A very common mistake is to consider investing money-saving, and that investing is only possible if you play big.
I would like to say “once” but the following story happens too often. Many people asked me: where should I invest and I always start by asking the same question: how are you spending your money? People think that the only way to have more money at the end of the month, to buy a new car or to go on holidays is to invest big amounts of money with big returns but it is more about taking care of how you are using the money and assets that already have (and that many times work as liabilities instead as assets).
Here are three common mistakes that people make:
Thinking that investing is about buying cheap and selling expensive.
Of course is one of the many ways to use the money. Buying something cheap and reselling it more expensive. Stocks, flats, art... there are many plays that will follow this pattern. But the play should to follow the dividend, regardless of the short or long run. For example, if you find an investment opportunity that give you a >10% year dividend you will be doubling your money in 10 years, and by reinvesting the dividend (in stocks is the most easy way to do so) you will double in only 7,5 years.
Do you have to invest a lot? Many years ago Warren Buffet started buying every month as many as Coca-Cola shares as he could every single month. Nowadays he gets around 600 million a year alone from dividend, regardless of the price he bought it and never thinking about selling.
Buy, take the dividend, never sell...
2. Thinking that investing is only about making money, not saving money.
If a company offers you discounts for being a stockholder, by buying the minimum of stocks. This is NOT an investment, this is a membership card as it would be your Costco, Amazon Prime or Fnac membership.
One very easy example of this is, in Spain, the petrol company Repsol. If you buy one (1) stock you will get you “stockholder” card with a 3cts direct discount when tanking petrol. The price of this discount card is as of Friday 21.8.2020 6.6€.
According to the Spanish statistic institute every driver in Spain drives 13.500km a year and the average consumption is 5,5l/100km. This means people will use 742,5 liters of petrol/diesel per year. A discount of 3cts/liter in 742,5 liters means a total saving of 22,25€. Is much? No, but do you want to know what is less: 0€... that’s the amount people save by not owning one stock... by not having this membership...
3. Not taking care of how you spend your money.
This sounds so obvious that you will want to skip this part but stay for a minute as you may find it interesting.
As an Erasmus student in my flat, we always wanted to save some money to have a budget for traveling, partying, or eating out. Many times by not planning carefully we end up buying too much food that we didn’t eat, or bought in a more expensive shop just because the normal supermarket closed 10 minutes ago. Only this two things made our expenses rocketed about 50%.
Other times were not the food but buying the airplane tickets on time, searching the best route, or the discount. Even sometimes the lack of organization made us lose flights.
The same happens with the food you buy and the supermarket you go to. The amount of food and what you use daily or weekly.s? Many would say that this is crazy and that this is a waste of money. But what if the price of buying a single ticket afterward is 100€? You would have paid 10 times more than with the half planning strategy. And 100 times more from the original 1€ price.
The same happens with the food you buy and the supermarket you go to. The amount of food and what you use daily or weekly.
Single easy moves that could boost the amount you have at the end of each month. No need of learning how to invest or buying new assets. Planning is the best asset you can have.
The main money-losing things are:
Paying for subscription you no longer use
Paying for long time monthly contracts without retalking them
Paying the full price without searching for a better price or coupon
Not planning with time, especially food (both for buying and eating)
Not knowing how to change your liabilities into assets