Are you kidding me?? So you’re saying that I shouldn’t save money??"... Before you throw stones at me, please calm down and read along. To answer the question of whether or not you should save money, you need to first ask yourself this question: Why am I saving money? Answering this question will give you clarity on what to do with your money. Before we get to that, we need to understand what money is, after all we’re talking about saving money right!?
Money is a tool; nothing more, nothing less. Money doesn’t change people, it simply magnifies who they truly are. If you were arrogant before you got rich, you will become an arrogant rich person. Similarly, if you were generous before, being rich will magnify your generosity. That said, here are 3 reasons why you shouldn’t save money:
1. Money has no inherent value
Money on it’s own is valueless. The value of money is determined by what someone is willing to give in exchange for it. Let’s say you have 1 million dollars in the USA or Nigeria, what can you buy with that? A lot, right! What if you have that same 1 million dollars but this time in a deserted area with no food or water. Suddenly this money that was worth so much becomes insignificant You really can’t do anything with it.
You will gladly trade it for a bottle of water which you could get FREE of charge under normal circumstances. This kind of money which we use in our days is called Fiat Money. Fiat Money or currency is money that isn’t backed by any commodity such as gold or silver and it is used as money because the Government says so. It is declared legal for use by the Government. We’ll see the implications of this shortly. Why would you want to save something that has no value??
2. The Governments print more money as they wish
Since the Government controls Fiat money, and it isn’t backed or tied to any commodity, the government could therefore print as much money as they want. As more money is printed and injected into the economy, the value of existing money drops. Just last year, in 2020, the US Government provided 2 trillion dollars as a relief for citizens due to the COVID pandemic. Where did all that money come from? Was it borrowed?? No, it was printed! It came out of thin air. That is how governments dilute the value of money over time. Do you really want to still save money knowing this??
3. Inflation eats the value of money
The third reason why you shouldn’t save money is because of our good old friend Inflation. Inflation is the rise in the value of goods and services over time. According to Statista, the average rate of inflation worldwide ranged from 2.7% in 2016 to 3.2% in 2020. Overall, the rate of inflation increases over time. Which means that $5000 saved today will be worth less the following year. “But do banks not offer interest on savings?” you may say. Yes they do but at what rate? The interest rates offered by all banks is close to zero. The highest interest rates for banks in the US is usually 0.5% and very few offer close to 1%. This is lower than the rate of inflation so in the end your money still loses value.
“Wow! That means there’s really no point in me saving money right. I might as well just spend it all…” Don’t conclude so fast. Saving has its place in money management. The question is why are you saving? If you’re saving money for it to grow then you’re wasting your time. As we’ve seen it will rather depreciate in value. However, here are two reasons why you should save money:
You should have an emergency fund that you can use for emergencies. It’s advisable to have at least 3 – 6 months of living expenses saved in your emergency fund. You never know what could happen. Your car could breakdown, you could get hospitalized, or you could even get fired from your job. It’s good to have something to fall back on until you get back on your feet. Once you’ve saved enough for emergencies, onto the next step.
The next thing is to invest the rest of your savings in income producing assets. Assets such as stocks, bonds, index funds, mutual funds, ETFs and other paper assets. To get started, you need to open a brokerage account and you can start investing. Investing in the stock market has become really easy with the several investment platforms such as Robinhood or Webull. You can do it from your smartphone. “But I can’t use such platforms where I am” you may say. In that case, you can start a small business or side hustle. You can join a “njangi” with friends. There are different ways to grow your money. You just need to be a little creative.
We’re here to help. You can book an appointment with us to guide you on how to start investing.
Thank you very much for reading and we hope you were enlightened by this article to see saving differently. You should save money for emergencies and investments. Don’t just leave you money sitting in a savings account; keep it moving to produce more. SUBSCRIBE to our blog for more enriching content. Also, share this with family and friends to inspire them. Until next time, BESTech remains your BEST bet.