Most Americans were taught to pursue higher education, got a well-paying job, and try as best they can to save money. “Saving money” usually means transferring a portion of their income over to a savings account to be saved for the future.
If you have completed a few of these steps and are in a high-earning profession, then you might feel like you are on the right track. However, if the bulk of your savings are in a savings account then you are wasting precious time while this money sits idly. This is because savings accounts do nothing to help grow your wealth and may be actually reducing it. The average person earning more than $160K a year has over $42K sitting in a checking out earning little or no interest.
Deposit accounts are designed to make banks money, not make you richer. Even the highest paying savings accounts are still below the rate of inflation and most people keep their money with Big Brand Banks where the APY on cash is typically only 0.01-0.02% including “savings” accounts.
This is why savings accounts will never make you rich and it’s not in the banks economic interest to tell you otherwise.
For the purposes of this article, we will assume that you want to achieve some sort of financial success aside from just meeting your immediate bills. This goal might look different to each person but here are what a few common financial goals might look like:
If you have a financial goal like any of these, then you will need to do more than just work at your job. Even if you earn a lot of money through your career, it will take untold millions to be able to just quit your job and continue living your same lifestyle. It is unrealistic to expect that you can just coast for the rest of your life on savings from a few years of work.
Right now, you are probably in the same boat as the majority of the population. You work hard for your money and have lofty goals for a better future. Progress towards your financial goals will only really take off when you start making your money work for you. By work for you, we mean create a return that beats inflation and ensures you benefit from compound growth.
You might point out that savings accounts already collect interest. Let’s take a closer look at that.
When you put your money in a savings account, you are basically lending it to the bank to hold/protect it for you. In return, they pay you interest (usually yearly). While it might sound nice that banks pay you to hold your money, there is one main problem. The average rate of interest for a savings account is only .01%. If this does not sound like a very high rate, that is because it is not.
To put this into perspective, if you had $50,000 in a savings account, you would get paid just $5 in interest at the end of the year. That is not exactly going to jump-start your early retirement and allow you to travel the world.
Even if you could find a place where you earned just 1% on your money (which is still very low) then you’d get paid $500 in interest. Better!
The sweet spot of what you should be earning on your money (without taking incredible risks) is around 5%-10%. This is a very realistic return and you will see an immediate difference in how quickly your net worth grows (10% of $50,000 would be $5,000 in interest at the end of the year. Much better than $5).
If you want to get really rich then this is the strategy that you should use.
According to research by Lending Clubs Magnify Money 65% of people don’t know where to put their money, the result is that the vast majority of people leave cash sitting in some form of deposit account slowly getting eroded by inflation. Meanwhile only a minority of Millennials are investing in the stock market and therefore denying themselves the benefit of the most powerful mass wealth creation engine ever devised.
What this means is that hundreds of billions of dollars worth of value that should be earned by consumers is being lost to them by not investing.
What do the wealthiest people in America do differently from everyone else? They use their money to buy assets that work for them creating a cycle of wealth creation that can last for generations.
Wealthy people’s income is tied to investments. Regular people’s income is usually tied to their job (salary or hourly work).
You don’t need to be Jeff Bezos to benefit from this. Anyone can use this same principle to make hundreds, thousands, or even millions through your investments, over time.
Don’t worry, this will not be as complicated as you might think. You will not need to start the next Amazon in order to successfully invest your money. Instead, you just need to find a place that your money will grow at a higher rate than a savings account. Remember that in a savings account your money is probably earning around 0.01%
If any of the above seems like it might be complicated, Unifimoney is a great resource to use. This is because Unifimoney puts everything you need to handle your finances under one roof. For example, at Unifimoney, we offer several places that will give you a better return than savings accounts:
This means that if you use Unifimoney then you will have plenty of options to get better results than a savings account. However, we would advise researching the above a little bit more to make sure that you choose the best option for you.
Instead of directing a portion of your income to a savings account, you will be much better off investing it. This means that you will still need to have the self-control to divert a portion of your income over to a place where it will not be spent. However, instead of a savings account, divert your income to a place where it can be invested and grow.
The ultimate goal is that eventually, your investments will earn enough in passive income that you will no longer need to work every day. This does not mean you need to quit your job, just that you have freed yourself from the necessity of working.
Once you move your money out of your savings account, you will wonder why you ever had it there in the first place.
We hope that you have found this article valuable when it comes to learning why savings accounts will never make you rich.
The above does NOT constitute an offer, solicitation of an offer, nor advice to buy or sell specific securities. The opinions listed above are not the opinions of Unifimoney Inc. or Unifimoney RIA, Inc. but represent the opinions of independent contributors. These contributors may or may not hold positions in the stocks discussed. Investors should always independently research any stocks listed and form their own opinions, while recognizing that any investments made may lose value, are not bank guaranteed and are not FDIC insured.