WHY SAVING WON’T MAKE YOU WEALTHY.
Saving is a big deal for everyone in these current times but have you ever sat down and wondered why saving won’t make you wealthy? More and more people are placing a lot of emphasis on saving more and spending less and this sentiment could not be more wrong.
Saving (wealth accumulation) is one of the most important steps in your journey to financial independence but it does not translate to increasing your wealth. Investing (wealth creation) is the key to increasing your wealth.
Majority of the people also think that in order to be rich you need to have lots of money in your bank account however this is not the case. Money is just a medium of exchange whereas real wealth is acquiring assets and investing to further increase your cash flow.
Allowing your money to just stay in your account is not enough to make you rich, you have to make that money work for you and let compound interest do the rest. 95% of the world has to work hard and earn a living just like you so the amount of money you earn is not important, what you do with the money is important.
So, what are the reasons why saving won’t make you wealthy?
Saving Returns Are Small.
Bank interest rates on savings are very low compared to their high-interest rates on loans. Banks use the money you have saved up to invest it via lending and earn a lot on their high-interest rates and then give you a very small percentage of this income.
Saving must go hand in hand with investing to build wealth. If you intend to create wealth save then invest afterward. Every rich person is always looking for opportunities for them to channel their money to work for them.
Banks Can Fail.
Over the years we have heard of cases where banks have failed due to mismanagement by the top brass. And rarely do depositors get a full refund of the savings they have lost.
Unexpected Expenses That Deplete Your Savings.
Sometimes life takes unexpected twists and turns such that you are forced to increase your spending or tap into your savings account. For example, if you lose your only source of livelihood. Even if you have an emergency fund that could last you up to six months, if you remain unemployed for a very long time it may prove to be inadequate. You will eventually be forced to use up your savings.
Saving Can Limit Your Hunger To Grow.
Amassing wealth is a commitment only you can sustain. Saving and playing safe gives you a false sense of security that your future is secure. You become overcautious when opportunities to increase your wealth arise because you are afraid of the risks.
Amassing wealth has an element of risk that you must be willing to take if you want to increase your wealth.
Despite the fact that saving won’t make you wealthy, do not be discouraged. Keep on saving because your savings will eventually grow to be your investment capital. Savings are also a reminder that you are in control of your life, finances and your future.
HOW TO SECURE YOUR FINANCIAL INDEPENDENCE.
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Have you ever wondered what financial independence is? If you have, do
you have a plan on how to secure your financial independence?
Financial independence basically means having enough wealth to maintain your lifestyle without worrying about a regular paycheck because you are prepared.
It is the reward of a lot of sacrifices, real hard work and a lot of time invested.
Before embarking on any journey you need to have a goal. What do want to achieve at the end? How do you want to grow as an individual?
The same logic applies to your journey to financial freedom. What fuels your desire to be financially independent?
- Do you desire to retire early?
- Do you want to try out a career you enjoy without ever worrying about a regular paycheck?
- Do you want to be a stay at home parent and hung out with your kids and partner as much as you can?
- Do you have a special vacation destination that you would love to visit?
- Do you have your eye on a really cool car?
- Do you want to be the proud owner of your own home?
These desires can eventually come to pass if you follow the following steps in your journey to be financially independent.
1. Prepare your expenses.
Building wealth is unattainable when you are living from paycheck to paycheck. The first step in your journey to financial independence will be to learn how to track your expenses. It does not matter if you earn a $100 a month or a $100,000 a month, you need to prepare your expenses to achieve your goals. If you overspend or underspend in certain areas you can always adjust your needs. Some of us do not have the patience to follow our budgets so we need to create our own systems on how to manage our incomes.
2. Clear your Debts.
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To achieve financial independence you will need your net income after taxes and not little bits left after paying your credit card bills, student loans, mortgage loans and such. You can pay off your debts with the extra cash you have after left budgeting your income. Once you pay off your debt, stay clear of the bad habits that drove you into debt in the first place.
You can apply the ‘snowball method’ where you pay off debts in the order of smallest to largest by paying off the smallest balances first while paying minimum payments on large debts.
3. Create an Emergency Fund Account.
This account will help you prepare for life’s little unexpected surprises so that you can be able to cater for the unexpected expenses. The emergency fund should be separate from your regular checking and savings accounts. It should hold more than three months worth of living expenses. When creating an emergency fund, take into consideration these 3 different accounts.
- Money market accounts.
- Certificates of Deposits (CDs).
- High-yield bank accounts.
4. Make Smart Career Choices.
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Your biggest source of wealth is your income. So when choosing a career look for a job that you love and enjoy and one that also supports your goals of achieving financial security.
5. Save! Save! Save!
Before paying your bills you need to put a specific amount of money in your savings. Savings is one of the steps in your journey to achieve financial freedom. Other investors view this as paying yourself. You can always apply to have a portion of your income to be set aside for retirement if your employer has a retirement savings program.
Note- The time it will take you to achieve financial independence will be determined by your savings rate.
6. Spend Less than You Earn.
At this particular point, you should start seeing a huge difference in how your finances are looking. You will have more money in your hands; however, this does not mean you start spending more. You now either save the extra cash or you invest it.
Warren Buffett, one of the most successful businessmen in the world bought a five-bedroom house for $31,500 in 1958 and has never moved out of the house. This is a clear example that spending less should be part of your character in your quest to achieve financial security.
7. Invest Your Money.
The sooner you put your investment plan into action the more time you have to increase your wealth. If you are new into investing, it is best to hire a financial consultant. They can help guide you through this process as you gain your own experience along the way. Even with a good financial consultant the decision on what to invest in solely rests on your shoulders. Some of the best investment options in 2019 are;
- Stock markets.
- Real estate markets.
- Peer-to-peer lending.
- Bonds
- Cryptocurrency trading.
Conclusion
Being financially independent will enable you to live a more fulfilling life. You will be able to live within your means. Follow the tips on this blog post and you will be one step closer to securing your financial independence.
