06: Savers are losers

Savers are losers hmmm. Ok now that I think I have your attention let’s talk about saving.

A couple of months back I read Robert Kiyosaki’s book Rich Dad Poor Dad and in the book he states that savers are losers. At first I was like what the? But then I started to process what he was saying and I think he does have a point- let me explain.

You may be aware that interest rates are really low at the moment. Which is super awesome if you have a home loan. I mean you can get rates below 4% which is pretty amazing but the down side of low interest rates it that the interest you earn on savings is also very low. I did a quick online search which was by no means extensive but the best rates I could find for a term deposit was 2.4% interest and for an online savings account it was 2.75% Is that even keeping up with inflation? Only just. I think Inflation currently sits around 2%.

Ok what is exactly is inflation?

According to Google the definition of inflation is:

‘a general increase in prices and fall in the purchasing value of money.’

So what that means is the value of $1 and what it will buy you today will be less in the future. You might need $1.20 for example to buy the same thing that would cost $1.00 today, I’m just totally making these numbers up but hopefully you are getting the idea.

I like the example Nicole Lapin gives in her book Rich Bitch.

She writes

"Let’s say you invest $10000 in a 1% savings account. In ten year, you’ll have about $11000 but in ten years you will need more than $13000 (accounting for an average 3% inflation) to get the same amount you got today for $10000."

What she is saying is that if you have $10000 now and inflation is at 3% you would need at least $13000 in 10 years to just break even. So in actual fact you are no better off than you were 10 years ago. Even though on paper you have $3000 more dollars in the bank the value of what that will buy is the same.

So if you have money in savings that isn’t earning interest or earning a rate that is not above inflation you are actually losing money! Crazy I know but these are basic concepts you need to get your head around.

So should we even be saving money? YES YES YES YES.

You might remember I mentioned last week that one of the cardinal rules for growing your wealth is to spend less than you earn. This is so important! You should always be saving money. However, you need to learn how to make that money work for you.

Alright first I want to talk about how to save money.

If you are in debt and when I say debt I mean consumer debt, bad debt. It’s probably a good idea to pay this off first. There is no point earning 2% interest on a savings account when you are paying 17% interest on a credit card.

Although I don’t think its such a bad idea to save up a small amount such as $1000 to $3000 just to cover any emergencies while you are paying off debt as this will stop you turning to the credit card if you get any unexpected expenses, like a bill for car repairs.

And if you have a mortgage for your home I’m not suggesting you pay this off first before you start saving in 30 years time!

Ok, let’s assume you have cleared your bad debt or have a plan in place to do that which, you are doing. In the last episode I covered this topic. You might want to check it out if you missed it.

Here are some ways you might consider saving.

If you have just made your last debt repayment just start making those repayment straight into a high interest savings account. As you will already be used to living without that money.

If you are on a low income or find it hard to save I want to introduce you to a concept called the minimum baseline.

Having a minimum baseline is a great way to set yourself up for success. And this is how you apply it. I will give you a couple of examples from my own life.

This year I decided that I wanted to do training to be a yoga teacher for kids so I could teach it to my students at school.  In the lead up to the training and to improve my yoga practice I set a goal to do yoga every day in 2019. Now for me that was a pretty ambitious goal until I set myself a minimum baseline of doing yoga for 5 minutes. I thought realistically unless I was injured or in a car accident or something like that I was pretty sure I could fit 5 minutes of yoga into my day. Most days I do much more than 5 minutes but the point is on the days or weeks that I am struggling to find motivation or I am tired I can still achieve my goal by fitting in 5 minutes.

I applied this same concept to saving. When I had my first daughter. We had just bought a house and had no savings as we had used them all on getting the house. I knew I really wanted to save for my daughter’s future but we were living off one income and things were pretty tight. Just like with the yoga if I had set myself an unrealistic goal I might have felt discouraged or not stuck with it but for me saving $30 a fortnight was my minimum baseline. That was a realistic savings goal that I thought I could stick to and I did.

Now that might seem like such a small amount of money and it was, $15 a week is small change. But guess what happened?   That small amount of money started to grow. And when we had our second daughter I did the same thing. We were earning a bit more money and I was able to now save $60 a fortnight, $30 for each daughter. Fast forward nearly 5 year and I’m sitting on just over $6500.

$6500 is no joke.

I did not have to adjust my lifestyle or deprive myself of anything to achieve this.

So I really want to encourage you to just save even if your minimum baseline is $5 a week. Because I think what you will find is that you will develop a savings habit and over time I have no doubt your financial situation will improve and you will learn more about yourself and money and be able to save more.

Brooke Castillo from the Life Coach School has a great podcast episode on minimum baselines I will pop a link to her podcast in the show notes.

Ok the next thing I highly encourage you to do is set up an automatic money transfer so you don’t even have to think about saving.

If you get a pay rise, tax return or unexpected windfall you might want to consider putting that into saving too.

Now I haven’t forgotten that the name of this episode is called 'Savers are losers' so why am I now telling you to save?

In episode 4 I covered how to allocate your money and one of the accounts I suggested would be a good idea to have is an emergency fund. To create this fund you need to save money. This is so you always have money that is reasonably easy to access in case of an emergency. And because it will just sit there most of the time you want it in a high interest account but as for the rest of your savings you want them working for you.

You want your money to be earning a yield above inflation and investing you money is a way to get a higher return than what you would get in a high interest savings account.

In the next 2 episodes I will cover the basics of investing in shares and property and why you might consider these options to increase your wealth.

In the mean time why don’t you have a look at your finances this week and set yourself a minimum baseline. I would love to hear what you do.

Have a great week! Bye bye.

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