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 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:
1. Thinking that investing is about buying cheap and selling expensive.
Of course it 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 safe play could be the one that follows the dividend, regardless of the short or long run. For example, if you find an investment opportunity that gives you a >10% year dividend you will double your money in 10 years, and by reinvesting the dividend (in the very same stock 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 as many Coca-Cola shares as he could every single month. Nowadays he gets around $600 millions a year alone from dividends, disregarding the price he bought at and never thinking about selling. (How to pick a stock) 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) share you will get your “stockholder” card with a 3 cts direct discount when tanking petrol. The price of this discount card is, as of Friday 21.8.2020, 6.6€.
According to the Spanish statistics 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/ litre in 742,5 litres means a total saving of 22,25€. Is it 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 about 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 travelling, 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 these two things made our expenses rocketed about 50%.
Other times it was not the food but buying the airplane tickets on time, searching for the best route or the discount. Even sometimes the lack of organisation made us lose flights.
It may sound obvious but for example if offered flight tickets at 1€, wouldn’t you plan even 10 options and buy 10 tickets? 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 afterwards 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, specially food (both for buying and eating)
⁃ Not knowing how to change your liabilities into assets