There are many ways to reduce monthly expenses in everyday life. With a little planning and rationalization, you can save on food bills, electricity and water bills, hobbies and clothing purchases. Hundreds of euros can be sunk into impulse purchases per month. Sleeping overnight before making a purchase decision is a good practical tip. An easy way to manage monthly expenses is to set aside a small portion of your salary directly. In this case, the money is not available for consumption.
If all the income goes to current expenses and consumption, nothing is left for savings. At that time, the person is not prepared for unexpected situations, and the change of apartment and the purchase of a vacation home are completely dependent on the bank granting the loan. Costs arise from loan servicing expenses, potentially higher interest costs and forced asset realizations. Similarly, if you put aside every month and invest the amount in a low-cost investment solution, your finances will be secured in the long term. With a seven percent annual return, someone who saves a month has accumulated a wealth of years.
You should start investing if you have accumulated wealth that is sitting in a bank account without producing anything, or if you want to put a certain amount of money into savings every month. The value of the savings in the bank account decreases in the long run, because the interest paid on the money is almost zero and at the same time the prices become more expensive. In other words, inflation eats away at the value of your savings. You should get at least a return in line with inflation if you want the value of your money to be preserved.
Inflation in the euro area has been around 2% in the long term. At the moment, inflation is clearly higher. When you put money into production, you will later have the opportunity to realize your dream investment or secure your future standard of living. A nest egg is also good to have for unexpected situations.
The return on your investments depends on the risk you are willing to bear and the investment horizon. The longer the investment horizon, the steadier the average annual return. In the short term, the returns on your investments can vary significantly.
In addition to these, the timing of investments determines the future return. If you sell your investments when their value has collapsed, your returns will remain weak. Often it is better to keep a cool head and wait. In the corona crisis, the values of bond funds and stocks first fell sharply. After a few months, the values had already recovered clearly.