Your Finance Travel Buddy presents One Simple Step

Happy Sunday fellow Financial Freedom Seeker

Mindset Moment

One Simple Step

The definition of lifestyle inflation is

“the increase in your spending as your income increases”

This typically applies to where salary rises over time result in an increase in your spending over time to reward yourself for your increased income

As it is Christmas time, where it is not uncommon to receive cash gifts from family members, we are going to apply this concept to cash windfalls

Your One Simple Step this week is…

Save / invest some of your Christmas cash windfalls rather than spending it all

Why is this important?

Building on the concept of opportunity cost we went over last week, when you receive a cash windfall, you choose where you spend – or save or invest – it. Pursuing one option will mean you can’t pursue another. 

You can choose to spend it, save it, or invest it. 

Let’s say you get a total of £200 cash gifts from different family members and spend half of it (£100) and invest half of it (£100).

With an average annual investment return rate of 8%, at the end of the second year this would be £108. Doesn’t sound like a lot? 

But if you consistently invested £100 from Christmas windfalls you received each year, and the return rate was 8% each year, over 5 years you would have £634.

Individually, saving £100 and making £8 doesn’t sound like a lot. But what doing this does is get you in the habit of saving a portion of your Christmas windfalls (and other windfalls you may receive) which when added together over time can amount to considerable sums of money. 

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Have a fabulous week ahead!

Until next week

Pernia | Your Finance Travel Buddy