In the pursuit of financial prosperity, relying solely on the act of saving money might prove to be a limiting strategy that overlooks the potential benefits of investment, innovation, and leveraging opportunities.
Tax Impact
The question that keeps begging for an answer is how do you make money from saving? I’m sure everyone is aware that the little annual percentage yield on your money is 0.56% in the United state. Out of which, a large chunk of it is subjected to income tax. This can go in both ways, paying you some insignificant amount or eating away the total yield you might have accrued. No visible economic principle supports the idea of saving money to grow wealth.
Inflation
The raging power of inflation is a problem that will reduce the value of your savings. As the price of goods and services increases over time, the money saved in your account would not be enough to catch up with the current purchasing prices due to loss of value. For instance, the purchasing power of one thousand dollars back in the 1990s is not the same in 2023. This clarifies the baseless idea that savings would compound your money when it only reduces in value over time.
Unbudgeted Expenses
Expenses are infinities because that’s part of the basis of life. No matter how much you save, your expenses won’t go away, and you’ll need to sort them out one way or the other. Some expenses like medical bills, car repair, and home fixing are essentials that you have to fund; your savings will be the fallback money that comes through for you in a time like this. The idea of getting rich through savings is already defeated when you have no choice but to cover such expenses with your savings.
Missed Investment Opportunities
Every year your money stays in the bank, which amounts to the number of investment opportunities that you miss. It’s no rocket science that some saving accounts do not allow for investment when the opportunity comes. Various investment options like stocks, government bonds, and others serve as a tool for money-making. Saving your money when the investors’ window opens might be a gnashing mistake due to the inability to access your money to fund them.
Poor Understanding of how Money Works
The idea of money is beyond mere paper or making and spending it. Money is a tool for prosperity and a subset of other financial mechanism. If you keep saving money without putting the tool to good use, you will surely have a flawed understanding of how it works. This can be catastrophic for you because of your inability to reach your financial goals. Budgeting, taxes, investment, stocks and other financial services are interrelated; the only way to understand the interrelatedness is through financial exercises, not saving.
Missed Opportunities to Compound
Compounding is the art of growing your money over time through a series of investments and other financial activities. Saving-centric ideology is a stumbling block to achieving this goal because you are bound to miss out on many doubling activities you might have identified or brought to you by friends, families and financial advisors. For example, if a quick investment opportunity to stake money on a startup with a 99% guarantee of success and guaranteed return within a year came up, you will likely miss out on such because of your saving culture.
Bank Failure
Banks and other financial institutions collapse when they fail to balance their books and meet their financial obligation. Recently, we have seen such events as the collapse of silver gate bank and Washington Mutual Bank. The resultant effect of such failure can lead to loss of money from the side of the customers, especially those with savings accounts.
Faltering Willpower
Money is a tempting substance that will test your resolve every time and can lead to a disastrous outcome when your willpower is broken. Think of a situation where your income is not enough to cater for your expenses, let alone save, or you have so many vital goals you need to accomplish. Savings can not be your saving grace in this scenario, and your missed opportunities to invest will come back to haunt you, resulting in faltering willpower and a sense of guilt.
Low-interest rate
Relying on savings as the primary means of getting rich is like putting water in a basket. This is not attainable in the face of the paltry interest banks offer on top of your savings. Savings seems like a low-hanging fruit that is not Enugu to satisfy your lust for riches. Banks in the United States offer a 0.56% annual percentage yield on your savings; this is not enough to grow your money. Instead, it makes you easy prey for inflation, which will further reduce your money-purchasing power.
Impulse Buying
It has been established that savings can lead to flawed financial knowledge such as budgeting, investment and others. Your savings are prone to become something you use to make impulse purchases that hold zero value to your life. This has been the bane of keeping money in the bank with zero plan of what to do with it, which can be attributed to a lack of reasonable financial planning.
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