We believe that all money should be either spent or invested, never saved. Nope, not even in an emergency fund.
In the personal finance world, advising people not to save money is sacrilegious. In fact, “saving money” might just be the popular finance topic out there with a constant barrage of budgeting tricks, tips, and “life hacks” dominating the national conversation.
Almost every single money expert talks about saving money as if it’s a key pillar of your financial health. After all, if you never save money then how are you supposed to do things like:
- Buy a house
- Send your kids to college
- Ever afford anything at all
Allow us to explain. Here’s why you shouldn’t save money.
Inflation is Quietly Killing Your Savings
Inflation is the slow devaluation of a currency over time. The devaluation of a currency can also be viewed as the “slow increase of prices over time.” If you ever feel like things are getting more expensive each year, it’s because they are.
Let’s look at an example using the Big Mac Index.
When the McDonald’s Big Mac first debuted in 1967, it cost just 45 cents. By the 90s, the cost had risen to around $2.50. Today, that same exact sandwich will run you closer to 5 bucks. This is a pretty ruthless price increase of over 1,000% by Micky D’s on its signature sandwich. When you really think about it, the cost of a hamburger should really be going down over time, right?
Since the 1960s, McDonald’s has gotten exponentially more efficient in its operations. Today, there are more sophisticated methods for farming, fertilization, and transportation. With all this tech 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 is constantly changing depending on a handful of different factors. Usually, inflation is 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 6.5%.
This means that the price of the world around you is currently growing 6.45% more expensive each year. At this rate, if you saved $10,000 for a year then it will only be worth about $9,355 in terms of purchasing power when you go to spend it next year.
This brings us back to why you shouldn’t save money.
Why Savings Accounts Are a Waste of Time
When it comes to saving money for the future, savings accounts are just about the worst place to keep your money. They’re just a small step above stuffing your savings under your mattress.
This is because, according to Bankrate, the average savings account generates just 0.16% 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, go and check out the rate offered by your bank. If you bank with one of the big boys, it’s probably essentially 0%.
For example, check out this image to see the interest rate that Bank of America offers. Not 1%. Not even 0.1%. But 0.01%. This is laughably low and 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. Even if you qualify for Bank of America’s “Platinum Honors Tier” you’ll still only earn $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.
But wait! It gets worse…
Remember, inflation is currently around 6.45%. So, if you keep your money in a savings account then you are actually losing money each year in terms of purchasing power as the world around you gets more expensive.
Your savings are basically earning 0% in interest while inflation is driving the prices of everyday goods up by 6.45% each year. This is why you shouldn’t save money. Savings accounts are just not designed to help you build wealth. Even if you have a so-called “high-yield” account that generates 3-4%, you’re still losing out due to inflation.
What’s the Bottom Line?
Invest your money. Don’t save it.
It’s time to end the relentless focus on saving and trying to squeeze more money out of an already-tight budget. Instead, there are two ways that you can get ahead financially.
- Find new ways to increase your earnings
- Invest your money so that it grows faster than inflation
Luckily, there are hundreds of different ways that you can achieve both of these goals.
We hope that you’ve found this article valuable when it comes to learning why you shouldn’t save money! If you want to get free money-making and investing ideas sent straight to your mailbox then be sure to Subscribe to the Do Not Save Money Newsletter and join the community to stop saving and start investing!
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