In our society today, we often hear people representing banks or financial institutions to urge you to save money, so that you have a pension to live on, or to become wealthy or financially free.
In my oppinion, they are either lying to you, don't have the knowledge or they are biased in their oppinions or advice. You can never become wealthy, just saving your money! And I will tell you why!
Recommendations from the "professionals"
"Good savings account"
I have heard so many people telling me that, after they came into a bit of cash money they contacted their bank or fond manager for advice on what to do with the money. And most of them has received monetary advoice that is most crazy, but beneficial - not for the customer, but the bank or financial institution.
Calling the bank manager, telling him or her that you have recieved some cash money, selling your apartment, house or business, or maybe you have inherited som money, the bank manager will in most cases advice you to "invest" your money into a savings account with good interest. Good interest in this case, is perhaps 0,5% - 0,9% (if you lock down your money for 2-5 years, not being able to use them).
You may also place your money into funds, bonds, stocks, a foex account and so forth, but that is investing, which we cover in another article.
You lose money on savings account
The simple truth is that anyone that advice you to save your money in the bank, to get wealthy or just to simply increase the amount of money you already have, doesn't know what they are talking about. The truth is that you nowadays simply lose money on keeping them on a savings account. The only ones that has anything to gain by you keeping your money in the bank is the bank itself. And here is why.
Interest on savings account is too low
When I write this in may 2019, the national central bank interest in Sweden is -0,5%, which is the interest rate that the big national banks need to pay if they loan money from the ntional central bank, Riksbanken. And the interest to the customer that puts her och his money into a savings account in the bank will normally get 0%-0,3% in average, and the great savings account upto 0,9% interest.
The same situation exists in most countries today. The bank interest on a savings account is very low. Too low. That is why you lose money.
Inflation of 2% makes your money worth less
Since most countries has a national target of an inflation rate of 2% each year, your money will decrease in value. Meaning, each year your money decrease in value the same amount in percentage as the national inflation rate.
You put $100.000 in a savings account in the bank, January 1st, 2019. You get 0,1% interest on your money. And the country you live in has an inflation rate of 2% in 2019.
That means that your money has same value in January 1st, 2020, as $98.000 had at January 1st, 2019. At the same time you have received 0,1% interest on your money from the bank, which will give you an additional $100 in your bank account. But note that these $100 is only worth as much as $98 was in January 1st the year before.
The depressing result is that in one year you have lost a value of $2.000 and gained a value of $98, which results in a loss of $1.902 ( with reference date of January 1st, 2019).
You will never get wealthy just saving - You need to invest your money
As you see in the example above, you can never get wealthy just by saving your money. You need to do something else to create the wealth you need in your life, whether it is for retirment living expenses or living the lifestyle you dream about earlier in your life, meaning now!
Either way, you need to find the investment tool that suits you best, and that is the topic for next article.
Make your life magical