They lied! You can’t save your way to wealth
When we grow up in a working-class environment, we tend to celebrate our savers. For example, Sally the super-saver goes without for two years. No holidays, no parties, no takeaways, basically no fun stuff. She really hyper-focuses on saving her money. Then she buys a car and pays cash for it. All of Sally’s friends admire her and wish they were as dedicated as she was saving up that much money.
I don’t think Sally is that amazing. Sally is an idiot. Want to know why?
Sally went without for two years and then bought something that will go down in value. A car is a depreciating asset and a cash flow liability that sucks money out of your wallet every week with petrol, registration, insurance, servicing, new tyres and so on. This is not how you get ahead financially. We tend to celebrate the savers, but you will never be wealthy just by being a saver. You must be an investor and that’s what really matters.
Exercise: Take the Tight-Arse Challenge
1. If you took the tight-arse challenge for one year, how much money could you save in your household? That means no going out, no holidays, no new clothes, and no takeaway food. You bike to and from work, shop at the one-dollar store, buy all your food at discounted rates, only have home-cooked meals and take a packed lunch to work. You do everything possible to save as much money as you can. What is the maximum you can save in one year?
2. Imagine that you’ve lived that way for 10 years. How much could you save in that 10-year period?
3. Now imagine that you are going to retire on your savings. How many years could you live on the money you saved over those 10 years? At this point, you should have realised that you can’t save your way to wealth. You can only save the money you earn from your job. As soon as you stop working, that money will stop flowing and you’ll start cannibalising the money you saved. It will have an obvious end date.
Saving is not the way to secure your finances. What you need to be doing instead is saving up enough money to start investing. Then don’t go and invest in things that are going to cost you money and go down in value (like Sally’s car). Invest your money in real assets that continue to grow in value and bring you a passive income.
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