Why You Shouldn’t Save Money 🙅 - ✏️ Do Not Save Money (2024)

In our eyes, saving money is a waste of time – especially when that money is sitting in a savings account. This subject is a bit taboo in the personal finance world, so allow us to explain 👇

We’re going to take a shot in the dark and guess that you’re saving money in order to get ahead. Eventually, you want to buy a car, house, and be able to send your kids to college. So, you need to save money…right? Wrong.

If you keep your money in a savings account then you’re only ever going to earn a maximum of 5% per year in interest (even for so-called “high-yield” savings accounts). So, if you’ve saved up a nice little $10,000 nest egg then you’re going to get $500 in interest this year. If you haven’t had your financial enlightenment yet then this probably sounds like a great tradeoff. But, it’s not.

On one hand, getting $500 for doing nothing seems like a great deal. But, you shouldn’t look at this situation as “getting $500.” You should look at it as a percentage return on your money. Namely, 5% (again, which is on the higher end for savings accounts). This percentage is very low and is not going to help you reach your long term goals.

If you keep this $10,000 in a savings account that generates 5% per year, here’s how your finances will play out:

• $16,288: Savings account value after 10 years
• $26,532: Savings account value after 20 years
• $43,219: Savings account value after 30 years
• $70,399: Savings account value after 40 years

So, after 40 years, you’d have just enough to put a down payment on the average home. Like we said, saving money is a waste of time. Plus, we’re not even factoring the deteriorating power of inflation.

Look, we’re not financial advisors. At the end of the day, we don’t really care what you do with your money and we will never make hard recommendations about what you should or shouldn’t do. Instead, we offer new ideas and insights that help you think like wealthy people do. Speaking of which, here’s what wealthy people do with their money:

1. Open an investment account
2. Let your balance grow over time
3. Treat your investments like a savings account

Imagine this, instead of putting your money in a savings account where it earns 5% what if you put it in the stock market where it will earn an average of 10% per year? Let’s take another look at that account balance:

• $25,937: Investment account value after 10 years
• $67,275: Investment account value after 20 years
• $174,494: Investment account value after 30 years
• $452,592: Investment account value after 40 years

So, after 40 years you’d have theoretically earned $452,592 by investing compared to $70,399 from saving. Not a small difference. Even after just 20 years you’d have $67,275 compared to $26,523.

Plus, if you ever need money, you can just pull it from your investment account. So, in this sense, your investments become your savings.

OK, now onto the elephant in the room 🐘.

But Isn’t the Stock Market Risky?

Yes, we aren’t shying away from that fact. But, guess what? Life is risky. We’ve already established that a life of saving won’t increase your net worth meaningfully. This means you’ll be living in a constant state of financial stress, struggling to make ends meet because prices keep increasing. If you’re afraid of the stock market because “it’s risky” then you might as well put on your bubble suit and never leave the house.

Yes, there’s a chance that the stock market could dip over the short term. But, as long as you’re investing in a safe way then there’s really nothing to worry about. The stock market averages a return of about 10% annually. So, the market dips 20% over a few months? OK, that just means that it’ll probably rally 30% to finish the year up 10%.

Just look at the annual returns of the S&P 500 over the past few years:

1. Annual return in 2020: +18%
2. Annual return in 2021: +22%
3. Annual return in 2022: -16%
4. Annual return in 2023: +20%
5. Total return from 2020 to 2023: 45%

Sure, you can see that it hasn’t been smooth sailing the entire time. It dipped dramatically during the Covid-19 pandemic and dropped 16% during 2022. But, that’s OK. Do you know why? Because the market is up 45% since 2020 – despite weathering a once-in-a-lifetime pandemic and the highest inflation in decades.

For what it’s worth, 45% is more than double what your “high-yield” savings account would return over the same period. Which return would you rather have?

1. $10,000 @ 20% over 4 years = $12,000
2. $10,000 @ 45% over 4 years = $14,500

Like we said, if you’re not investing then you’re falling behind. Especially in years where the market returns 40%.

There can often be a lot of distrust in the stock market. This is because “the stock market” conjures up images of men in suits, confusing numbers on a screen, and Jordan Belfort screaming at some poor lady over the phone. But, do you want to know why you can trust the stock market? Because the stock market is just the American economy.

Every day, you wake up and buy things as you go about your day. When your phone starts slowing down, you buy a new iPhone. When your paycheck hits, you treat yourself to a pair of new Jordans. When you get hungry for lunch, you buy a burrito. Every time you make a purchase, you’re giving your money to a company (in this case, Apple, Nike, and Chipotle). Your purchase helps increase their sales and drives the price of their stock higher. When that happens, their shareholders make more money. Want to enjoy in the growth of a company? Just buy their stock. Anyone can do it.

Not to go all “AMERICA!” 🇺🇸 in this post, but do you want to know another secret? The stock market probably isn’t going to slow down anytime soon. This is because companies like Apple, Microsoft, Netflix, Tesla, Walmart, and Amazon continue to improve their technology and offer better products to consumers. As US companies succeed, so does the stock market.

The stock market is really just the physical embodiment of the American economy. You’re already contributing to the economy as a consumer. So, why wouldn’t you want to reap the benefits as an investor?

The One Exception

There’s one exception to our “never save money” mentality. That’s if you’ve already built up a nest egg of a few hundred thousand dollars (or a few million). If you’ve already done the hard work to build up a hefty account balance (or inherited it) then it makes much more sense to play it safe and protect what you’ve got. This is because of math.

Let’s look at a few scenarios:

1. If you’ve saved $1,000 then earning 5% yields $50 annually. Chump change.

2. If you’ve saved $100,000 then earning 5% yields $5,000 annually. Not bad. But, nothing life-changing.

3. If you’ve saved $1,000,000 then earning 5% yields $50,000 annually – enough for most people to live on.

See, if you’ve already got a lot of money then you can get away with earning a small percentage because a small % of a big number is still a big number. But, if you don’t already have a lot of money then 5% annual returns just aren’t going to cut it.

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