You can easily google lists of tips and tricks on how to save money. And do not get me wrong, some of them are very useful. But in many cases they are not based on real-life experience.
Let me tell you how I learned how to save money. Hopefully you find my experience useful.
First, you need to stop spending
Everything started when I worked as a chief marketing officer in 2013. I had a secure job and was earning a lot of money. And not only was I earning a lot of money, I was also spending a lot of money. Actually I spent all of my money I earned every month. And although I was earning at least 50% more than my peers, I have never saved anything.
I bought a house, started to lease a new car. It felt normal to owe money and live from salary to salary. Have you ever heard about the FIRE movement? Well, I did not. Not at that point in my life. None of my family members was saving money. If someone saved money, it was just to buy something bigger later on. Saving for delayed consumption. Saving in order to be able to spend.
“It felt normal to owe money and live from salary to salary.”
I realized that it is a bit ridiculous with the amount of money that I am making not to have any cash left at the end of the month. It was time for a radical change.
I stopped leasing my car and bought a much cheaper used car instead. This single change resulted in saving about 15% of my salary.
Pay off your debts
I managed to save for a 25% of the loan I had at the bank for a house. I learned it is possible to convert debt and savings accounts. So, instead of having an account with debts that needs to be paid each month and a separate account with your savings, I connected these two accounts. What I ended up with was one bank account with a big minus in front of the number, with a huge overdrive.
To have a minus on your bank account can be incredibly motivating. Every time you get paid, you see how your debt is decreasing. It makes it very visual and more real. This strategy worked for me really well. It motivated me to reduce my spendings and to save up faster to get rid of my debts. I paid off my loan in 2,5 years instead of in 10 years, as was initially planned.
“What I ended up with was one bank account with a big minus…”
It is all about getting rid of your debts. After a few years I had about 60% of my income left untouched each month. I started to be interested in investing.
Investing into stock market
On Amazon I bought maybe 20 different books on investing. The book that stuck with me the most was called “The Richest Ran in Babylon”. “Pay yourself first” and “Always put 10% aside” was something that really talked to me. I realized that money can be saved and used to bring you more money.
My first investment decision was to invest into the stock market. I chose a mining company in Sweden. Yes, I invested all of my money into the one company.
One day, at around Christmas time, the company was about to get approval to open a new mining area. That evening I was very excited. I knew I could sell my shares and get enough money to pay 70% of the mortgage on the house in the evening before the approval. But I also knew the morning after, when the company gets the approval, I could sell my shares and get maybe 200% of the money I needed for the mortgage.
You can guess what happened next. The new mining area was simply not happening, the request was denied. The stock went down. A lot. My shares were worth half of what I paid for them.
“I invested all of my money into the one company….The stock went down. A lot.”
I figured out that the stock market is not for me. When the stock went higher again, I quickly sold my shares.
Investing into real estate
After some time I saved enough money to cover a year of my living expenses. I decided to leave my job that I did not like so much anymore and started my own company. I was not pressured to make a lot of money fast and could do it at my own pace.
Little I knew the client I got within the first 2 weeks of starting my own company was the most important and biggest client I will ever have.
Due to my incredible luck in landing a big client right at the start I did not need to touch my savings. New investing decision? Real estate. Real estate is the safest investment, isn’t it? What could possibly go wrong?
“Real estate is the safest investment, isn’t it?”
I bought two apartments and became a landlord. It was nothing as I imagined it would be. I was not prepared for the amount of time this required from me and the constant amount of money I had to release for repairements. I sold these apartments two years later with a big loss.
Investing into index funds
Up till this point my attempts to invest did not go so well. I was still doing good, but my money did not make any new money for me.
From my older job I had a retirement package. I continued putting money into that without really thinking about it for a few years. One day it hit me. This retirement package is doing really well! Its interests were about 10%, 14% each year, and even though in 2018 the interest was -7%, in the following year it went back up to +25%. This year is completely unpredictable and still there is around 2% interest on my retirement account. The investment I did not ever think about was the best investment I have ever made.
If you are trying to find out how to save money, the most important to start with is to look at your own expenses. Do you really need all of those things? Can you survive with a cheaper car? Can you pay any of your debts faster, no matter how big they seem to be now?
“The investment I did not ever think about was the best investment I have ever made.”
Once you are able to simplify your expenses and save something, you can use it to save more. If you are afraid of investing into the stock market or real estates – I am not surprised. These types of investment are not for everyone.
Consider some retirement plan or index funds for your investment. In the long run this is what earned me the biggest amount of money through being consistently beneficial and requiring no attention and risk-taking.