The 2 Most Important Things You Need to Know About Saving Money
By: Luca Rossi
Tags: Money, Self Improvement, Personal Development, Work, Finance

2. Saving Is Time-Consuming, It’s Easier to Find New Income Sources

Photo by Alexander Mils on Unsplash

In the past year, I started making a nice income by setting up different sources.

In the first few months, I didn’t change my lifestyle much. I was still in “saving mode”, I was still buying shitty cheap food, I was still buying no more than one drink when outside.

Most people would see this as a wise choice. They would say that, if you are making money, the best thing you can do is not spend it, so that your bank account could grow faster.

This is true to an extent. You obviously shouldn’t spend all the money you are making, but avoiding expenses altogether makes no sense.

As my bank account was growing, at some point I said, fuck it, I’m buying a second drink. And a third one. And fuck it, I’m buying drinks for everyone tonight.

I made small tweaks to my lifestyle to make it more comfortable and enjoyable. I bought a gaming laptop, a coffee machine, a huge monitor, some nice earphones, new clothes, I’m about to buy a standing desk, and in a couple of weeks I’m going to live alone so I can finally say goodbye to my annoying roommate.

I spent almost €3,000 in the past month. Yes, I have been a little crazy. But did it hurt me financially? Not at all.

How is that possible?

Don’t Find Ways Not to Spend Money, Find Ways to Get It Back

I realized that it’s easier to make more money than saving it. Instead of finding ways not to spend my money, I find ways to get it back.

I have a full-time job, but my “main income” as an underpaid Italian researcher is actually a small fraction of my total income. I could quit right now if I wanted to. I’m making much more money from other sources, like Medium and occasional freelance jobs. I’m also trading cryptocurrencies and investing in lesser-known ones that could potentially explode in the following years, like Band Protocol, Orchid, and Compound.

I have to clarify some things though.

First, I’m not advocating for careless consumerism. Most of what I buy has to be worth it. I always buy something because it makes my life simpler and more comfortable, not for the sake of having it. Even though I made huge expenses in the past month, I’m usually a minimalistic person.

Second, you don’t need a large income and you don’t need to make huge expenses to apply this advice to your life. I understand that many people have responsibilities. I’m single and without children, this plays in my favor financially. More on that later.

Third, I’m not saying that making money is easy. It’s just easier than saving. And probably there are many potential sources of income you are not considering.

Fourth, I’m not saying that you shouldn’t save. I’m saying that you shouldn’t have a saving lifestyle. There is a difference between putting a portion of your income aside, and meticulously find the cheapest items at the store. You want to do the former.

Save Money, But Reject the Saving Lifestyle

Whatever your income is, you should change your environment to make saving effortless and put aside a portion of your income every month. But you shouldn’t have a saving lifestyle.

The first reason is basic inflation. It’s incredible how many people overlook this phenomenon. Money loses its value over time. It’s better to spend it as soon as possible, preferably in assets (things that make you more money, like stocks, cryptocurrencies, real estate) or things that make your life simpler (like a good laptop or a coffee machine). The longer your money sits in your bank account, the less you can buy with it.

Another reason is time. Saving takes time, that is way more precious than money. Finding the cheapest item while trying to compromise as little as possible on quality is a time-consuming activity, I know it because I did it.

Some propose a simple way to solve this problem: give a monetary value to your time. If you make, for example, $3,200 per month after taxes, and you work 160 hours per month, your hour is worth $20. This means that, for every hour you waste doing any given activity, you lose $20.

If you have to spend 15 minutes to find an item that is $4 cheaper than the one you are holding, it’s not worth it, because in those 15 minutes you lose $5. If you could save $10, you could consider spending those 15 minutes on that search.

Similarly, if your neighbor offered you $15 to mow their lawn (don’t mind the US stereotypes here), you should probably refuse. But you should pay someone else $15 to mow your own lawn.

This theory is simple and practical but it has many limitations:

You have to assume that you would use the saved time productively.

You have to assume that every hour is worth the same (you can’t take into account energy levels).

You have to assume that many activities don’t have collateral long-term consequences.

You would end up outsourcing more than you can actually afford to pay.

Outsourcing also takes time, especially for small activities.

It doesn’t take into account the fact that you may like some activities (like mowing your lawn).

However, it’s a pretty good heuristic that will make you conscious of how you use your time.

Another reason against a saving lifestyle is the quality of the lifestyle itself. If you look for cheap options you inevitably have to compromise on quality.

If you eat cheap food, wear cheap clothes, use cheap tools, or in general, live on low-quality stuff, your life will suffer. Again, I’m not advocating for consumerism, but setting a bar too low is just not worth it. Some standards never hurt anyone.

If your lifestyle suffers, you may get stuck in a vicious circle. You will have less time and energy to be productive and make the very money you are desperately trying to save. For example, I wasted hours on a daily basis because my old laptop never worked properly. I could have used those hours productively if only I had a better laptop.

The final reason, and probably the most important one, is that of all the possible ways to use your money, saving is one of those with the lowest Return on Investment (ROI).

Let’s say that you successfully managed to buy the cheapest possible stuff this month and saved $500. Now what? How are you going to use it? I can think of three possible ways:

You will spend it in some way. For example, on a vacation. Vacations are nice, but in my opinion, sacrificing your lifestyle for a vacation (or any other “big” expense) is just not worth it. You have to enjoy your life every day, not just on some specific days as a reward for working so hard. You may even not enjoy your vacation so much.

For example, on a vacation. Vacations are nice, but in my opinion, sacrificing your lifestyle for a vacation (or any other “big” expense) is just not worth it. You have to enjoy your life every day, not just on some specific days as a reward for working so hard. You may even not enjoy your vacation so much. You will leave it in your bank account. Leave it for what? For emergencies? It’s good to put some money aside for emergencies, but 15% of your income should be enough. After that, it’s just not worth it. Remember that money loses value over time. The worst places you can keep your money in are your bank account and under your mattress.

Leave it for what? For emergencies? It’s good to put some money aside for emergencies, but 15% of your income should be enough. After that, it’s just not worth it. Remember that money loses value over time. The worst places you can keep your money in are your bank account and under your mattress. You will invest it. This is a wise choice, but if you have an investing mindset, you wouldn’t have a saving lifestyle in the first place.

Don’t worry, I hear your concerns.

But I need to save for my kids’ college education!

But I’m a single mother!

But I’m poor and sick!

Let’s get to that.