When I was about 8 my dad took me to Halifax Building Society in Great Bridge, a small town near where I grew up, because he needed to do some banking. While we were there he set me up a Halifax Little Xtra Club account with a pound coin from his black gatefold wallet. The cashier gave me a plastic yellow money box in the shape of a little house and an activity set that had some kind of super cat (maybe called Alley Cat) emblazoned on it, and I was hooked. I loved the idea of keeping money in one place for the future me to benefit from. Yes of course the money box was a blatant marketing attempt on the back of the recent successful Piggy Bank promotion of Natwest, which bought non-financial incentives for banking with a certain brand to the fore in the 80s. I didn’t realise how much this marketing had worked until I came to write this article when I realised that my eldest son’s first account that I opened with his mom was also at Halifax, Alley Cat had long disappeared but the appeal of saving money for my little one from an early age had remained.
Saving money is one of those terms that I think gets bandied around that everyone assumes their view of what it means is the same as the next person’s. However, I am of the view that there are differing views on what this means based on who you are, what you are motivated by and how you were bought up (I cover the latter in my book: The Money Mistakes of Mom and Dad). So when I was asked to pull together a blog post, I immediately thought I’d like to discuss this anomaly and also share how all of the versions used together could help you be better off.
Google Dictionary describes ‘saving’ as the following:
‘keep and store up (something, especially money) for future use’
This definition would assume that the reason why people save is to keep their money for a particular purchase or event in the future but I wonder how many people actually do or achieve this. I know a couple of my friends that are good at saving up for a certain thing; holidays or cars etc but my attempts at saving money in the past have all fallen by the wayside, primarily due to a brief stint as a gambling addict (but that’s not what I’m here to talk about). This version of the term ‘saving’ assumes that you have a denomination of cash now, that you feel may be better spent by a future version of you on some product/ service and there’s potential for it to grow by adding more to it. And I guess if you’re aware of ‘The 7 habits of highly effective people’ book by Franklyn & Covey Habit 2; ‘begin with the end in mind’ this is exactly what you’re doing, thinking of another set of circumstances in the future and keeping it for then, rather than pissing it all up the wall today, like I did for a good few years of my life!
The other popular version of saving money that people do is the act of saving money on products or purchases, by this I mean looking to get a discount by say a voucher or a membership card that gives money off or looking for cheaper versions of the things that you would normally purchase e.g. 2 for the price of one or buy one get one free (bogof). This is slightly different to the first description of saving as it assumes that the benefit of the act will be realised sooner (now) rather than later by spending less. Again, this is with the view of allowing you to retain more money for other things and maybe allow you to add to your existing nest egg. Now I love a discount code, voucher or item on a ‘whoops’ yellow sticker in the Asda as much as the next guy but I do feel that some people may extend this behaviour a little too far. From what I can see, some obsessive savers have lost sight of what the purpose of this type of saving is for and inadvertently make them live in seemingly poverty stricken circumstances, i.e. compromising quality over price or not doing something that they want to at all, this is also known as having a scarcity mind set rather than abundance mentality; where you believe there is plenty (of whatever you want). Despite this perceived ‘lack’, in actual fact they have plenty of money in the bank thanks to being frugal, to the point where they’ve forgot to spend it and become…well …tight. My mom and dad used to say people like that; ‘they’d skin a fart for a penny’ or ‘peel an orange in their pocket’ lol.
From my own experience, I’ve noticed when less well-off people do save and then make big purchases they usually buy consumables (food/ drink/ clothes/ holidays) or depreciating assets such as tech and cars which rarely increase in value or have the ability to generate an income. From all of the money mastery books I have read, I’ve realised that rich people invest their money. By this I mean well off people buy assets (stocks and shares, companies, property) that all generate income, or alternatively increase in value over a period of time, this then compounds and leads them to have even more ‘disposable income’ to buy consumables and to invest even further. The other downside for a standard saver is that ordinary savings accounts don’t necessarily generate income as interest rates are so very low. It’s worth noting that investments can go up or down so saving cash in the bank is safer but has less potential for large returns.
My view is that it’s best to save a little cash, invest a little of your money each month (property/ shares etc), save money on your purchases where you can without compromising your quality of life too much and then treat yourself every now and then to something big. If you do one of these excessively without balancing it out with the others you can either be left living a life of enforced poverty or be so exposed to risk that you’re unable to survive during turbulent periods.
My last tip comes from a book called ‘Profit First’ by Mike Michalowicz, it primarily talks about business profits but it transfers to personal finance too. It essentially states that in order to be well off, you should compartmentalise any money you receive (wages/ interest/ dividends) immediately as soon as you receive them. Say put 10% in one account and 5% in another account. This then forces you to save by not having access to this 15% and lets you ‘cut your cloth’ from what is left in your current account rather than grouping it all together and spending it without thought. I’ve done this and it’s amazing how my finances have grown since doing so.
Good luck all I hope you become financially free…
Lots of Love AJ1