Lots of people work incredibly hard to earn their living. They put in long hours at their job and collect a paycheck. Usually, from there, they diligently add it to their savings account in hopes of an easier future.
They save money so that they can one day afford a house, a new car, to provide for their family, or to send their kids to the best college. People are always asking themselves what they can to do make more money. However, we think there is a much more pressing question they should be asking.
Is your savings account actually helping you reach your financial goals?
What are you saving for?
First things first, we want to talk about financial goals. Most people have them and if you don’t there are probably still things that you want out of life. Most people’s financial goals look something like this:
- Buy a nice house and car
- Have a dream wedding
- Be able to go on vacation to a tropical destination every year
- Send their kids to the best college
- Be able to retire while they’re still young
It’s incredibly important to have financial goals like these and make sure that you’re setting aside a portion of your income each month to reach them. Most people make it this far. However, most people rarely meet their financial goals. Or if they do, they wipe out their entire savings.
For example, people will put a down payment on a house. They use all of their savings and find themselves starting out at zero. Then in a few years, they want to go on a nice vacation after working so hard. Again, they dig into their savings to pay for it. Now they’re working up from $0 again in terms of savings.
The problem with these examples is that the money isn’t growing in between big payments like these. This brings us to reason #1 why savings accounts are worthless for growing your net worth.
Your savings should be growing
Did you know that 5% of $10,000,000 is $500,000? This means that if you had $10,000,000, you could easily invest it and earn $500,000 per year. This is more than 99% of people earn in a year. In fact, $500,000 a year is approximately $42,000 monthly. This means that you’d be making per month what most people make in a year. Wouldn’t it be nice to have $10,000,000?
The purpose of this example to show you the power of growing your net worth. When you have a lot of money, it’s considerably easier to turn it into more money.
The problem is that most people don’t have $10,000,000. To first get there, we need to take advantage of something called compound interest. Compound interest is what will allow your net worth to grow exponentially and help you reach your financial goals.
A quote from one of the Richest Men of All Time: “My wealth has come from a combination of living in America, some lucky genes, and compound interest.” – Warren Buffett.
A quote from one of the Smartest Men of All Time: “Compound interest is the Eighth Wonder of the World. Those who understand it, earn it…those who don’t…pay it.” – Albert Einstein.
Taking advantage of compound interest is done through a technique called investing. You want to invest your money in a place that will allow it to earn a higher return. By investing your money instead of saving it, you’ll be able to earn a rate much might higher than inflation and watch your net worth grow exponentially.
Savings accounts are not growing your money
“How many millionaires do you know that have become rich by investing in savings accounts? I rest my case.” Robert G. Allen
Money kept in a savings account is not growing or working to increase your net worth. Most big banks offer hilariously low savings rates (as low as .01% annually in some cases). The average savings rate of a big bank is less than .05%… at a rate that low, your net worth is actually decreasing each year because of inflation.
There is no point in working extremely hard for a paycheck and then putting it in a place where it will slowly lose value. If you’re working hard towards a long-term financial goal, a savings account is just about the worst place to keep your money.
So what should you do with your money?
As mentioned, if you want to grow your net worth exponentially, you need to start investing your money. There are lots of places where you can invest your money. Some of the most common are:
- Real Estate
Where you actually invest your money is much less important than the decision to actually invest it. Once you decide that you want to start investing, the rest is easy. There is an entire internet’s worth of knowledge to help you figure out the best place to invest your money.
However, what the internet can’t do is withdraw money from your savings account for you. It can’t make the decision to buy a stock for you. It can’t make you do the research on a rental property and closing on it for you. Taking control of your financial situation is up to you and you alone. Take action today!
We hope that you enjoyed this and found it valuable. If you’re interested in reading more, please subscribe below to get alerted of new articles as we publish