How could you lose your savings? Let’s go through the ways:
1. Saving without investing.
Although we have covered this point before, it never hurts to bring up the word inflation: to keep inflation from eating your savings, you have to invest, even if only in safe investments. Never leave your money sitting idle, because over time it would be as if you had been paying a monthly instalment throughout all those years of saving. If risk scares you, put your money in deposits, bonds or government bills (unless you want to learn how to invest).
2. Investing your life in one company.
Another way to lose your savings is to settle in and work for one company for life. I know it’s every worker’s dream, but it’s another way of taking on risk: if, after 30 years with a company, it closed down or cut staff, you might find it hard to get a new job after the age of 45. Don’t become obsessed with this, but think it over now and then, and always make sure you have a good financial cushion just in case.
3. Not taking risks, and not controlling risk.
At first glance these two points probably seem contradictory. The higher the return, the higher the risk, but we need to keep risk under control, and the only way to do that is to have some basic knowledge of where we are putting our money. Investing in the stock market is the most profitable investment, but of course we need to know when to get in, when to hold and when to get out, and even how to tell which shares are not worth holding for the long term. To grow our capital significantly we will have to take on some risk, and one way to lose our savings is to fail to control that risk.
4. Investing on someone’s tip.
A very common way to lose your savings is to invest because “so-and-so” advised me to buy “x”. It’s not that this person wants to deceive you; they may be acting with the best intentions in the world. The only problem is that if they are wrong, you go down too. Just today I wrote about the possible Bosques Naturales scam. I’m sure more than 80% of the savers and investors who put their money into that investment company did so on someone’s advice.
5. Investing in love.
The love of our life today can take our future savings with it. When we marry, we do so hoping for a love that lasts forever, which is why many people put accounts in their partner’s name, others make their wife a partner in their business, and so on.
Simply getting married and separating (with nothing else involved) already costs money, so if the love-and-money commitment hasn’t been properly sealed, this tends to be one of the best ways to lose your shirt.
6. Unhealthy habits.
Excesses take their toll sooner or later. Living a stressful life, not exercising and not following a healthy diet can also eat up a large part of your savings in the future if you fall ill. That’s why, however busy you are, it’s a good idea to set aside a few hours a week for some kind of physical activity (I’ll take my own advice :)).
Let’s also remember all the investing mistakes we can make, as we explained in our article “Serious mistakes when investing“, such as investing with borrowed money, not diversifying properly, or betting everything on a single stock, market or product.
Further reading
- Investing in the stock market for beginners
- Got some extra income? Save it or pay off debt?
- Safe but low-return investments
Featured image: Images Money, CC BY 2.0, via Flickr.
