repayments will never be able to do.
I also encourage people to save because for me there is enjoyment watching your savings grow each month, and if you stick at it you will see your account balance grow, and it will make you feel really good.
As Atikian also says: “It's better to see €50 grow to €1,000 than it is to constantly struggle with a measly €40 when you check your balance at the ATM.”
Another consequence of deliberate saving is that you begin to realise that you are becoming financially stronger. You have more choices and options open to you and you feel much more in control of your life. That is what saving money does, it gives you flexibility and freedom. Spending too much does the opposite; it leads to less choice, less freedom and a whole lot more stress.
If you were able to save €100 each month (€3.28 per day) your balance will have grown to €1,200 after one year. But that’s just the short term because in 10 years’ time your balance will have grown to €14,169, assuming you earn an average rate of interest of 3% per year.
If that doesn’t sound like a life-changing amount, then ask yourself how much better your life would have been or become if you hadn’t saved that amount?
That €100 might have bought you more clothes, more beer or more coffee but the consequence is that you will have €0 in your account and you will have no flexibility to make choices in other parts of your life.
So, don’t think for a second or try to convince yourself that spending money now is more fun than saving, because if you talk to someone who has savings and saves regularly, they will tell you it’s much better than having had a few more beers, clothes or trips away.
Liam Croke is MD of Harmonics Financial Ltd,
based in Plassey. He can be contacted at email@example.com or www.harmonics.ie