Let’s address the elephant in the room: the conventional wisdom and mantra we’ve been taught since childhood: save your money.
The Flawed Logic of Pure Saving
Many people dream of building wealth, but squirreling away every penny can feel like a slow process. Again, while saving is important, it might not be the key to unlocking Warren Buffett’s wealth levels.1) Money Isn’t Real
There was a time when money was backed by gold, like a gold certificate. Though this made sense, it wasn’t practical to carry gold everywhere. To solve this problem, governments created paper money (the gold standard). Fiat currency, however, was introduced in 1933 in the U.S.Here’s the thing, though. Only the government can declare fiat money valuable. This allows them to control the amount of money printed, affecting the economy. Like Monopoly money, it is valuable because the game dictates it to be so.
While banks earn considerable profits from storing your money, they offer a small interest rate. As of April 29, 2024, the national average savings account interest rate was 0.47 percent. However, banking wasn’t always this way. Their initial goal was to hold your money safely and earn a reasonable profit.
However, over time, banks began to pursue riskier practices such as subprime mortgages (a factor in the 2008 financial crisis) to maximize their income. Banks aren’t inherently bad. However, they prioritize their own interests, so relying solely on them isn’t a good idea.
Because of this, Kiyosaki advocates owning gold and silver (“God’s money”) because they have intrinsic value, unlike fiat currency. Further, gold and silver are great hedges against inflation and a weakening dollar. He believes precious metals will hold their value better than traditional investments such as stocks and bonds.
2) Saving Money Doesn’t Combat Inflation
Have you ever felt that your dollar doesn’t go as far as it once did? You’re not mistaken. That’s inflation in action. Inflation is a decrease in the value of your money, not an increase in the price of things.Let’s take the Big Mac as an example. In the 1960s, it cost only 45 cents. Today? It’s over $5. That’s a considerable increase—over 1000%! There’s one thing McDonald’s has done better in recent years: It’s gotten much more efficient. Farming, transportation, and communication have all become cheaper. Isn’t it reasonable to expect burgers to cost less?
What is the reason for the price hike? Inflation. It’s not the Big Mac that has gotten more expensive; your dollar has weakened. With inflation, your money slowly loses its purchasing power over time. In those days, 45 cents would have bought much more than today.
Because of this, prices always seem to rise—it’s not always because things are more expensive to make; it’s because there are fewer of them available.
Again, saving money is important. However, it cannot overcome inflation or economic dips alone. Your saved money may lose purchasing power over time.
3) Reaching Your Goals Will Take Longer if You Only Save
Saving is not as effective as investing in reaching your financial goals, especially long-term goals such as retirement, for the following reasons.- Financial goals need planning—Saving money alone might not be enough. You have to invest for your money to grow over time.
- Consider your risk tolerance—The younger the investor, the more risk they can tolerate, while those close to retirement should emphasize safety more.
- Invest based on your goals—When making investment decisions, it is important to consider your long-term and short-term goals.
- Set goals and track progress—If you have clear goals, you will be more motivated to stay on track.
4) Low Interest Rates
In most cases, savings accounts offer interest rates that are below inflation. As a result, your money loses buying power over time.Furthermore, some high-yield savings accounts offer rates around 4 or 5 percent today. Although that sounds great, it is unusually high. This is because the Fed has raised rates repeatedly to fight COVID-19-induced inflation. Generally, most savings accounts have paid under 2 percent in recent years, and many do so even now.
5) When the US Dollar Weakens
According to Kiyosaki and Andy Schectman, who owns Miles Franklin, a precious metals brokerage, the U.S. dollar will weaken. They claim that the U.S. government’s weaponization of the dollar and the rise of the BRICS countries (Brazil, Russia, India, China, South Africa, and Saudi Arabia) will result in the dollar’s status as a reserve currency declining.“What gives the dollar its world reserve status is that every country on the planet has had to own dollars since 1974 to buy oil. That’s the deal we struck with the Saudi Kingdom and by extension OPEC.” Saudi Arabia, however, said it would accept other currencies in return for oil in 2003 at Davos. “60 percent of the world’s population will stop using the U.S. dollar,” Kiyosaki explains. “This is what gives us power. Those saving fake dollars are in trouble.”
The BRICS system is based on the pledge of commodities. “They will use blockchain to see what country has pledged to the system. This will put a knife into the heart of the U.S. dollar and its synthetic demand. If OPEC opens oil production to other currencies, it’s a massive deal.”
6) Shifting Gears: From Hoarding to Growing Your Wealth
So, what’s the alternative? We need a strategy for letting our money work for us rather than just sitting there. We’re talking about growing wealth here. You can do this by employing strategies that increase the value of your money over time. A few key players are listed below:- Investing—You can play the field here with your money. In addition to stocks, bonds, real estate, and alternative assets such as art, precious metals, and cryptocurrency. Although investing carries risk, the potential rewards far outweigh any measly interest-rate savings accounts offer
- Building a business—While entrepreneurship isn’t for everyone, a successful business can generate enormous wealth. The key? Build a sustainable enterprise by identifying a need, developing a solution, and implementing it. This path has several challenges, but the potential rewards are immense.
- Acquiring skills—The skills you possess today are your most valuable assets in the knowledge economy. You can increase your earning potential by constantly upskilling and reskilling yourself, leading to more savings and investments.
The Mindset Shift: From Scarcity to Abundance
Furthermore, building wealth isn’t just about financial strategies; it’s also about mindset. Consider these key shifts:- From scarcity to abundance—Many people consider money a finite and limited resource. As a result of this scarcity mindset, excessive frugality hinders wealth creation. Instead, cultivate an abundance mentality. Believe that wealth is possible for you and actively search for ways to generate it.
- From consumer to investor—In our consumerist culture, we are bombarded with messages to buy constantly. It’s time to break free from this cycle. Consider yourself an investor who is always looking to generate returns with his or her money.
- From short-term to long-term—The process of building wealth is more like a marathon than a sprint. As such, it is okay to make slow progress. Consider your long-term goals and devise strategies that will work for you in the long run.
Building Wealth: Beyond the Piggy Bank
So, how can we create wealth beyond the limitations of saving? The following are some specific strategies:1) Invest, Don’t Just Save
Investing makes your money work for you. However, don’t limit yourself to stocks, bonds, and real estate. Consider alternative assets such as gold and silver. Ensure that the investments you choose align with your financial goals and risk tolerance.2) Embrace Calculated Risks
It is often necessary to take calculated risks to build wealth. The risks involved in starting a new business, starting a side hustle, or negotiating a raise can be significant, but the rewards can also be great. To move your finances forward, do your research, weigh the risks, and take calculated steps.3) Increase Your Earning Potential
When you increase your income, your financial options expand. Saving pinches pennies while increasing your income expands opportunities. Consider upskilling yourself, exploring freelancing or side hustles, or negotiating a raise at your current job. As you earn more, your wealth will grow, and you can invest more.4) Make Smart Financial Decisions
Consistently making small decisions can significantly impact your finances. Reduce unnecessary spending, explore cheaper alternatives, and avoid impulse purchases. In the long run, it is more economical to purchase a quality item that lasts longer than a cheap item with a low value.5) Live Frugally, Not Cheaply
It is important to distinguish between mindful spending and depriving yourself. Don’t cut corners on essentials or experiences that bring you joy, instead eliminate unnecessary expenses.6) Take Advantage of Financial Knowledge
Financial literacy empowers individuals. As such, develop an understanding of personal finance, investment strategies, and wealth-building concepts. For help navigating the world of money, there are countless books, online resources, and even financial advisors.The Power of Balance: Saving and Growth
Don’t wholly disregard saving, though! After all, it still plays a role in wealth creation. An emergency fund, for example, provides a solid foundation for risk-adjusted investing. Having a safety net, you can handle market fluctuations and unexpected setbacks without losing sight of your financial goals.To grow your wealth, you need to strike a balance between saving and investing. Part of your income should be devoted to emergency savings, and the remaining funds should be directed toward investments and growth strategies.
Remember, financial freedom doesn’t come from clipping coupons; it comes from earning money. With these strategies and a growth mindset, you can achieve financial success and build lasting wealth.
