Saving is a deadly trap. Get out.

The new #1 rule in personal finance and business is to Stop Saving and Start Spending

We are trapped in a matrix.

Our financial lives revolve around a loop. We work, get paid, spend, and save the rest. We live in the illusion that saving makes us rich, because people around us encourage it. They tell us that saving is the most fundamental step to wealth, and we believe them.

Seeing that number rise in our savings account makes it feel like that’s happening. At the same time, we are ignorant of the other numbers that are rising around us: prices.

Inflation is one of the largest issues associated with saving. The bank’s monetary policy is a commitment to keep inflation low and stable between 1% to 3% (ideally 2%). Regardless, it still happens.

Depending on the circumstances, a government may be trying to increase inflation (e.g. Japan). To accomplish this, the central bank can cut interest rates in pursuit of encouraged borrowing, consumer spending, and boosted economic activity.

Inflation and currency depreciation counteract against the interest we receive for our savings account. Although we won’t always be losing significant value (depending on your currency), inflation makes sure that we don’t gain as much in terms of purchasing power as well.

Moreover, there are times when inflation reaches dangerously high levels. U.S. inflation reached a 39-year high of around 7% in 2021 due to a growth in gasoline, food, and housing prices.

In Turkey, the annual average inflation reached 19.6% in December. Brazil’s inflation rose to over 10%. This culminates in a serious issue for savers as their lifelong savings lose major purchasing power.

What’s more concerning about inflation is its effect on your expenses. As prices increase, saving will become an extremely slow process as growing expenses become a heavy tax on your savings plan.

Even if we assume inflation is nonexistent, saving the traditional way is inferior to the other options harbouring more potential for gains.

Escape the Saving Trap

People and businesses who save money are trapping themselves in a loop. The saving trap keeps them stuck in the low to middle class, repeating the same cycle with minor results or even losses.

Stop making your savings plan or your budgeting plan the main focus to building wealth, or achieving financial goals for your startup. The secret to escape can be summarized in two steps.

Stop Saving, and Start Spending.

I’m not suggesting you blindly spend all your money on consumer durables or maximize your inventory because you wouldn’t be able to purchase the same amount in the future. The key is to convert liquid cash into hard assets such as real estate, gold, and other commodities, preferably those that can generate income (e.g. stock yields).

These are things that become worth more when inflation rises, maintaining if not increasing its purchasing power. Why? Because people buy these assets to keep their purchasing power. Competition in consumers results in bidding, and bidding drives up prices.

If you already possess investments, invest more. Make investing your main way to building wealth, instead of saving. Moreover, don’t confuse your house or your car as an asset. All they do is take more money out of your pocket through expenses such as taxes or insurance.

Another option includes stocks or bonds, especially those with higher yields. Stock prices can increase due to the same concept.

Although I don’t recommend it, cryptocurrency or other more stable currencies such as the Japanese yen can also be better than saving cash from most countries.

Interest Rates

Interest rates around the world are rising. When interest rates rise, people begin saving and see less value in investments. Therefore, various assets would drop in prices.

When this happens, instead of going with the flow and saving all your money, start buying investments, which would be at a lower price. Keep those investments until inflation is back up again, which is when you would sell.

Investing in Cash

If you really want or need to keep liquid cash, you can try out forex trading, where you buy and sell currencies around the world.

Do keep in mind that forex trading can still lead to losses, so it is important you have an understanding of technical analysis and make decisions carefully. Don’t just go in without any knowledge of trading and expect that you’ll come out rich.

I’ve seen people who became impatient and tried to succeed in trading with the first few basic concepts they learned, such as observing only the Moving Average indicator or only using support and resistance to determine entries.

As expected, they ended up losing a lot of money. This is why it’s important to learn everything and be absolutely prepared before investing.

Other Options

There is a multitude of other ways to use your money. If you already have sufficient savings, you can consider providing venture capital, where you essentially finance another business in exchange for equity.

If you don’t have enough money, you can always use debt to purchase more stable assets such as real estate. Renting out a property and eventually selling the property will pay off the debt with additional profit. The property can serve as collateral if you have problems securing a loan.

It’s all about how smart your money management is. Making good investments, minimizing risks, and looking out for changes in the economy are all things wealthy entrepreneurs and successful businesses consistently do.

For Businesses

If you’re an entrepreneur who owns a business, you can explore various investment options to support it in times of crisis. This way, your business will have a financial cushion (assets) to lean on. Good investments can be like insurance; except that you can actually make money with it.

An important part of expanding your business is using loans to work with a larger amount of capital and generate a larger profit. Not only can you use that for regular business processes, but you can also use debt for business investments as well.

Take advantage of the abilities of a corporation to make more money for yourself and the business overall.

Going the Distance

Regardless of where you choose to invest your money, looking at the bigger picture and investing long-term is the certain and stable way to build wealth without spending time for hours a day looking at the market.

Billionaire Warren Buffet invests long-term with the simple strategy of buying securities at prices below their intrinsic value.

“I probably would focus on smaller companies because I would be working with smaller sums and there’s more chance that something is overlooked in that arena,” Buffet said in an interview.

Learning from the legendary investor himself, we should focus on smaller companies for overlooked opportunities, since if they are overlooked they may be largely underpriced compared to their intrinsic value.

Of course, there are other factors in fundamental analysis we need to consider, as well as margin of safety and overall how the business works.

If you’re someone who wants to make money quickly, you may resort to day trading or short-term investments. However, these take a lot of careful observations and significant knowledge in technical analysis in order to succeed. Risks are also higher.

That’s why you should instead be patient, and build your investments long-term. It may seem slow at the start, but over the years as your capital grows, you’ll end up with large amounts of money and the subsequent income from yield.

The Path to Success is Piled with Failures

I can’t guarantee that you’ll immediately earn an impossibly high amount once you start investing and using your money. Chances are, you’ll lose a lot along the way.

However, given time and experience, your financial assets will begin to outnumber your liabilities on your balance sheet.

Don’t let fear keep you in the loop. Don’t let emotions affect your investment decisions. People either being too greedy or too fearful often miss out on significant profits and instead end up with losses.

I once urged a friend, who had been struggling financially, to invest in a particular stock during the pandemic. Immediately he was concerned about losing the money, and as predicted, he declined my offer. That stock’s price ended up doubling over the next year.

If I tell someone they have a 60% chance of profiting from every investment, they start worrying about the 40% chance of failing. They don’t realize that by spreading out their investments evenly to minimize risk, 6 out of 10 of their investments are going to make money.

Money is not valuable

No one can deny that possession of liquid cash is important. We all need money that we can quickly deploy and use for varying purposes. That does not mean we want everything to be in the form of liquid cash because we don’t want to take risks.

Money is a tool used to exchange and trade for goods and services easier. Having that is important, but making everything into that misses the point. The goods and services are what’s valuable to you, not the money.

The money is just the middleman. After all, you are spending the money on various goods and services.

Saving should not be your main method of achieving financial goals, whether it’s for your business or yourself. Being rich or wealthy doesn’t only mean you have a lot of cash in your bank account. Wealthy people have financial assets that they can convert into cash.

The world is changing every day

Russia has been invading Ukraine. Oil prices have been soaring in contrast to its terrible performance in the past year. The rise of Covid-19 has had its fair share of impacts on the economy.

Frankly, we have no idea what might happen tomorrow, so the solution is to start preparing today.

When there’s a crisis, there are also opportunities for us to take. Instead of saving all your money, take some chances as long as the reward to risk ratio is favourable.

The bottom line is that saving is not completely safe. Nor is it profitable. Hard assets, on the other hand, will grow in value and have a constant demand for them. They provide opportunities to generate income and can keep you ahead of inflation.

A lot of people misinterpret the purpose of saving and money in general. While you should save some of your money, it shouldn’t be in the hopes of building your wealth. Saving should either be a way of keeping emergency cash, or waiting for the right opportunity to invest.

Here’s a simpler way I use to explain why saving money is not optimal.

Money is used to exchange for actual things and assets. If you have a lot of money, that means you can exchange for a lot of things. However, the number of things you can exchange for can be manipulated by the government and banks, and due to constant inflation, that number is slowly but surely decreasing.

Money is a tool we all need to have. But that’s where the saving stops. Once we have enough to supplement our needs and use in case of emergencies, what is the use of all that extra cash just sitting there?

Real, profitable saving is saving physical things of value. The rich aren’t rich with money. They’re rich with assets. That’s the simple secret to wealth.

Don’t love money. Love what money can do for you. Only through understanding this concept can you take action to escape the saving trap and embark on a path to a brighter financial future.

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