Why saving up can't make you rich!
Saving in terms of personal finance, generally refers low-risk preservation of money, as in a deposit account, versus investment, wherein risk is a lot higher; On the other hand what is being rich? What determines if you are rich? Rich is synonymous to wealthy which is the abundance of valuable resources or valuable material possessions.
The question comes again, what determines if someone is rich? This now brings us to draw the margin according to the extent of abundance. Determining if someone is rich could be difficult as this is projected differently in different societies according to their Distribution of Wealth
Globally popular profiling magazines like Forbes will profile individuals who reach the $1 Billion dollar mark. Such individuals are globally considered rich. In the US, 1 million dollar was the defining boundary for wealthy people. According to many opinions, and studies including an article on Time Magazine that amount no longer applies today. The threshold has increased to an average of about $3 Million.
No matter the extent of abundance or the wealth distribution you are using to measure “wealthiness”, do you think saving up is enough to make you rich? Here is why saving up wont help you achieve “the dream” of becoming rich in most cases;
No one got rich by saving!
I never heard anyone (or a wealthy) person say “Hey, I saved up and now am rich!” Success stories of wealthy people are usually motivations for hard work! Saving is nothing close to hard work. While someone with a thinking head, including those who want to be rich have to save, thinking that saving is the path to wealth is a mistake. People who totally believe in saving alone even if the intention is not to get rich are timid and afraid.
Read the books, watch the videos, listen to audios, find every material you can, non will encourage you to save as a main route to getting wealth instead saving is a supporting management skill that compliments other efforts you are making to get rich.
Expenditure is always on the rise
Let’s consider the case of a young man who starts working at the age of 20 and has a “good salary” which is increasing slowly or largely constant. At the time(age) saving up could look like a very great way to make him rich as he is most likely to be alone and have fewer needs. As time goes on he may eventually need to get married now his house hold expenditure needs to step up and this is happening on the same salary he was earning. Later he as children expenditure increases again and income remains constant after some time the needs of his children would grow even and worst at some point his income may have a steep drop as many salary earners turn to go on retirement. The possibilities can be large, this is not the case for everyone but theres not doubt that income is always fighting to fall while expenditure is fighting to rise! Assuming you could save up to wealth are you going to cut out on all expenditure? How are you supposed to survive?
Income – Expenditure = Net (actual) Income
That is the equation that should govern your thinking towards saving. Even if your net income is really high such that it could potentially make you very rich if you save up for a while, it will definitely be able to make even richer if you did “something” more worthwhile than just saving.
Saving returns(interest) are very much insignificant
Return rates on savings are usually between 1 to 3 percent annually. Considering you have a 3 percent interest return (which is the common maximum), just sit back and take time to imagine how little a 3 percent return of your total “investment” is. The 3 percent is always very insignificant for at least average amounts. For very large amounts (billions), the returns still remains insignificant when compared to the money that was saved.
Also money value changes over time, this may either be an increase or decrease (the change does not matter a lot when considering a single currency only). If the change in the value of money over the time is not an increase or at least fair “rise and drops”, that could cancel the resulting effect over time, then you would be actually making a loss for saving money.
The banks are getting rich, not you!
The banks you give your money to don’t just keep and look at it, the money you save with them is strategically used for investment, that’s why they are able to give you some returns on your money. In case you are “crazy” enough to save your money on your own, then you are making no one rich and do not benefit even from the modest annual rates. You could choose to “do something” with part of the chunk you want to save and make some returns on your own!
Your drive/Will power may(will) fade over time
Many times you set goals and can’t achieve them because the drive towards accomplishing the plan (following the steps) is reducing over time or completely gets lost. So you decided to save 1 buck every month? Or even every week? Check your logs and notice that you haven’t been committed to that and if you have,you probably failed some times due to many other factors including difficulties that can influence such disengagement.
Also many times when people notice “it’s taking too much time” they even feel more reluctant
There isn't so much to save
Please, do the [income - expenditure] equation again, do you really have so much to save? If you want to be rich then you are probably not rich so I don’t visualize the high net income anyways. So what are you trying to save in the first place?
Do you want to be rich? Just remember saving is one of the tools that will help you achieve your goal but it’s nothing close to a mainstream solution.
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