Saving money should be a short-term proposition. You should only save money while looking for your next investment. When the right investment appears, invest the money you’ve been saving in something that will give you a higher rate of return.
Here are three reasons why saving money is a trap.
1. Interest rates are less than 1%
Interest rates on savings throughout much of the world are extremely low, almost nonexistent in some parts. Your savings account is actually a loan to your bank. The bank takes the money from your savings account and loans it out to its customers at a much higher interest rate than they pay you. You basically finance your bank’s business for a ridiculously low rate of return on your money.
The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling is called inflation. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
What does inflation mean in everyday terms? It means that your dollar buys less, i.e., your favorite brand of shoes or jeans will cost you many more naira, dollars, euros, yen, or pesos in the future than they do today.
3. Don’t work for money, have your money work for you.
It seems like a simple math equation: effort=reward. You work hard, you earn more, you get more for your effort, and it seems like it should work. Once upon a time, it may have worked that way. If your goal is to become financially independent then you need to get your money working for you. Meaning, investing in a cash-flowing asset is the true path to wealth.
Don’t fall for the trap. Get a financial education and start your path to financial freedom.
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