Let's talk money. Part two.

Let's get deep into how and why you should save and how to start investing.

Hola!

Last week we talked about how our relationship with money changes over time and how our childhood and early twenties shape immensely the way we see money. We also looked at some journalling prompts to better understand our relationship with money and we discussed The Psychology of Money. If you want to read that issue, here it is.

This is what we’ll look at today:

💰 My personal history with saving and investing: how that’s going, and what I’ve learned so you don’t make the same mistakes

🤑 Tips for saving and investing like a pro: just a few tips from what I’ve learned in my money-journey

🤓 Resources: to learn more about money and how to manage it properly

Now, let’s talk about this issue’s topic: saving and investing money.

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Photo by Konstantin Evdokimov on Unsplash

Why and how I started saving and investing

Let’s start by looking at a quote that changed the game for me:

“The only factor you can control generates one of the only things that matters. How wonderful.”

This is the opening line for the Save Money chapter in the book: The Psychology of Money by Morgan Housel—honestly, a book I’ll never chat up about when it comes to personal finances.

For eons, I had believed that the only way to become wealthy was to have a bigger paycheck.

This is something that genuinely stressed me for a long time. Since I didn’t want to practice what I graduated in (chemistry) and my skill set at the start was not something people would give me a lot of money for.

I really thought I was years and years away from building my career to be able to make a big enough paycheck so that money wouldn’t control my life.

However, that was a pile of rubbish.

During my university years, I started working. But instead of saving money, I would just decide very carefully what I would spend it on. But the word save didn’t hit my vocabulary until the pandemic.

I moved from the UK back to Colombia just a few months before the pandemic started. Even after completing a masters I was still unable to find a job. So I started teaching online yoga classes (after all, the pandemic kept us all indoors with high level of stress and I thought that would be a great way to do my part and help those around me).

At the beginning, I started doing them for donations. I felt guilty telling people they had to pay me X amount. I just wanted to help so I said, give what you can and are comfortable with.

I’ll be honest, it wasn’t much, but I wasn’t paying rent (lived at my mom’s) and knowing I was helping others was enough for me to log in every day, sometimes twice or three times to teach people. It made my heart happy, so any donations where more than welcomed.

To my surprise, I started to save—not on purpose, just by the circumstances we were all in.

Not paying rent, being deprived of the opportunity to go out to restaurants or parties, and not really feeling like I wanted to buy new stuff since the world’s attention was on something more important, helped me save almost every penny that went in.

Once things started to open up again, I looked at my savings and I became protective of them.

Sure, I would enjoy the new freedom of going outside, but I would reconsider how much to spend since that cushion of money gave me something more than just the material things it could buy. It gave me peace of mind.

I realized I was saving not for a specific trip or purchase, I was just saving for my peace of mind. To have the flexibility and freedom to not run to the next sub-par job opportunity and enjoy my time while I applied to new jobs.

It felt great.

So, thanks to the pandemic, I started to see wealth and money under a different light. It’s not how much you spend, but how much you have to be prepared for an uncertain future.

This is better put by Mr. Housel himself:

“Savings without a spending goal gives you options and flexibility, the ability to wait and the opportunity to pounce. It gives you time to think. It lets you change course on your own terms. Every bit of savings is like taking a point in the future that would have been owned by someone else and giving it back to yourself.”

And let’s be honest, the pandemic was a clear reminder that WE DON’T KNOW WHAT THE FUTURE HOLDS. Anything that could help me be more prepared for whatever event was on my future, was of incalculable value.

I had also realized that I don’t need to be breaking my back 40 or more hours a week to live an ok life—when I was teaching I was working about four hours per day. I just needed to spend less than what I earned (simple math, I know).

Here’s another spot-on quote from Mr. Housel:

“Think of it like this, and one of the most powerful ways to increase you savings isn’t to raise your income. It’s to raise your humility. […] Savings can be created by spending less. You can spend less if you desire less. And you will desire less if you care less about what others think of you. As I argue often in this book, money relies more on psychology than on finance.”

So, the little money I saved during those four or six months that we were on the strict lockdown paved the way for me to wait until a good job that I cared for appeared. It took my stress levels down a whooole notch and that was honestly priceless.

Now, that’s the story of how and why I started saving, let’s now see what made me start investing:

My mom.

Photo by Joshua Mayo on Unsplash

My mom was the one that taught me to invest, surprisingly so if you’ve read last week’s issue.

After her bad luck with investing, she still had hopes that it was the only way for her to finally stop being on the endless rut she had been since 2008. My grandparents had died so she had a cushion, but she knew that even with saving as much as she could it would quickly ran out unless she made that money work for her.

So, and to my surprise, she started learning about Bitcoin.

I know, I know. But put yourself in her shoes. She had tried the conservative way of investing and it had ruined her. This made her look at governments and banks like the enemy. Plus, with all the political chaos happening in Colombia and the world, her distrust for the establishment grew deeper and Bitcoin was a holy grail against it.

It was controlled by it’s own users. No bank or government could just print some more whenever they were stuck (hello, post-pandemic inflation and all the governments increasing the supply of money devaluating it). It would maintain—and in fact—increase its value over time due to the limited supply.

So, with all of this information and her libertarian spirit, she went all in on Bitcoin. By all in, I don’t mean all her money.

No.

What she did was put all her energy and time to learn more about it. She researched and researched about it like a thorough scientist and even took some courses.

Against all odds, it went pretty preeettty well for her. So, she show me the ropes and I invested about 60% of my money in it.

To my incredulous eyes, I saw that money go up and up and up. In just a few months I could take away the amount I had invested and I still had double in my Bitcoin wallet.

That investment is something that I still put money in every now and again. It’s also the reason I’ve been able to rest assured that despite quitting my job I still have a safety cushion in case finding a new one takes several months.

Thank you, mom!

Little note: just be reminded that a few months after investing on Bitcoin, I finally found a job. This meant I could leave that investment untouched and I never panicked or took a cent out when it “crashed.” I just took out the initial investment when I could because I didn’t want to feel like I was losing my money. So, the money that’s in Bitcoin now it’s all a win, and if it crashes and goes to zero I would have lost nothing on it really.

Never invest money you’ll need soon. Only invest what you can “dispose of.”

After finally finding a job, knowing I had that investment on Bitcoin and that I was creating monthly budget plans so I could save money, I started to look into other ways of investing.

I found investing on the stock market one of the most popular ways to invest and so I’ve put a little bit into it. Focusing on S&P500 and Vanguard stocks. Those are low return, but LOW RISK. Which is what I want now for my money since Bitcoin can be seen as a high risk, high return investment. (You want to diversify your portfolio and have a mix and match of all sorts of investments).

That’s it. That’s how the pandemic was a pivotal point in my personal finances history. It thought me that the world is ever changing and we need to diversify what we do with our money so we can have the peace of mind it should give us—and not become a constant worry.

It also taught me that saving is possible, as long as you keep your ego in check, and that the real value money has is the freedom, flexibility and control over your life.

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Photo by micheile henderson on Unsplash

Tips for saving and investing like a pro

Here are a few things that have helped me grow my wealth (I’m not rich, I don’t live a luxurious life, but the wealth I have gives me peace of mind and I can pay what I consider non-negotiables in my life, and that’s all that matters to me):

• I budget every month: I sit down with an excel spreadsheet where I put all the money that has come in, and I distribute my expenses into the need to pay (rent, services, saving pots, bank fees, loans, etc.) and the nice to haves (clothes, hair saloon appointments, trips, etc.). Assigning an ideal budget to each.

  Through the month I put how much I’ve actually spend on each so I can see how well I had planned for them, and if I’m spending more on something I didn’t expect.

• Getting clear with your money is fundamental: sometimes we think that a latte a day is not hitting our bank accounts, only to see at the end of the month that you spent three times the amount you had budgeted for. Be careful with those slow drips.

• Save first, spend second: some people like to save only what’s left at the end of the month. That’s a surefire way of having minimal savings in life. Start the month right by immediately putting some of your money on the saving pot you have. And DON’T TOUCH it.

• Create a peace-of-mind saving pot: some call it emergency, I like to call it peace-of-mind. Because, at the end of the day, I’m not just gonna spend that money in an emergency, that money is there to give me the piece of mind of knowing I can quit my job if I hate it or I can take my time on finding a new job and don’t need to rush into anything. It gives me peace of mind that no matter what happens I have a safety cushion.

• Don’t spend to impress: “spending money to show other people how much money you have is the fastest way to have less money.”

• Use credit cards wisely: use credit cards to give you more freedom, not more debt. By this I mean, always set everything to one installment, pay them every month in full, don’t max out your credit card, pay before the billing cycle ends. They help you build up a credit score, but you need to prove to the bank that you’re not depending on it, and that you can manage it efficiently. Use it only as an extension of the money you already have.

• Don’t fear investing: investing is a great way to not only keep the value of your money, but actually increase it over time without you having to do anything. Is making your money work for you. Find what apps or investment opportunities are near you and start investing. Nowadays there are many you can start with your 5 USD. Just remember what I said before, invest only what you don’t need. And remember of the compounding effect of investments, putting a little in every month will help you have tons in a few years with minimal effort from your part.

Here’s a fun thought experiment about the power of investing little but consistently over time:

Mr. Housel gives an example in his book of three people that invest from 1900 to 2019.

Sue invests $1 every month. She never stops. Whether the economy is in shambles or not, she invests $1 every month.

Jim invests $1 every month the economy is not in a recession, and when there’s a recession he just saves the $1 in cash.

Tom tries to invest $1 every month, but whenever there’s a recession he pulls out and it takes him a few months to regain confidence and invest again.

Ready to see how much money they end up with at the end of 2019?

Sue ends up with $435,551.

Jim with $257,386.

Tom with $234,476.

As you can see, investing little every month come rain or shine is better than investing little every now and again or trying to “play the market.”

“A good definition of an investment genius is the man or woman who can do the average thing when all those around them are going crazy.”

Resources:

• The Psychology of Money by Morgan Housel: just read it and thank me later.

• Monthly budgeting template: this is basically what I used but I’ve moved it on to Excel (it’s in my list of ideas to create a full template on Google Sheets so people can just copy and use it).

• Her first $100K Money tools: putting a side her whole thing about “fighting the patriarchy” she actually has very interesting articles and tools to help you build your wealth and be smarter with your money.

• Everyone’s Talking Money: Shannah Game is a certified financial planner turned, in this podcast you’ll learn to ins and out of money and how you can use it to create the life you want. (The only down side is that there’s quite a few ads in each episode).

• Money Girl: Laura D. Adam’s podcast has been listened over 42 million times. Episodes are around 20min and it covers all money matters like social security, how to retire early, investing misconceptions, IRA accounts and more. (Better suited for a US audience).

• Modern Wisdom: a great podcast about all of the topics, but this Saturday there’s supposed to be a new episode with Scott Galloway discussing how can young people acquire wealth in a broken economy. Sounds great!

• The Intelligent Investor by Benjamin Graham: practical advise to invest without falling for common mistakes.

If you’re in Colombia (or speak Spanish) I would also recommend following cami_inversionista on Instagram. I hired her once I moved out of my mom’s house knowing I needed to really get a grip on my personal finances.

She posts super helpful stuff and she also does 1-to-1 sessions. This isn’t sponsored, she just does a great job!

What about you? Any resources you’ve come across that you think would help others?

Let me know! Just reply to this newsletter and I’ll update the list. 🙌

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That’s it for today!

As always, thank you for reading!

My inbox is always open to hear what you liked or didn’t, and what else you would like to see me rambling about. 😅

Next week, we’re talking about procrastination—and how to kick it to the curb.

With MindfulMessy love,
Cris. 💌