Are you a saver? Someone who is always hunting for bargains, trying to save those extra pennies on every purchase and keeping the money you have in low interest saving accounts because it gives you that feeling of safety and security?
Or do you spend your time trying to make more money and put the money you have in investments that have an element of risk, but could potentially start generating you an additional income?
This is a topic close to my heart, so let me start by giving you my opinion.
Saving Money Involves Sacrifices
Saving money always involves sacrifice on some level. It may cost you time, as you hunt for bargains trying to save those pennies, or it may cost you quality of life, because you’re consciously not spending the money you have.
I’ve never really understood the latter. How anyone thinks that by not having that extra glass of red wine when they’re out for an occasional meal is going to make them any richer, is beyond me.
Don’t misunderstand me, I’m not saying you should overspend, and i certainly am not saying you should live your life off credit cards. Oh no, i personally hate them and all other forms of credit. What I am saying is, if you have earned your money, then you shouldn’t feel bad about treating yourself every now and again, because by simply saving your money you are not going to be any richer.
And isn’t the reason you work hard in your job/business to give you the freedom to enjoy a few luxuries?
Making money on the other hand, involves providing value to others (that’s what all business is about). It also requires sacrifice, but it has the potential to make your richer.
Do You Want To Be Richer?
If you don’t then stop reading this post as it may stop you from achieving your goal of staying poor.
I say that with a little sarcasm, as I believe I already know your answer.
Of course you want to be richer. What a silly question.
You may not want to be a billionaire, not everyone does, but almost all of us wish we were a little richer and had a little more left in our bank accounts at the end of each month to help ease the cost of living our lives and pay for a few extra luxuries.
Let’s dive deeper into Saving Money and Making Money as I want you to understand what’s involved in each, so you can make your own decision about which one to focus on in your life.
The Science of Saving Money
The act of saving money is usually instilled in us from a very young age. I remember being given a piggybank and being told that I must save my pennies because that’s how I make pounds. I never really understood that saying, but let’s move on…
We all love bargains and the idea of saving money, it gives us that feeling we’re not wasting or throwing away what we have.
But is focusing on our pennies really going to make us richer tomorrow? I seriously doubt it.
Here’s an example of saving money, let’s see whether you feel richer at the end of it.
For the sake of this example, I’m going to assume you have a monthly income of $3000 after paying the Government taxes.
Now let’s take into account the essential things you have to pay for each month. These are costs that must be paid.
1. Mortgage / Rent
2. Home Insurance
3. Utility Bills (gas, electric, water, telephone, broadband, tv)
4. Child Care (if you have children)
5. Car payments
6. Car Insurance
7. Health & Medical Insurance
There may be others things on your list and that’s ok, this is just an example.
I’m going to go out on a limb and say after all these essential costs of living in our society are taken out of your monthly income, there’s probably a small amount left.
$500 Left After Paying The Essentials of Living In Our Society
Let’s say that you have $500 left after all those costs are paid.
If you choose to save that money each month, then at the end of one year you’ll have saved $6000.
Sounds good doesn’t it? But is it really…
Here’s the real cost of saving that money.
You didn’t go on that family holiday.
You didn’t buy that new watch you wanted or those new shoes.
You didn’t treat you’re kids or even yourself in the last 12 months.
You’ve simply been saving $500 each month for a rainy day.
That’s a pretty big sacrifice isn’t it?
And I’m assuming you didn’t have any unexpected incidents that ate into your savings, such as plumbing problems, car problems or medical costs.
Saving For A Rainy Day Isn’t Always The Right Thing To Do
Saving for a rainy day is a very responsible thing to do, or so we’re told, but I don’t believe it should come at the cost of living a decent life in the present.
We all work to make money, so that we can pay for things and enjoy life, not to have that money sitting in a bank waiting for that rainy day something goes wrong. That’s not the only reason I work for a living and I hope you don’t either.
I’m getting a little off topic here, but that’s because I get so frustrated with how much saving money is sold as the way to become rich.
What a load of B.S.
Let me repeat myself. If all you do is save your money, you will never be any richer than you are today.
Inflation Is The Silent Reaper of Riches
The entire monetary system is set up to keep savers poor. Just think about that for a second.
If you leave your money in the bank, you’ll earn a small amount of interest each year on which there will usually be tax to pay.
The problem is this thing called inflation.
Inflation is the silent reaper of riches.
Inflation means that things will become more expensive to buy as time goes on.
The problem with saving money is that if things become more expensive, then your money will buy you less of those things.
This basically means, you are actually becoming poorer by saving your money.
This is important, so I’m going to explain it one more time with an example.
How To Become Poorer By Saving Your Money
If you have saved $6000 in one year (the figure from the earlier example), you’ll be able to buy 6000 bottle of milk at $1 each.
Those of you who are thinking, I’ll never need to buy 6000 bottles of milk, please use your imagination, as this is just an example to prove a point.
Now as inflation kicks in and milk becomes more expensive, your money will not be able to buy you 6000 bottles of milk anymore.
If in a year’s time, the price of a bottle of milk becomes $1.20 each, well the $6000 you saved would only be able to buy you 5000 bottle of milk.
You’ve just lost the ability to buy 1000 bottles of milk because of inflation.
Are you feeling richer or poorer right now?
You may be saying, that makes sense, but Urmil, I’m getting interest on my money.
Inflation Vs Interest. Which Will Win?
Ok, let’s look at that. Let’s say you get a whopping 2% interest on your money each year by leaving it in a high street banks saving account. On that $6000 (at a rate of 2% per year) you’ll earn $120.
That means in 12 months time, you’re $6000 will actually be $6120. Let’s forget about the tax we’d have to pay on the interest earned, to keep things simple and move on.
If milk prices become $1.20 a bottle, then you’ll still only be able to buy $6120 / $1.2 = 5100 bottles of milk. That’s 900 less than you could have purchased a year ago.
Your buying power has diminished by 15%. ((900 / 6000) *100%)
You’ve just become 15% poorer than you were 1 year ago by simply saving your money.
Was it worth all the sacrifices you made in the past year to save that?
The Day You Save Your Money Is The Day You’re The Richest You’ll Ever Be
What you may not realise is, the day you save your money is the day that money is worth the most. Every day that goes by after that, you money is losing value for you because of inflation.
This is something very hard for people to understand, and years ago I struggled with it as well.
How can I be poorer, if I leave my money in the bank. Surely, i’ll always have the same amount of money.
Yes, you will have the same quantity of money, but because everything is becoming more expensive to buy thanks to inflation, that monetary amount you hold in your savings account is not growing at the same rate and therefore worth less than it used to be.
Leaving your money in a low interest saving account and focusing on saving money is NOT going to help you create a life of financial freedom.
And sacrificing that extra glass of red wine or that family holiday means you’re missing out on meaningful experiences in your life to eventually end up poorer anyway.
Saving money is not the way to get rich so please stop sacrificing your lifestyle and focusing your time on trying to save every penny you can.
Don’t drive an extra 5 miles to fill your car up at the gas (petrol) station on the other side of town, because it’s $0.05 cheaper.
Stop wasting time checking out every online store you can, trying to find that television you want to buy $10 cheaper.
Stop doing your own gardening and taking 4 hours to do it, when you can pay a gardener to mow you lawn for save $25. Your time is worth more than $6 an hour.
You may think you’re saving money, but you are paying for it using another resource that is infinitely more valuable, your time!
Spending more than a few minutes trying to save cents here, dollars there when you’re shopping online or offline is a poor use of your time.
I hope you’re following along. If you need to read this again, please do.
Making Money is The Route To Become Richer
Now let’s talk about making money. And I’m sure you’ve guess it, the only way to become richer is by making more money than you need to spend each month.
If you have an income of $3000 and fixed monthly outgoings of $2500 per month, then the most you will ever have left over at the end of each month is $500 (from our example above).
And even if you saved all that $500, that’s the most you’ll ever have.
The only way to become richer is by having more income coming in, than you have going out. And in order to have more coming in, you’re going to need to start making more money.
Now you could ask your employer for a pay rise (but remember, learn some new skills, get another qualification, do something that adds value to your job before doing so). You could start a side business online and I encourage every single person to do this (and if you don’t know how, then learn, its the same as driving, at one point in time, you didn’t know how, but now you do). If you have some savings, then learn how to invest them and and make your money work for you to generate an additional income.
Well now you’re getting richer.
Are You Going To Focus On Saving Money or Making Money?
Saving money and making money both take time, but only one will make you richer and bring you closer to your goal of financial freedom.
It takes time to search for bargains, to watch every penny we spend to try to save our money.
It also takes time to learn new skills, to a start a business, to earn an extra income.
I know which one I’m focused on doing!
These are my thoughts on this topic and the way I live my life. I certainly feel richer for it.
Which one are you going to pursue to make you richer? saving money or find a way to make more money.
I’d love to hear your thoughts on this topic. Leave a comment below and let me know whether you agree with me or not and why.