Not having enough money to support yourself isn’t the only money problem people have. Sometimes, it’s having too much that it becomes relatively hard to manage. It’s better to problematize the latter, though. It would be better to concern yourself too much about finances than worry about how not to die out of starvation.
People become susceptible to a dire monetary situation because of their lack of financial literacy. We often have this belief in the back of our minds that we fully understand everything we need to do about our money when in fact, we don’t.
A study conducted has shown that the lack of financial education has cost Americans $415 billion in 2020. Just look at how high the cost of personal finance knowledge insufficiency is— so much money was wasted.
For some reason, some people are more inclined to believe that getting fortunes is a matter of luck than hard work. However, fortunes that came out of luck don’t last long. Lottery winners who made millions of dollars in a blink of an eye ended up losing their money because of fund mismanagement. Perhaps, it is because they don’t have a strong financial education foundation in the first place.
Research has shown that only 30% of Americans have a long-term financial plan. Only this small percentage are taking life seriously, but then people are pointing out blames on capitalists like Jeff Bezos, who they said have ‘corrupted’ the system. Although the system is truly far from perfect, you have no one to blame but yourself if you’re not climbing up the ladder.
One famous piece of financial advice you must have heard of is saving about 20% of your monthly income. This one seems to be one heck of good advice, especially because most Americans have less than $300 savings. But truth to be told, saving money isn’t entirely a good idea— if you spent your money last year, you’d be doing better than you are right now.
What we are going to talk about in this write-up will be in contrast to financial bits of advice you have heard before, but this would surely open up your mind as to why you’d regret saving money this year.
Saving money will earn you nothing
In the 1970s, putting money in banks could actually give people profitable returns of about 7% to 9%, but that high saving interest rate has changed over time. Although opening up a savings account is one of the safest investments, you’ll earn almost nothing from it while they make the best out of your money by lending to it businesses, mortgages, car loans, etc.
Banks in the United States pay savings account holders for just about 0.01% to 0.05%. So, if you put up your hard-earned one thousand dollars into a savings account, you will only earn $0.05 cents. Your money won’t earn even a single dollar!
In today’s society, banks no longer depend on depositors to function. Instead, they can borrow money from Fed at a very low interest and lend it to their clients for a higher price. This is why banks give little to no importance to depositors nowadays. From being an investment tool that gives a pretty good return, banks became just a place to let your money sit.
Since your money earns nothing by parking at banks, they eventually lose value over time because of inflation, especially now that the inflation rate is at a crazy rate of 7.5%. If you have decided to play safe and put all your money in a bank last year, then although the amount of your money is still the same, its value and purchasing power became significantly lower.
Median home prices were at $318,000 before the pandemic fully emerged in 2019, but it skyrocketed to $375,000 just two years later— about a 20% increase. If you spent your savings on any property, you could have earned a good amount of money.
The growth is not limited to real estate investments! In fact, assets in nearly all categories have grown, with some doubling in just less than 12 months! This is probably why cash-rich individuals have placed their bets on houses, invested in companies, and even spent fortunes on cryptocurrencies as many as possible. Savvy, wealthy investors know that keeping cash at hand and in a bank was a really bad move.
Investing in yourself (e.g., health and knowledge) could have even been a better idea than keeping your money in a place where growth is not possible. No one knows when the astronomical inflation will continue, and even Fed is a bit hesitant to make statements regarding the slowdown of the inflation hike. There are ways you could fight inflation, though.
What option do I have to make the most out of my money this 2022?
The only savings account that could give you back a good amount of money is a cryptocurrency savings account. These digital currencies are designed for us to get away from the centralized financial system of banks.
Unlike real-world banks that give little to no interest in savings deposited in them, decentralized crypto banks like Gemini provide an option for you to lend your cryptocurrency holdings and earn up to 8% interest.
The only problem with cryptocurrency investing is the highly volatile and ever-fluctuating market. The value of your 8% earned interest may vary depending on how Bitcoin is performing in the market.
The best thing you have to keep in mind aside from not letting your money forfeit its value is not yielding your capital in your ventures. There’s no point in getting a 20% return when your money’s value can shrink to zero.
Another profitable business that you could venture into is peer-to-peer lending. But this, too, has its own share of disadvantages. Some people who have experience in this field of business said that you’re lucky enough to have your capital back when you lend it to your friends or siblings.
A famous quote reminds us of how bad peer-to-peer lending can get, “If you lend money to a friend, you’ll either lose the money or gain an enemy.”
Contrary to people’s belief, you must stop saving all your money if you want to achieve financial independence. Even if you save every single penny as much as possible, there’s still a limit you won’t be able to cross by merely saving. Rather than aiming your focus at saving money, set your eyes on increasing your income.
If you would come to think of it, being so thrifty can do you more harm than good. Since you are “saving” your money, you resort to low-quality food that could damage your help over time, reducing your life expectancy. You can just imagine all the money you saved while lying on a hospital bed.
Sometimes we get so obsessed with money that we forget the real purpose of it. We forget that money isn’t going to make us live forever, so no matter how much we save up, it’s useless if we don’t use it to fulfill meaningful goals and enjoy a quality life with our families.
Every single day, hour, and the minute you have spent earning money could’ve been spent on something that will make your life happier and more purposeful. You’re very lucky if you find a job that meets your passion, but that’s not the case for most people.
Should I stop saving money?
You should diversify your money into savings and investments. Don’t pour it all out on your savings, and the other way around. Try to find the balance between the two.
Of course, although saving money won’t get you a return, you still need some extra cash that you can access anytime things go south.
