Back in the day, the way to get rich was saving. People would get their paychecks, and immediately throw 20% of it into their savings account. As years went on following this routine, they would grow their savings accounts with anywhere from a 5%-10% interest rate, ultimately creating a nice little nest egg.
Nowadays, that’s not how it works. Firstly, banks don’t pay high interest rates like that anymore on savings accounts. The average savings account at U.S. banks only offer a 0.06% interest rate, which is pretty much nothing each year.
Another reason we can’t save our way to wealth anymore is because the value of the dollar is plummeting. Which means that no matter how much money is being thrown into a savings account, it’s not fast enough to beat out inflation.
Jaspreet Singh, CEO and founder of The Minority Mindset, says that since 1913, the buying power of the dollar has dropped by 96%, and 85% just from 1971. Cash is a liability, which means while the price of everything else is going up, cash stays flat, making savers losers in the end.
That doesn’t mean you have to just throw in the towel and let inflation eat away at your hard work, it just means you have to rework your financial system so you can stay two steps ahead of inflation.
75/15/10 Plan
Creating a financial system, or any sort of budget, seems scary at first; But don’t think of it as limiting yourself, think of it as organizing yourself. Making room in your budget each month for investments makes them a priority, just like any of your other bills. It gives you incentive and direction, which makes the idea of investing a lot less intimidating.
Jaspreet says one of the best ways to start investing is by following the 75/15/10 plan. This plan is simply a way to divide up your income by spending, investing and saving. When following this strategy, you may spend a maximum of 75% of your income, invest a minimum of 15%, and save the other 10%.
This strategy gives you plenty of wiggle room for spending, especially if you have kids or other dependents to provide for, while still making meaningful contributions to your investments each month. However, if you don’t need the whole 75% of your income to go towards your spending, you can follow a more aggressive strategy known as the 50/30/20 plan.
The 50/30/20 strategy means spending 50% of your income, investing 30%, and saving the extra 20%. This approach may be a little bit easier to do in your twenties when you have lesser or no dependents. Either way, both of these strategies are designed to make investing a priority in your monthly budget, so no matter what, you are working your way to future wealth instead of letting it all sit flat in a savings account.
When Saving Is Important
This doesn’t mean that you should never save anything from your paycheck, life happens and sometimes you are going to need extra funds. Jaspreet says each person should have some money saved up for three different reasons:
Emergencies: Doesn’t it seem like car troubles always hit you at the most inconvenient times? Whether it be car problems, surprise medical expenses, or anything else, it’s important to have an emergency savings account. This account is to avoid debt or financial ruin no matter what life throws at you.
Purchases: Purchases can be anything from bills, or big purchases you’re saving up for, like a car. It’s important to have cash on hand to take care of your purchase that you need.
Investments: According to Jaspreet, this is the biggest reason he saves cash. This is simply money in a bank account that will be invested. Cash can sit in this account until you find something you want to invest in, whether that’s waiting for the perfect stock pick, or a new real estate property. Regardless, this money has one purpose, and that is to be invested.
Notice that all of these savings accounts have different directions and purposes, they are not there to build future wealth. That’s because saving money cannot lead you to future wealth, because as money loses its value day after day, your savings account will never be worth as much as it is today. That’s why investing is so important.
The Bottom Line
Saving your way to wealth is extinct, despite what you were told as a kid. The money held up in your savings account is losing value daily, no matter how much you have; $20,000 doesn’t have the same buying power as it did 10 years ago. The only way to build your wealth is to make your money work for you through investments.
Jaspreet walks through many different ways to invest through his YouTube channel. Whether that be stocks, real estate, or even crypto, he provides financial education to help the public get a leg up on rising inflation. His mission is to make all aspects of financial education accessible to anyone, which is why he also offers free guides for money management, stock market trading, and creating passive income.
You don’t have to be rich to invest, you just have to be educated. Check out Jaspreet’s YouTube channel or The Minority Mindset blog to learn more and start building a stable future.