Why Saving Will Make You Broke?
A Penny Saved is a Penny Earned?
Have you heard this saying before? Well it couldn’t be further from the truth. The fact is what you save never holds it value compared to when you earned that money.
How is this possible when I see the same amount I saved in my bank account still? As you may or may not know, money inflates at close to 2%. That means each year the money you hold becomes less and less valuable.
This is another reason why Bitcoin has been such an attraction to many retail investors this past year.
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The Numbers Breakdown
To give you an example to wrap around your head; $100,000 in 1987 would cost in today’s dollars almost $190,000. That means your money is about 50% less valuable. So much for saving! You are basically giving up half your money in a 30 year span.
This is why I stress about why new money is so important because it holds the full current value at that moment but in just a year’s time it will be about 2% cheaper.
Wealth creation is far more important than having money in the bank. This will keep bringing in more money that can then be applied to make future income. You need that new money always!
Being a Saver Can Destroy Your Growth
Another problem with saving is that when you have an amount of money sitting in the bank and try to preserve it. You destroy your abilities to create more in life and do almost anything. You become a preserver, a money manager of your own cash, and most importantly a 'stressor' that you have to be careful with how you spend because it is only dwindling.
Now you say you are making some interest as your money sits in the bank, right? Well most banks pay well under 1% nowadays in interest and if you are making 2% a year, your still breaking even and that is as good as a lost.
Money is just a means of exchange. Real wealth is building up as many assets as possible, like the game monopoly. You want to increase your overall cash flow at all times. Cash sitting is as good as a liability, it depreciates and it a losing asset.
Holding Cash Can Have Its Benefits
I am all for building and holding cash for the right opportunities. I use to put my cash into assets as soon as possible but that caused many mistakes by jumping the gun. So waiting for the right asset to strike is beneficial. Also creating the discipline to not spend and save instead is a great beneficial as well.
Just don’t get too caught up on not spending when it is the time to do it. Even for yourself, education, motivation or whatever it may be to get you to where you need to be.
Whatever it is, make sure it makes money from it. If it’s spending on yourself, make sure you bring home that bacon because of it.
The Bottom Line
You want to use money, not save it. That will get you to grow more and more in your life.
It will create the 8th wonder of the world with your money already, compound interest. You’re money is just like your life, if it is not growing you are dying, slowing but surely. What doesn’t grow is shrinking and it is just a matter of time before nature takes its course. That could happen a lot faster than what you think.
Many think a million dollars is a lot of money. That is nothing in this day and age. Believe me you can spend that in the blink of an eye.
Continue to earn money at all times with your own skills or within investments and assets. Make sure not to lose money ever. Then re-invest that money to create the compounding effect. The money one day will be growing so fast it will be coming out your ears and it will become very hard for you to ever be broke again.
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@bitdollar
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My recent trip to Mexico
I'm a natural SAVER... but i'm training myself to become an INVESTOR. Money sitting around does not grow or do anything for anyone except trick you into believing you are well positioned financially. Really, it's just un-utilized tool, like a drill and hammer collecting dust. @ironshield
great analogy..... I also like to refer to my dollars as "my employees" - and I don't like my employees sitting around doing nothing.
That is a good move @ironshield. You are right on the ball and it can trick you to think your financially well off. It is a tool and we must use it to constantly grow. Thanks so much for this!
You make a valid point. I have come across similar points with Ramit Sethi's concept of the "Big Win." Saving 5 bucks by not drinking Starbucks is bullshit. You really want to save money? Get a higher paying job. Or a side-hustle. Better yet, get a higher paying job and a side-hustle. Then invest in the right assets (right now, nothing on earth pays faster or better than crypto)
It's like the Starbucks coffee will then be the "Small Loss", right? So as long as you have Big Wins, small losses don't matter. E make sense 👍
Yea!
Yes most people just try to save instead of earn more. Great point!
You make several pertinent points. Very well compiled post.
I also think that several times you end up obsessing too much about saving your money, and not utilising it for what you actually earnt it for in the first place - leading a good life. The saved money is worth the 'savings' only when utilised for yourself, at right time.
You are so right. I had this problem. When I made good money in my early twenties than I obsessed in not spending anything, became so complacent, never did anything almost. I had to take some big losses to realize what I was doing. Making income always and having skills to do so is way more important for your finances and you day to day well being.
excellent article - when I was a fianncial planner , I had this conversation with my clients all the time. Some of the term I would use include gems like, "your money is sitting in the bank "safely" losing money each year ... or "with the way inflation is growing, you can't afford NOT to invest"
I also agree that we need to save so that we have a seed to invest when the opportunity presents itself and that it helps to develop financial discipline. I think it's important to hold money in several layers and a savings account is an important first step in growing financial wealth - but only long enough to invest it - money not deployed , is earning potential wasted.
Yea so true financial discipline is very important. Money not deployed is potentially wasted, another great point there. Thanks @jorlauski!
You are right!
The problem with fiat is it doesn’t hold its value over time, and you are talking about America which is one of the best countries with only 2% inflation per year.
Imagine yourself how’s life in the Venezuela of today with is +1000% yearly inflation.
We are lucky to have crypto as option to protect ourself against these thieves.
Venezuela is crazy the inflation. Yes cryptos have been a blessing for this reason alone.
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Thanks for the vote! :)
You are so right, @bitdollar! Each of us must become our own manager of our money, and educate ourselves so as not to be losing our hard-earned cash. Relying on the traditional concepts is a recipe for disaster in today's age. Nobody cares as much about your own resources as you do, so take responsibility for it, and become educated. I love what Dave Ramsey advocates: Learn how to tell your money to go where you want it to go.
I've upvoted and resteemed this article for you, and I'm following you now, too. I found the link to this article on #unmentionables.
Keep posting helpful articles like this one!
Cheers!
@mitneb
Yes nobody will care about our money as much as we do. The traditional concepts as designed for us to fail. That is a great quote by Dave Ramsey.
Thanks so much for the vote and I am following you now also!
You're welcome, and thanks for the follow back, @bitdollar.
Cheers!
@mitneb
Piketty talks about the economic concepts behind this in his fantastic book Capital in the Twenty-First Century. His core premise is that the return on capital and investment will always be greater than the growth rate of the economy at large, so putting money to work for you is always the correct path when you can. This is, unfortunately, also the main driver behind income inequality.
That is a great point and will have to check that book out. Income inequality comes happens because of these choices, would you agree?
It's more of a structural function of our economy, unfortunately, though he gives several solutions.
Funny enough: I've never saved a penny in my entire life...Well, I have, but only for expenses like a newer car or a holiday, but this 'saving' was usually only short term, I have never had big amounts in an account for long. I believe that money needs to flow to keep flowing. If you know what I mean...I can see evidence of this with my family: my mother saved money all her life and in the end had nothing to show for. My sister may have bought her own house (which put her into big debt rather than anything else), goes on holidays once or twice a year, and saves money on a monthly basis...But doesn't really enjoy life because she works her butt off in a job that took her spirit...As for me: I've always been a bit of a hustler. I buy and sell things, I trade crypto, have a few freelance jobs and I have Steemit! And I LOVE life...However, I never have lots of savings anywhere (besides crypto)but somehow money just seems to come when I need it...
Yea money should flow, exactly what it is meant to do. Used as a tool to function in our society.
The same things happen with my family and see it with many in retirement age. Having to work there butts off to support there homes and small luxuries. Not enjoying life whatsoever, stressed out.
Thanks for sharing this great story here.. It really puts it more into perspective. I find when you do not stress things and want them in your life, they just show up. Just put yourself out there.
Great comment my friend!
You're welcome and thank you for sharing your opinion on this. It is what people need to hear. Yes, we see this all over the place. People working their butts off for what? Most of the time it's not worth the stress put into it. It's costing their health. It breaks my heart to see this happen to people I love. I try to show them that there is a different way. And don't get me wrong: there are moments when I let my mind take over and stress about things, but then when I get back to myself, I realize that stress is not going to do me any good, nor my family, who also suffer when I stress. That's the moment when I can sit back and put it all into perspective. Remembering the times when it was even worse and we overcame the issue without hassle and that I can do this now too. It takes a lot of strain away from a person.
You say "Make sure not to lose money ever." A lot easier said than done you must surely agree? Because you then say in your own comments "I had to take some big losses to realize what I was doing." ahem. The trick in life is to be able to be sustainable, not go to one's grave with an amassed fortune surely(?), but I think you'll probably disagree with me on that. ;)
Why you want to not lose money ever is because you want to make sure you don't make risky investments. Wait, have patience and only get involved in things that have high odds of winning.
Yes I did take big losses because I did not follow what I speak of here. I was too risky at times and too diversified.
You want to be sustainable but the way to create tons of wealth is by compounding and having more to use to accumulate a ton. Making tons of money is the way to have freedom, choices, and help a ton of people. I don't look to get money for myself but to apply it to the world.
I like your comments though, thanks for sharing.
I do know a few investors, and one or two of them are wise ones too, but life is not always stress free for them in that area, and a fair amomount of time has to be dedicated to following it all and judging when to make changes.
I don't believe makng a ton of money is the only way to happiness and long life thougj, we're different animals here, and there surely can be no right or wrong. I'm an artistic photographer and a blues musician, neither of which you would choose to make your fortune, lol.
Your analogy of money not earning being like dying in nature seems a very strange one. To me, to encourage artistic abilities and allowing creativity to flourish is key to a happy and long life.
Sure I'd like to do that with some financial security, but I'm not very secure financially now, and that doesn't particularly stress me out and consider myself very fortunate. I would like to be able to build up a modest income here as a valued content provider, but I've had times of being very poor (relatively speaking for the uk, that is), and those struggles are very good for inspiring creativity, which is a wealth in itself. There are many ways of succeeding in life,but for me, having a couple of million when I die is not one of them. ;)
Also, if anyone would like to do a social experiment here by giving me a million $$$, I can prove categorically that a million can last a long, long time, much than a blink of the eye.
It all depends on which dream you're chasing. I'm living my dream now, and, modest though it is financially, I do still have a great wealth. I don't know if you can relate to that @bitdollar?