Rich Dad Scam #5: Save Money image

Rich Dad Scam #5: Save Money

This is the fifth post in a series I’m calling Rich Dad Scams, where I point out the scams the rich use to keep the poor and middle-class poor. The Rich Dad Scams we’ve identified are, very simply, the things you are taught about money that are wrong. They keep you from becoming rich. They are the ideas the rich have built into society to keep you poor and them rich. Unfortunately, they’re so driven into our minds that it can be hard to recognize them as lies.

Today, I’m going to cover Rich Dad Scam #5, “Save Money.”

Time and money changes

“If you save money, you will have money.” “Save money for a rainy day.” “A penny saved is a penny earned.” These are common lessons parents teach their kids about money. Unfortunately, there’s one big problem with them: they’re lies.

The big problem with Rich Dad Scam #5, “Save Money,” is that it used to be true. A generation or two ago, saving money paid off. You could set aside a certain amount of money and retire on it. Your parents or your grandparents might have done just that, and it worked. But what worked for them cannot work for you in today’s economy. To understand this, you must understand the history of money.

In 1971, Richard Nixon took the United States off the gold standard, the system where every dollar in the US economy was based on a dollar’s worth of gold that the country owned. When Nixon did this, it destabilized the economy and kick-started inflation and a number of other factors that affect the power of your dollar. Before 1971, money was money, backed by the value of gold. If you saved 10 percent of your income every year, it could turn into enough to retire on. After 1971, money became a currency that could go up and down in value with nothing of value backing other than the good faith and credit of the United States. That is why there have been so many fluctuations, peaks and valleys, in the economy.

Real money

Money is something that holds its value, which is a different concept from currency, which is a representation of that value. When the US went off the gold standard, US dollars really stopped being money and became a currency. Money is something that keeps its value. Currency fluctuates in value, and the US dollar has kept losing value since 1971.

Today, savers are losers. Why? The bank pays you a lower interest rate on your savings than the inflation rate. In essence, this means that your money in the bank loses more value than it gains over time. It’s a losing proposition to save. The dollar you save today will be worth less a year from now.

If, however, like an entrepreneur or an investor, you put that dollar to work for you, then you have a chance of a return that is much higher than inflation. You have an opportunity to make money instead of losing it.

Currency collapses

Historically, once money isn’t based on something concrete, like gold, its days are numbered. Once your money is simply a piece of paper that really only represents debt, a currency, how can it sustain itself? It can’t.

My team and I are all big believers in diversifying into gold and silver, real concrete representations of money, not currency. Precious metals have been the true measures of wealth for thousands of years. If we learn from history, we see that currencies collapse. Gold is consistent. It is truly money.

Making your money work

So, if you can’t put your money in the bank, what can you do? The answer is to get aggressive. Putting money in the bank is passive. Putting your money out in the world is putting it to work. Why put your money in the bank where it will lose value when you can put it to work for you in assets where you can turn your money into more money? That sounds like a better idea to me. Rather than believing the Rich Dad Scam #5, “Save money,” I encourage you to instead invest your money in cash-flowing assets. That is the true path to wealth.

Original publish date: March 22, 2013

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