#Start early, do it consistently and with discipline, keep focus on long-term goals. We’ve probably all heard and generally agree with these tips when it comes to saving and building family assets. Yet, we often succumb to similar stereotypes and misconceptions about the process. Here are some of them:
Investing is only for the rich
“I don’t have enough money to save and invest” is a mantra that many use as an excuse. Indeed, it is difficult for many families to cope with their monthly income and to meet their basic needs. But very often people with above-average incomes and a good standard of living, for whom this is more of a convenient excuse, fall for this theory.
It is good practice for everyone, regardless of their income, to set aside at least 10% of their current income for savings and investments. At the beginning of the month, before servicing all other expenses, not whatever is left at the end. It means putting the stability of our future above our current desires.
This amount is small in the beginning, but a consistent and disciplined approach gives the desired results in the long term. “Little by little the little becomes a lot”. And not just because of the accumulation or because of the results of the investments. Focusing years of effort on building family assets and helping to achieve financial independence is actually gradually changing our mindset, outlook, skills and knowledge in this area. Gradually, we see how new opportunities for investment or financing are opening up, for which we have not had an eye until now, we begin to better orient ourselves about the prospects and risks.
Can we invest with a small monthly amount? Yes, definitely. Investment and savings products are becoming more and more diverse, and today the Bulgarian investor is well connected to the financial markets, which provide a sea of opportunities, available both for small amounts and for regular contributions. We will devote a separate material to the most popular options, but the specific choice depends on our life plans and financial goals, financial status and habits, propensity to risk, etc. and it is important to research the alternatives well in order to choose the right assets for us.
We look for quick results and give up easily
In my professional activity I have often met this type of people. They have a certain amount, they want to “roll” it quickly, to achieve a high profit in a short time. And then… usually there is no plan, the money will probably be spent. And vice versa – if they don’t see quick results, they lose motivation and discipline and all long-term plans collapse.
First of all, it is good to have a realistic idea of what we can achieve. There is no express train to get rich quick – tickets are very limited and sell dearly on the black market.
Return and risk are linked, and the higher the short-term result we are chasing, the higher the risk we should be willing to accept – and that means being ready to lose in significant amounts.
The approach to accumulating personal and family wealth must be long-term and consistent. But to keep us motivated and disciplined along the way, we can try to map out a plan that breaks the big goal down into smaller steps. This gives us the opportunity to see and celebrate our progress, to be ambitious about what we have achieved.
For young people in their 20s, for example, who are now starting their careers, it sounds far-fetched and unreasonable to think about a retirement age. But they can focus on goals related to securing additional passive sources of income; to accumulate assets to start their business project, etc. And with the accumulation of a portfolio of investments and, above all, experience in their management, new perspectives are increasingly discovered and the train accelerates.
“Don’t teach me sense, give me money”
You’ve heard that, right? If we translate it into the realm of personal finance, many people support the claim that if they had a lot of money, they would save and invest successfully and accumulate more and more profitable assets to the family wealth. But since they do not have a significant amount – they do nothing.
Does it really happen like that? Think about how often we’ve heard of lotto millionaires who end up in a worse financial position after just one year than they were before the win. Or how the heirs of rich families squander in no time what has been accumulated for generations. The reason – they were not ready, they did not have the necessary habits and skills to help them make the right decisions. If we haven’t been able to handle our regular budget and investments in small sizes, what gives us confidence that we’ll be able to handle the big ones?
As in any other field, good results require us to educate ourselves, to improve our awareness and understanding of the subject, to follow the processes. Let’s learn from experience, from our own mistakes and those of others.
Let’s also consider what it means to be rich. Having a high standard of living and spending a lot – yes, these are the marks of wealthy people. But “spending a lot” means spending, accumulating liabilities. And wealth is primarily related to the accumulation of assets – investments and properties that pay off over time and work for us.
We save without investing
To save means to accumulate reserves from current assets – mostly in the form of cash and deposits. Investing is now about harnessing these assets to work and increase in value and size.
Often families successfully implement the first part – to accumulate surpluses aside, as children do in the piggy bank. But at the same time, they do not plan how these funds can be invested, and in practice they lose their savings due to inflationary processes, instead of increasing the family wealth. The reason is most often insufficient awareness of the possibilities. Or the widespread myth that investments are too risky – especially when it comes to financial instruments.
The truth is that, as we wrote above, risk and return are mutually related. There is no zero-risk investment and no 100% guaranteed return – yet the guarantee always comes from a third party. But this does not mean that investing is necessarily for risk players. Different instruments and assets (whether financial or physical) are characterized by a different level of risk and a different range of risks – by getting to know the possibilities, we can focus on the parameters acceptable to us in the palette.
We think that the state/parents/partner should take care of us
Good wish. But for our own successes and failures, it is important to rely first on ourselves and the conditions we can create for our future. By expecting someone else to take care of our financial well-being, we risk being left with dissatisfaction that will not make us more resilient and adaptable.
“You Live Once”
We work hard and deserve to be pampered. That’s right, life is short. Sometimes, however, with the mantra “You only live once,” we allow our desires to go beyond the healthy possibilities of our personal budget. When we reach for the amount of savings, draw on a credit card, overdraft or consumer loan for expensive things and vacations, we must keep in mind that these are funds that we are practically taking from our tomorrow self. A good opportunity to maintain the balance gives us the distribution of the personal budget by The 50-30-20 rulewhich seeks the balance between needs, wants and long-term financial goals.
We’re delaying too long
Young people at the start of their careers usually have a more limited income, at the same time they want an active social life and travel, and planning is rarely long-term – both personally and professionally. Savings is more about satisfying wants than long-term capital accumulation.
When we start a family, we understand that expenses increase sharply with the appearance of children. This is the period of mortgages and leases. Our income and standard of living are rising, and so are our bills. We start thinking about investments and are angry that we didn’t start sooner. Or the increased costs are the new good excuse for us to postpone the topic.
As we get older, we want fewer commitments and more free time for our family and hobbies. We begin to look for sources of passive income, and they are difficult to build from scratch. If we haven’t thought about it yet, we put even more effort into starting the accumulation of family assets – for our children, for our old people.
The earlier the better. The 10 percent rule applies to all ages – starting with pocket money and children’s money. According to this rule, everyone, regardless of their income, should aim to set aside a minimum of 10% for their long-term financial goals. Even if it’s small, this amount creates a sustainable pattern of thinking and behavior regarding personal budgeting – prioritizing financial stability and the future.
At the same time, it’s never too late. Yes, the sooner we start saving and investing, the more time our assets have time to “grow”. But there’s no age too late when we can’t introduce good financial habits and take care of our personal savings.