Saving your money and putting it in a sock or letting it grow in your bank account, is that really a way to find wealth and freedom?
We’ll lets find out.
What is saving?
Saving money is conserving a percentage of money or ‘income’ for a date in the future. You don’t spend it now, so you can use it at a later time.
The most common reason why people save money is to spend on something like a car or a house. Maybe a vacation or 2. And that’s fine.
But what a lot of people forget is that the money we currently or used to have are all currency’s used to trade for something you want.
Before we had money we used the barter system to trade things with Each other, but its proven that this way was way harder than accepting 1 currency that we all can use to trade things with. So a smart person, Lydia’s king Alyattes minted the first coins and later the chinese people created paper money. Because they started using ‘currency’ and left the barter system behind, trading began to easily grow around their country’s.
The problem with currency is that the value it contains is created by the trust it has given by the people. Example: If everybody trades their dollars for Yen because China takes over the entire world, your dollars will lose all their value. Bye Bye to your pile of cash under your matres. You saved your entire life for that money and now its all useless, That’s a fucked up situation.
So the reason we save our money is to exchange it for something, specifically something that ‘grows’ in value or provides an income.
They call them Assets. Meaning Stocks, Real estate, flipping cars, buying old cars and keeping them to increase the value. Other assets are businesses or royalties from creating books & video’s.
A huge Asset is your time and the value you bring with your time for other people. You can get paid sincerely for it.
If you don’t invest your money it will get worthless like the example above. There is a silent destroyer of your hard earned money and that is ‘Inflation’. Inflation is the rising costs of goods and services that you buy because the value your money is going down. Take a look at your monthly bills every year, there will be a steady increase because the companies that offer their services want to keep their profits at a good rate. The inflation Rate means how much inflation increases in percentage per year.
Most times your boss ain’t as nice for your salary to increase at the correct inflation rate and you are than getting behind on everything. Keep building up inflation over 50 years and most people who didn’t focus on this problem will begin to lack funds to even buy cheap things in life. People will complain about gas for their car, driving to other ‘states’ or here in Europe to different country’s because it’s just a few cents cheaper there. This is a shit show on wheels man, be carefull about inflation.
You don’t want to be worrying about gas becoming $10 cents more expensive next year.
The average inflation rate for the United States from 1913 untill 2018 is 3.15 % per year. So this means that the average savings balance $33,766,49 is losing $1.063,64 of value every year. Poef, just gone. You could spend it on something nice right? Sure you do.
Well lets say you get that money that’s stashed under your matres and put it safely in a bank savings account. One of the best interest rates we can find is the Ally bank savings account wich provides 1,85% annually. This interest rate would give you $624,68 year, meaning with that kind of inflation rate you are netting -$438,96.
Inflation rate from 1910 untill 2010: (Source wikimedia).
That’s not a great way to grow your money. You will never get rich saving your way to a million bucks. Banks are in the business of making money and not losing it, so the interest rate you will receive will never exceed the rate your bank will ‘loan’ you money.
You will have to find an other way to grow your money to the status of wealth.
Should you have some money in your bank and in your wallet? Sure, you always need some money incase shit hits the fan. Your car could break down or you can experience a layoff or 2 in the future and you will need to be prepared for these nasty situations.
I would say to at least save 6 months of your monthly expenses and if you’re a 1 income family or you can’t find a job easily increase that amount to 12 months of savings.
If you spend $2.000 a month on your ‘recurring’ expenses, things like food and housing that would be like $12.000 – $24.000 in your savings account. Maybe you can save some money on things like car gas and spending in the personal area if you are out of a job, meaning you can use your saved money for a longer time.
Once you have reached your savings goal to de-stressing your family’s financial situation you can focus on the bigger goal and that means creating financial independence for yourself. Meaning you can do whatever the fuck you want and never having to stress about finances again.
Be sure to pay any ‘bad’ debt off before you start your journey to saving 6 – 12 months of expenses, because you sure ain’t gonna get more of a return then your credit card rate of 18%. Pay that shit off before you start anything else.
You want to save and pay off debt? That’s useless man, when you pay off a credit card and an emergency comes your way without a savings account, you can still get money from your credit card to pay for the emergency. The chance that it will happen is also very slim. Paying off car payments or personal loans is in a different category as these loans usually don’t let you take money from it if you need the money. So be sure to at least get $1.000 in your bank account for nasty situations like a flat tire on your car.
Once you pay off your bad debt and achieved your savings goal. You can focus the rest of the money on investing to grow that money.
Most people invest in :
- The stock market, be it 1 stock or multiple stocks like an index fund. The index fund is one of the best and safest ways to grow your money over a long time. Long term vision is required for this. You won’t get rich fast this way. The index fund will follow the DOW or S&P500 and give you an average 9,7% rate per year. Beating inflation easily. These returns will vary every year. From -5% to 13% a year.
- The real estate market, investing in a single family home or multiple appartement building. The most common way is putting a down payment of 20% and borrowing the rest from a bank. Using that money to buy a home and renting it out for more than the costs of the mortgage and maintenance per month. Netting you a profit and a cashflow. Cash flow is one of the best things you can get from investing. The average profits a year are around the 10%.
- Building a business, investing in a business or building your own from scratch. Takes a lot of balls, patience and time for you to build a succesful business. So it’s not for everybody but you can make a lot of money once you achieve success. But you can also fail, if you quit…. If you are a hard worker and have good ideas why not go your own way? Working at a job is not rewarding for a person that works hard, you will never get richly rewarded for your actions. Because the boss man will always need to earn more than you to profit, remember that.
These are some great ways to grow your money, but you will first need to learn to save your money. That’s the first step to financial greatness. If you are still living paycheck to paycheck or deeply in debt you will first need to get out of that mindset and situation. The current savings rate for the US is a meager 4% a month. That’s just to little, no wonder the average person can’t get ahead. it will take you more than 45 years to just save 1 year of living expenses. By the time you will retire, you can be really proud of yourself that you finally achieved your savings goal of 12 months expenses. And now you can live 1 year from savings in retirement and then you will have to get a new job.
That’s a no go, don’t you agree?
My personal savings rate is currently 20 – 40% depending on how much I earn each month. But I used to save 0% like everybody else and it is very stressing that you ain’t got no money to pay bills once you are in a dire situation. What I did is cut all the unnecessary bullshit like a big house, car payments and useless junk. Sold it all and got my expenses as low as I could. Housing payment under 20%, no car payments and no new iPhones.
It’s all about priority. Some people want the latest stuff and if you still do then get rid of that shit, because it’s costing you a lot of money and your future. Do you really want to be stressing about every financial decision and eating dog food in your 70s? Not me, I rather live a time without and enjoy 10x more later, than living like trash later on.
When you can save a lot of money monthly you can also use it for different things. Like buying a nice car to enjoy and driving it for a long time. Taking your family on a vacation without worrying about the cost. Saving for a nice house and paying for it in cash.
Be sure to remember this:
”Cash flow that brings you money right into your bank, without being constrained by monthly expenses, is what brings inner peace and financial enjoyment”
Once you have money that is free from recurring expenses like car payments or other debt payments you can feel freedom.
Freedom from working untill you die because you can’t retire.
Freedom from stressing about how to pay your bills every month.
Freedom to do whatever the fuck you want.
How would you feel if you don’t have to pay your housing payment anymore? Taking the average payment of around $1.033 a month, you will have an extra $1.033 every month for yourself to spend or to invest.
This is the difference between the poor mindset and the wealthy mindset. Focus on creating ‘net’ cashflow right into you bank account. So you can create more cash flow, untill you have enough to live off, then you can live life wealthy and free. No more Job, No more stress and no more working for the ‘man’.
So is saving the way to wealth?
Sure, in a way it is.
Savings rate is very linked to having wealth in the long term. If you don’t save your money, you will always be poor. Once you saved your money, invest it like the rich or get killed by inflation. Be sure to out perform inflation rate, keep your eyes on it every year so you can decide what goals you need to create in your investing strategy. The most common way is the stock market, netting you ‘after’ inflation, around 4 – 6 %.
This is the way to wealth, by saving and investing.
Be sure to check out the book: The Richest Man In Babylon, writing by George S. Clason. Where the most idea’s for building wealth come from and this book will teach you how to make money, keep your money and investing it to grow a wealthy future everybody desires.
Keep stacking that paper, watering it and letting it grow until your nice money tree arrives.
Until later,
Uuldriks Financial.
