Let’s imagine you have $100 (or euros) in cash.
Scenario 1:
You decide to save that money for 1 year. Due to inflation, the buying power of that same $100 will go down, meaning that your money will be worth less.
If you save that money for 10 years and assuming that during that period we have a fixed 2% inflation rate, the spending power of your money will be worth $81.71.
Scenario 2:
You decide to invest the money into the stock market. Lets say that the return per year for every dollar/euro invested in the stock market is 10% (including inflation).
This means that:
After a year, your $100 will be valued at $110.
After 10 years, that same $100 will be worth $259.37.
After 20 years, that money will be worth $672.75.
After 30 years, that money will be worth $1,744.94.
This goes to show that every time you spend money on non-essential items such as designer clothing, expensive dinners, etc. you are effectively losing future money.
Invest that money instead and you will get a 17x (approx) return on your money in the future.
Here are a few examples:
– Whenever I go out with my mates, we on-average drink 3 pints of beer each. Each pint costs 6 euros. Future Value: 3 * 6 * 17 = 306
– Dinner with my girlfriend for two costs 80 euros: Future Value: 80 * 17 = 1360
– Gucci Diana jumbo GG small tote bag costs: $2,980. Future Value: 2,980 * 17 = 50,660
So now every time you are about to spend money, multiply the value by 17 and decide whether it’s worth it.