Short Guide 2: Saving – start by making a start
On the face of it, saving money has all the sex appeal of a cold shower. At least that is the case for most of us. However, if you read on, we will show you how to make these unknown waters warm enough to dip a toe into.
Saving money? What an excellent idea!
I’m sure that you have heard more exciting tips about what to do with your hard-earned cash than finally starting to save it. So have we – and those other tips promise a whole lot more. But rather than waiting to win the lottery, good old-fashioned saving may well be the best way to get the ball rolling. After all, before making any further provisions, you first need to lay some groundwork.
Unless, of course, you suddenly come into an inheritance. These things happen. However, even an inheritance should only be invested or spent once your overdraft has been paid off, any loans repaid and around three months’ salary set aside for a rainy day so you can be ready for anything that life might throw at you. And anyone who has managed that is already doing very well. The fact is that 50 percent in Germany have on average €3,682 to their name – and that includes tangible assets. This is also a sobering figure as it shows that not everyone can afford to put money aside.
For all those who do have the means to build up a cushion gradually: it’s best not to use your current account, but an instant access savings account – or a sub-account, like our Pockets in the Tomorrow app. Simply set one up under the name “Savings” or “Nest Egg” and off you go! This is where you can squirrel away a certain amount every month to build up a reserve or to save for specific goals. Want to know more? Carry on reading…
Set a starting point and a target to aim for
Okay, so we’ve established that saving is a good idea. But how do we get started? It’s quite simple: set yourself a starting point. It might be today, next week or even next month. And when this date comes around, there can be no excuses, no putting it off any further.
But the starting point needs to be prepared so that everything goes according to plan. And that means: do a finance check! Go through your fixed costs and other expenses and draw up an overview. Simply saying that you will always put aside €100 as of next month will not work because that might not be the right amount.
Even when you have a clear picture of your finances, you still have to formulate a target before you start saving. What do I want to do with the money? Is it a question of breaking even, is it money for a rainy day or is it a wish that I am eager to fulfil? Or is it all of these rolled into one? The next step is to come up with an estimate, to define a period of time, divide it by the number of months and, hey presto, you have your monthly savings amount. If it is too high, break down the targets: first things first. Breaking even takes priority over rainy day money, and rainy-day money takes priority over investments or other wishes.
Why is my bank account always empty at the end of the month?
There are still quite a few days left of the month, but you have very little money left in your account? This is something that most of us have experienced at some time or other. The only thing that helps is to draw up a clear budget and find out where all the cash is disappearing to. Start by listing your fixed costs and then your variable costs. What am I spending on rent, food and other forms of consumption? What contracts have I signed up for? How much am I spending on my car and going out?
You can either write this stuff down or use our budget book to keep a constant eye on what you are spending. If you have an account with us, all of your income and expenditure will be automatically allocated to a category by the Tomorrow app and transferred into a digital budget book that will allow you to keep track of where your money is going every month. But whatever solution you end up choosing, you should finalise this point – and because variable costs can fluctuate as well, this should be based on the last three months.
How can I save money without depriving myself of everything I enjoy?
At the end of the day, saving money means going without certain things – there are no two ways about it. How much you can or have to do without depends very much on the individual. But for many people, saving money doesn’t mean denying themselves all earthly pleasures. It may mean cutting out a few things but ultimately, it all comes down to being smart about it and looking for alternatives.
So where can I save money and why? Do I really need to splash out on new clothes every month or can I do without them or buy them second-hand? Can I take food with me to work or cook at home more, rather than eating out several times a week? Is it possible to get cheaper electricity or a better mobile phone deal? Can I cancel my gym membership because I prefer jogging in the park anyway? Do I really need to buy bottled water or can I just drink tap water instead?
We all have different leeway when it comes to these kind of thoughts, but some of us can certainly find other ways to save money. Which ways these are, which ones hurt the least or how many are needed – this is something that everyone can and must decide for themselves. Once you have found a few things to cut down on, you continue to do without them – but it also feels good when you realise that you have been able to cut down on a few unnecessary expenses. And, of course, many decisions that result in spending less money on non-essentials are more sustainable by nature as well. So you can kill two birds with one stone. As a rule, there is no right and no wrong way to achieve your goal – there are just different paths, some of which are longer than others.
So I’ve built up a rainy-day fund: what now?
Now that you’ve managed to save up a little nest egg, should you continue to save? Yes and no. The notion of getting rich by saving money is not a very realistic one. Unless you have enormous amounts of money at your disposal that you can squirrel away regularly – and even that is not to be recommended. This is because savings that go beyond readily accessible reserves should not be left for years on current accounts, instant access savings accounts or even in the “Pockets” in our Tomorrow app. Otherwise the money gets eroded away by inflation and low interest – which pretty much defeats the purpose.
The inflation rate in 2019 was around 1.4 percent. Which means that, in five years’ time, 1,000 euros will only be worth around 933 euros. Not a very appealing prospect. Meaning that any savings in excess of the rainy-day fund should be invested. For example, in equity funds, bonds or ETFs. This is because they can multiply – through higher interest rates, but also through compound interest, for instance. Compound interest is particularly effective. And is possible on almost any budget. Read more about this on our blog soon.