From time to time, each one of us complains about having little money. “If I were to have more I would go on vacation, I would send my child to a good school, or have a decent retirement.” However, none of us thinks about how to conduct ourselves in such a way so that we actually have more. Rather, we focus on complaining about miniscule earnings or a lame job, overlooking the fact that only through the intelligent management of our finances can we become richer. It appears to be the case that through the poor management of our finances that we lose our fortune. Both Americans, French, and also Germans calculate that we lose around four percent of our profits annually. This means that if we were set aside 1,200 zł (i.e. monthly setting aside 100 zł) we would lose around 50 zł (1,200 * 0.04). One could say that this is not a lot, but in the course of five years, this would amount to 260 zł, and after ten years 600 zł. In Poland, unfortunately, there is a lack of similar research showing how much we lose through poor financial management, but we can suspect that the amounts are similar.
How then can we begin to increase our wealth? We start today from the presentation of key advice, which will become ever clearer in the coming days of the blog:
First tenant: Set a goal that you want to achieve. The goal must have textbook-like characteristics. In other words, it has to be realistic and it should have a rather large time horizon (from three years and above). It is difficult to effectively manage your savings if you have to recall bits of it from time to time.
Second tenant: Think about how much you can put away every month. Start from small amounts, and later – in accordance with your own abilities – increase this amount. Each zloty that you put aside works for you. It is within this conceptualisation that you should think about savings. In finance, we have a concept called opportunity cost. If you do not invest, then you lose. Think about how much you lose when spending money on unnecessary things, or leaving the money to sit in your bank account. Now think about how these sums can begin to become the gains that reduce the distance between you and your goals.
Third tenant: You will never get wealthier keeping money on deposit. You have to effectively invest your money in order that it works for you. Capital markets can be a reliable means in that regard. However, you have to know in which products it is necessary to invest. That is why we encourage financial education. Research shows that people who are independent in making decision about their savings, that is, they do not make use of financial advisors, earn higher gains than people who do use that kind of help. Today’s widely available amount of information makes possible the sort of education necessary for our own needs. We make use of great blogs as well as financial portals in order to understand basic financial principles.
Fourth tenant: Minimalize risk. With this in mind, you should tread lightly while investing your money. Look for products with low risk, but which at the same time offer levels of gains higher than the rate of inflation. Do not invest all of your money in the same capital class, as with shares for example, and do not invest all of your money in the same economic sector, as in the case of gas. Highly-diversified products prove to be a reliable agent in that respect. And you don’t have to be well-acquainted with finance to do this. You can invest either in balanced investment funds or in exchange-traded funds (ETFs), which have an advantage over normal investment funds due to their low costs of investment.
Fifth tenant: Constrain the costs of investing. Look for products where you don’t have to pay a lofty sum for selling assets or investment fund managers. Everything for which you must pay should lessen the risks of investment. Look for brokerage houses, which offer low prices for accounts as well as fees for transactions. In recent years there has been an increasing number of Fintech companies, which enable investing at a global level for low fees.
The following is a flash card from the calendar of a Financial Advisor, Vanguard, one of the best Fintechs in charge of managing private wealth.