We believe that all money should be spent or invested, never saved. Yes, this even includes an emergency fund.
This might seem a little counterintuitive. After all, 99% of the financial media tells you that saving money is the most important thing that you can do. If you never save then how are you supposed to:
- Buy a house
- Send your kids to college
- Ever afford anything at all
In roughly 500 words, we will share our philosophy on why saving money is one big lie.
Why savings accounts are a waste of time
For the sake of this article, we’ll assume that most people save their money and put it in a savings account. This is a huge mistake. According to Bankrate, the average savings account generates just 0.06% in interest. This average is actually skewed higher by a handful of high-interest savings accounts. In reality, the nation’s biggest banks like Chase, TD Bank, U.S. Bank, Wells Fargo, and Bank of America offer savings rates closer to 0.01%. If you don’t believe us, feel free to run and check what rate your bank offers. If it’s over 1% please send us an email.
For example, this is what Bank of America charges. Not 1%. Not even 0.1%. But 0.01%. This is laughably low. On a side note, it’s funny that they felt the need to separate “$2,500 and over” into its own category as if the rates aren’t the same anyway. So what does this mean?
This means that if you worked hard to save $10,000 and put it in a savings account then the bank will pay you $1 at the end of the year. That is, unless you qualify for the “Platinum Honors Tier”. In this case, the bank will pay you $4…don’t spend it all in one place!
On the flip side, think about every time you borrow money from the bank. What types of interest rates does the bank charge you? There’s a good chance that you’re paying 4-6% for a mortgage, 6-10% for a student loan, and 15%+ on a credit card. Meanwhile, you’re earning .01% on your hard-earned savings. In fact, you’re actually earning much less than that. Let’s examine…
What is inflation?
Inflation is the slow devaluation of a currency over time. Another common definition for inflation is that it’s the “slow increase of prices over time.” If you’ve ever felt like things just keep getting more expensive over time, that’s because they are. Let’s use the Big Mac Index as an example.
When the McDonald’s Big Mac first debuted, it cost just 45 cents. Today, that same exact sandwich will run you closer to 4 bucks. This is a price increase of nearly 800%. When you really think about it, it doesn’t make any sense for the price of a Big Mac to go up at all. Let alone by 800%.
Since the 1960s, McDonald’s has gotten exponentially more efficient. Today, it has more sophisticated methods for farming, transporting, fertilizing, communicating, and antibiotics to keep cows healthy. With all this advancement, McDonald’s should be able to produce more burgers at a lower cost to keep prices down. So why in the world is the average cost of a burger increasing? Answer: inflation.
The Big Mac isn’t increasing in price. The dollar is decreasing in value.
The rate of inflation changes depending on a handful of different factors. But, it is usually a manageable 2-3% per year. However, due to COVID-19 and the substantial amount of new money printed for stimulus packages, the inflation rate today is nearly 9%. In other words, your money is losing 9% of its value each year. This means that if you saved $10,000 last year, it’s only worth about $9,100 today in terms of purchasing power. If this continues at the same rate, it will only be worth $8,281 next year.
This brings us back to saving money.
What’s the bottom line?
If you keep your money in a savings account, you are actually losing money each year in terms of purchasing power.
Your savings are basically earning 0% in interest. Even so-called “high-yield savings accounts” still only offer around half a percent. Meanwhile, inflation is driving the prices of everyday goods up by almost 9% each year. If you keep your money in a savings account then you are just slowly sinking as the world around you gets more expensive.
This is why you should not save money. Instead, you should invest your money in a place where it can grow. Ideally, it needs to grow at a rate higher than inflation. Luckily, there are plenty of places where you can invest your money!
NOTE: “Do not save money” is such a taboo concept that it helped us rank on Google almost instantly.