Here's a question for you: if, by the end of the month, you transfer £250 to your savings account, have you actually saved £250?

If you answered yes, keep reading - this lesson is for you. Spoiler alert: the correct answer is no.

Don’t worry, a LOT of other people have misconceptions about how much money they’re actually saving too. I want you to forget, for a moment, all of your concepts about saving and bear with me.

Let’s get started!

Moving money to a saving account is a zero-sum game

Simple Example

Let’s say Bob has £500 in his current account and £1,000 in his savings account for a total of £1,500. Now he transfers £250 from his current account to his savings account. Is he £250 richer? Obviously no, moving money across accounts is a zero-sum game.

You might say that Bob saved £250 that day, but his total net worth remains £1,500.

That was just a simple example so let’s look at a more realistic one involving spending with debit cards…

Realistic example:

Imagine Bob:

• starts the month with £400 in the bank
• earns £3,000
• spends £2,900
• transfers £300 to savings account

How much did Bob save? £300? No, that can’t be… 🤔

As you can see, the concept of “saving” can be misleading, so let’s think in terms of “wealth creation” instead.

Most people don’t understand the Wealth Equation

Your wealth represents how much you are worth financially. It’s the sum of all your money, investments… your “assets”.