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Why You Shouldn’t Save Money

We believe that all money should be spent or invested, never saved. Nope, not even 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 money then how are you supposed to:

  1. Buy a house
  2. Retire
  3. Send your kids to college
  4. Ever afford anything at all

In roughly 500 words, we will share our philosophy on why saving money is one big waste of time.

Why savings accounts are a waste of time

For the sake of this article, we’ll assume that most people reading are keeping their money in a savings account. This is a huge mistake.

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 well under 1%.

For example, this is what Bank of America charges. Not 1%. Not even 0.1%. But 0.01%. This is laughably low. For some reason, BoA also 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 for you?

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. 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! 

Granted, there are a handful of high-yield online savings accounts that generate 2-3%. But even this is nothing to get excited about (we’ll examine why in the next section).

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 dig deeper…

What is inflation?

Inflation is the slow devaluation of a currency over time. Or, another common definition 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. Usually, it’s 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 2-3%. 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 it’s like you are trapped in a room on a sinking ship. The water around you is just going to keep rising until you’re fully underwater.

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!

SIDE NOTE: “Do not save money” is such a taboo concept that it helped us rank on Google almost instantly.

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