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Saving vs Investing in 2019

Savers are losers. My rich dad taught me that decades ago. From inflation to taxes to hidden fees in your 401(k), the system is stacked against you. Here's why it makes more sense to invest than save.

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Here's why it makes more sense to invest than save

The conventional wisdom of the so-called financial experts is that the best thing you can do to have financial independence and financial freedom is to save your money.

I don’t agree. In fact, I believe savers are losers. Of course, I’m speaking of a certain kind of saver. The one who puts money in a low-interest account and hopes that by the time they get to retirement it will have magically grown into all they need to live on.

That doesn’t work, and its bad financial advice. In an economy where almost everything is built to take your money, saving it is of little value. From inflation to taxes to hidden fees in your 401(k), the system is stacked against you.

The kind of saver you should be

That being said, you should save, but for a very specific reason… so you can spend. In today’s economy, spenders are winners. By this I mean people who know how to spend their money in the right places and in the right investments. Let me share a quick story to illustrate.

If you haven’t watched the movie, “The Big Short,” you should. The movie is based on the true story of against-the-grain traders who bet against the housing market right before the housing collapse in 2008. At the time, everyone thought they were crazy.

One great scene depicts trader Dr. Michael Burry, the founder of hedge fund Scion Capital, leaving a meeting with Goldman Sachs where he convinced them to sell $100 million in swaps against Goldman’s CDO holdings in the housing market. The Goldman team members are laughing, hysterically, thinking they just took money from a baby. In the end, Dr. Burry had the last laugh. And so did the others betting against the hot-air balloon that was the housing market in the mid-2000’s.

Those who spent their money betting against the housing market made billions of dollars. Those who saved money or believed that the value of their house would always go up, lost…and lost big.

Essentially the people who were willing to spend (on the right investment) won, and those who held on to what they had, lost.

Why savers spenders are today’s winners

Money is not backed by anything. It is a currency, which like a current of electricity, is always moving. Today, money flows from one sector to another. If it stops moving, like a current it dies. If your money isn’t moving, it is dying, slowly, losing value day by day.

The rich know they must keep track of where money in the markets is moving, and they must move their money accordingly. This is why the traders who made the big short profited so spectacularly. They were paying attention and saw where money was moving. But more than that, they saw the assets it was moving into and understood the value of those assets was garbage. They knew that they could get ahead of the curve and move their money to where others eventually would. And in the world of money, the first always feast and the last always starve.

Know where to spend, and you’ll win

This is hard for the average person to wrap their mind around. For generations, we’ve been taught to save our money wisely. Today, that advice is no longer good or wise advice. Today, if you want to get ahead financially, you must know how to spend your money wisely.

Spending money wisely, of course, takes financial intelligence. And that takes financial education. In order to see and understand the markets, you must teach yourself the language of money and the concepts that make the markets run. You must study, and hard.

The good news is that information is plentiful. All you have to do is look. Today, start thinking less about saving your money and more about investing it. This subtle mind shift will make a huge difference in your financial future.

How to get to the point of investing versus saving

A lot of people have a hard time saving. So, it’s no surprise that the idea of saving money so you can spend it seems even harder. The reason for this is that we are hard wired to focus on what happens today and discount the future. It’s built into our DNA because we evolved in a time where not eating today could mean you would die tomorrow. So, if we have money today, we want to spend it. And if we’ve saved money up, we grow attached to it and don’t want to spend it at all on the off chance that we’ll need it.

As NPR’s Chris Arnold points out, the best way to short-circuit this evolutionary habit is to make your savings automatic.

Arnold talks about making things like saving in your 401(k) automatic. Of course, that’s not what we recommend. Instead, you want to make saving your money to invest in assets as automatic as possible.

When Kim and I were young, we did this by hiring our bookkeeper Betty. Each month we instructed Betty to us first by putting our money for investing to the side… even if we couldn’t pay our bills. She didn’t like doing it, but she did. And we didn’t need to think about it. It was automatic. Instead of computers, we had Betty.

Today, you can use all sorts of apps and services to do the same thing. No need to pay Betty… or to listen to her howl about how irresponsible you were being.

The good news is that before you know it, you’ll have enough money saved up to then… spend! Spend on assets that will give you cash flow for years to come and enable you to buy even more assets. It’s the sure path to financial independence and freedom.

Original publish date: July 01, 2016

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