The concept of saving too much money may seem like an oddball concept, but if saving is all you do, it can work against you. How so? It is because jobs that pay enough for you to merely save your way to financial independence are rare. Saving is an important component in your personal finances, but to build major wealth, investing is key.
Over time money tends to lose its value due to an effect called inflation. For example, if you have 100 dollars and inflation increases 2 percent, you can now buy 2 percent less goods with your 100 bucks. It's as if your 100 dollars turned into 98 dollars. As a general rule, the more dollars there are in circulation, the less each one is worth. This can come from market forces such as the federal reserve- the United States Bank- putting more money into the market to stimulate the economy. This can spark the consumers to buy goods, but since there are more dollars in the system, each one is now worth less. This means you have to use more dollars to have the same buying power. Inflation often runs at about 2 percent per year. If you have your money saved in the bank earning .01 percent interest, your money is actually working against you because it is losing more value than it gains in interest.
In order to combat this you must invest your money. Let’s say you make $40,000 dollars a year and you manage to save 10 percent of that every year from age 25 to age 65. At age 65 you would have saved $160,000 dollars. That is not much at all to retire on and you will have to hope social security is still around to help you. If you were to take that same 10% and invest it, you would have a staggering $1.1 million dollars assuming an average return of 8%. This is why it is so important that you not just save your money!!!!!
Investing is often looked at as something that is for the rich, but the truth is most people who become millionaires are not people with multi-million dollar football contracts or movie deals. Most millionaires never averaged over $100,000 in yearly salary. They are ordinary people who invested their money over their working years.
If you would like to learn how to invest for your future, don’t hesitate to contact us. The dream of financial peace and prosperity can be your reality.