Just Saving Won’t Make You Rich

Written by imoney

A lot of the “get rich” advice out there will tell you that saving money is the key to getting rich. And here at iMoney, we’ve never missed a chance to tell you about the advantages of saving money.

Here’s the thing, though: just saving won’t make you rich. If you think stashing away 20% of your pay every time in a savings account is the secret to wealth, you’ve never been more wrong.

Why saving won’t make you rich

1. Savings accounts give you low yields.  A starting savings account will give you only 0.25% interest per annum. So let’s say you’ve managed to put P50,000 in a savings account — you’ll only get P125 in interest. If you put all your eggs in one basket and let it languish in a low-earning savings account, your money won’t be working as hard for you as it should be. As a result, it will take longer for you to reach your savings goals, and you don’t make any financial progress.
2. Savings accounts don’t make enough to fight inflation. Do you know how much core inflation was in the Philippines in 2013? It was 2.7%. So if your savings account is giving you 0.25% yield, your P50,000 actually losing value over time. Only putting your money in savings means that your money isn’t protected from economic conditions. If your money isn’t growing at a rate that beats inflation, you’re going to lose money, and you’re not going to get rich.

If a high yield is what you want, you shouldn’t just save — you should invest. Even just putting P10,000 in an investment product can yield you as much as 45% return on investment after just one year. There’s not a savings account in the world that can give you that much returns.

But don’t stop saving!

Saving might not make you rich, but it’s money that can be there when you need it. Here are some of the ways that having savings can help you achieve your financial goals:

1. Savings accounts are easily accessible in case of short-term needs and emergencies. Creating savings accounts for short-term needs (like Christmas shopping, saving up for a holiday, etc) is a good idea, because it’s easy to get to your money. If you tie up ALL your money in investments or real estate, it’s a little harder to get the money when you need it. But if you have a savings account and you have an emergency (like hospital stays, car repairs, and what have you), you can simply dip into your it and you’re set. None of your other financial plans are thrown off-base and you remain financially secure.
2. Having healthy savings will allow you to worry less and focus on bigger goals like investing. When you have a healthy buffer to stop you living paycheck to paycheck, and an emergency fund to cover life’s surprises, you can focus your financial efforts on finding ways to get your money to make more money for you. Knowing you’re covered at a basic level gives you the security and freedom to pursue higher-risk investments that can get you the high yields you want, or maybe to finally start that business that can ensure your increased income flow.

Saving may not be the way to get rich, but it can help you get there. But instead of saving for saving’s sake, you should save with a specific goal in mind. This will help you choose the right investment products to help you reach your goal.