fbpx

For Real Wealth Growth, Stop Saving (Kind of)

Perhaps, surprisingly enough, over-saving is a serious stumbling block for most people on their road toward wealth.

Yes, you read correctly. But, ask yourself, what is the point of a savings account? The vast majority of people will include at least one of the following in their list of reasons:

 

  • Emergencies 
  • Vacations
  • Large purchases
  • Safety nets

 

Emergencies and safety nets fall under the same category, and almost all financial experts agree on a set limit for emergency savings — six months’ worth of living expenses. Anything more than this is just extraneous fluff that is not earning as much interest as it could be if it was put into stocks or other investments. Vacations and large purchases typically come from savings, but these are usually planned and saved for in advance. In other words, there is not any real benefit to having a large chunk of cash hanging out on top of your six months of living expenses.

Growing wealth is not a passive activity, which is one of the main reasons that savings accounts are not necessarily known for giving a person’s net worth a boost. Here is what to do if you have found yourself in a compulsive savings pit:

  1. If you do not already know what they are, calculate your monthly expenses. While a general idea typically works well enough, try to keep it as accurate as possible. Once you know what you spend in an average month, see how it compares to your savings.
  2. Whether your savings account is over or under the six-month limit, take action. If under, continue saving until you are well prepared for emergencies, and then move on to creating new lines of income by investing. But, what if you have too much in the account? Consider taking some out and investing it at a higher interest rate.

The creation of wealth does not have to be difficult, but it often does take time. Returns on investments might not be immediate and it can feel counterintuitive to turn away from stashing every last penny into a savings account. The fact is, wealth simply cannot grow when stored in a dark, enclosed environment. Instead, put your money where it will flourish — outside of the bank.

Recent Posts