I’ve learned that the most obvious advice on how you can save money is to not “enhance” your lifestyle when you earn more. Once you get a pay-rise the point is not to instantly buy that new car you always wished of.
It’s very common for people to start spending more as soon as they earn more. Let’s take an example: if you earned €1000 per month and then you got a raise and started earning €1500. It’s very likely that you’ll just end up spending it all. You’ll usually have a nicer car, go to nicer restaurants, stay in fancier hotels on holidays, but that’s about it. J
The challenge is to keep the same lifestyle you had with €1000 per month. As mentioned, saving that €500 extra per month opens up enormous possibilities. Let’s say you invest that €6000 per year (500×12) for 10 years. At the end of the period, it will become ±€83000 at an average of 6% interest compounded.
Even if you don’t invest, having that buffer allows you to live a much safer life, without as much stress. This is because you know that even if you lost your job, you’ll still be well off. On top of that, there’s a saying. Money creates more money. When you have a lofty sum, you can buy a house and then rent it off, get a passive income of sorts.
Eventually, if you’re savvy and lucky enough, you can live the dream by having passive income and only working as a hobby. It’s a long way towards that, not achieved by many, but it’s entirely possible and it’s in your hands.
The moral of the story is, once you get a pay-rise, don’t inflate your lifestyle. Keeping it the same may just bring you wonders down the road.