Having a substantial amount of money in savings might seem like a pathway to financial security. However, it can often be a sign that you are heading towards financial instability.
Let us explain.
A high income does not necessarily translate to building wealth. Studies indicate that even highly intelligent and high-earning individuals frequently struggle with effectively saving and investing their money.
There are two types of intelligence: academic knowledge from education, and financial acumen, which pertains to understanding how money functions in the real world. Many academically smart individuals lack financial intelligence and consequently make poor money choices that deplete their savings.
Here are three key reasons why financially savvy individuals avoid merely saving cash:
- Taxes: The government taxes you when you earn, save, spend, and transfer money through income, capital gains, sales, and estate taxes. These taxes erode any interest earned on savings.
- Inflation: This hidden tax reduces the purchasing power of your savings each year, often outpacing any interest earned.
- Risk Aversion: People who worked hard for their savings are often afraid to invest, not realizing that keeping cash savings is quite risky due to taxes and inflation.
The smarter approach is to invest your money to grow it exponentially rather than letting it slowly diminish in a standard savings account. Building real wealth requires overcoming the flawed mindset that “saving money” alone is a wise financial strategy.
Rich Dad
P.S. It might sound controversial, but the idea that ‘savers are losers’ can be a tough pill to swallow.
