Making savings pay off

At this point, after explaining the first step you have to take, there will be some of you who will think "I'm fifty, what do you want me to do at this age to save a few pennies a month, I better enjoy my money while I can."

If I may say so myself, fifty is not old (otherwise I would be old myself, being fifty-one). Nowadays, it is a fact that life prospects have increased. And if you feel old, you have children, grandchildren, associations worthy of receiving donations... You can still do good for those you love (and that isn’t nothing).

On the matter of two pennies... "If you had kept aside a tenth of everything you earn, how much would you have gotten in ten years?" Algamish the moneylender asked. "How much I make in a year," replied young Arkad. I think you will all have come to the same conclusion, after all, mathematics is not an opinion. With a salary of € 1,500 per month, after ten years you will have € 18,000 (for the moment, let's leave out the inflation component). This is already a big step forward compared to ten years earlier, and all with just the first step I have laid out (and a small sacrifice).

However, Arkad's answer is half true. "If you want to become rich, your savings must yield and these annuities must yield in turn to give you the abundance you crave."

This alludes to the second step you have to take. You have to make your savings make more money. This is where a very powerful, basic concept emerges that I will explain in more detail in the next "chapter".

"A man's wealth is not in the coins he possesses, but in the income he builds."

The worst thing you can do is leave money sitting idle in your checking account. The economic uncertainty of the last few years, especially with Covid-19 and lockdowns, has caused people to take the decision to not make any kind of investments, preferring to deposit money in their checking account, which they deem safer. What these people are doing is ignoring the fact that with each passing day that money loses value due to inflation.

Inflation, in economics, indicates a generalized and continuous growth of prices over time. It is a fundamental indicator because the level of prices conditions the purchasing power of families, the general trend of the economy and the orientation of the monetary policies of the central banks.

All over the world, especially in the United States, inflation is increasing due to the economic stimulus implemented to counteract the problems caused by Covid-19 and this leads to higher prices and less purchasing power of one's money.

That 18,000 euros saved in ten years, with an inflation of 2% per year, will eventually be worth as much as 16,150 euros ten years earlier. You will have lost 1,850 euros just from the passage of time and inflation. And that's because you paid 150 euros a month. If you had paid in the full 18,000 euros initially, the depreciation would have been greater (about 3,300 euros). Don't you think this is a bad way to manage your savings?

Certainly, it is understandable that most savers regard the financial markets, in particular the stock market, quite negatively. This derives not only from a lack of acquaintance with the markets and their dynamics but also from media "terrorism" by tv and newspapers. After all, the collapse of the American S&P500 index by 6% in a single day is more newsworthy than the growth of the same index by an average of 9.8% per year in the last twenty years.

There are big misunderstandings related to even the simplest concepts about finance. There are very simple and intuitive instruments that most people ignore that I will explain in the second part of this journey.

The most fundamental concept for personal growth and for financial growth is that you have to make your savings pay off. These must generate money which in turn must generate more money.

And this is the second step you need to take in your journey.