Money

Are You Actually Saving Money?

One of the questions you need to ask yourself before you purchase something on sale, or take advantage of a “great bargain” is this: Am I really saving money? In so many instances, we think that we are saving money when what we are actually doing is spending it. If you really want to save money and build wealth, you have to get real about your spending and saving habits.

Saving Money vs. Spending Less

It is tempting to consider that sale item a great bargain and say that you are saving money. However, the reality is that you are still spending money. When you buy something — no matter how deep the discount — you are spending money. That means that you aren’t really saving money. You’re just spending less of it on something. The bottom line is that whenever you make a purchase, you taking money from your account, and handing it over to someone else.

Truly saving money means setting it aside. You put it in a savings account, or sock it away in your retirement investment account. That’s actually saving money. Saving money is about taking your cash, and then putting it to work for you, hopefully earning a reasonable rate of return. Unless you are doing that, then what you are really doing is spending money.

Can Spending Less Help?

Of course, spending less can be helpful to your finances. If you spend less on purchases, you can put the leftover into some sort of account that offers a return. But it’s important not to kid yourself about the realities. Even if you would have bought the item in the normal course of your day, you are still spending money. You might be spending less than you had budgeted, and you might be spending less than you expected, but you are still spending money.

And, of course, there are things we have to buy: Food, clothing, shelter. We might want to spend money on things that give us pleasure, or enhance our quality of life. There is nothing wrong with that. And there is certainly nothing wrong with looking for a good deal on the stuff we buy. But you aren’t truly saving money even in these circumstances. You’re just getting a good deal so that you are spending less.

If you want to build wealth, it is important to understand this distinction. Once you understand, you can make better decisions, aimed at actually reaching your goals for wealth and financial freedom.

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