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3 Reasons Why It’s So Hard to Get Rich Saving Money

And why investing is the key to a secure financial future

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My poor dad always said, “Work hard and save money.”

He would also say, “A dollar saved is a dollar earned.”

The problem was he didn't know anything about monetary policy and how it changed. He saved his hard-earned dollars all his life, but he did not realize that after 1971 his dollar was no longer money.

In 1971 President Richard Nixon changed the rules of money. That year, the U.S. dollar ceased being money and became a currency. This was one of the most important changes in modern history, but few people understand why.

But more on that in a bit.

Why is saving money a hard way to get rich?

My rich dad always said, “If you want to be rich and financially secure, working hard and saving money will not get you there.”

This is a lesson that Danielle Town, a former burned out corporate attorney, learned. Wanting to be free of having to depend on her salary for financial security, she initially thought the path forward was to save money.

Town quickly realized, with the help of her father, that she was “losing money through doing nothing.” Or actually, her money was doing nothing.

The big realization for Town was that inflation was a force eating into her money. As author Emmie Marin shares:

If you had stuffed $1,000 in cash under your mattress 50 years ago, today it would have the same buying power as only $137.45 did in 1968.

However, that same amount invested with compound interest would have grown to about $20,000, assuming a 6 percent rate of return. Even if you only earn a 4 percent rate of return, it still grows to around $7,000.

If you’re a regular Rich Dad reader, this probably is something you already know. But perhaps the most enlightening thing about reading Town’s story is she had no idea, even by her mid-thirties, about the destructive power of inflation. As she relates to CNBC:

“Now, I realize that to some people who know about financial stuff, this sounds ridiculous,” she says. “But I didn’t know anything about financial stuff. I knew inflation was a thing that felt very macroeconomic, but I had never connected it to my actual savings.”

This highlights an important lesson about financial ignorance—it’s not bliss and it can cost you a lot of money.

While Town rightly shares about inflation as a reason not to be a saver, there are actually three forces that steal the wealth of someone who relies on savings...which I’ll share with you soon. But first, let’s get back to our history lesson.

Why is there inflation and why does it make saving so hard?

As I said earlier, after 1971 the dollar was no longer money. Most people have no idea this happened, why it happened, or how it impacts them as savers...that is why it makes savers losers.

Prior to 1971, the U.S. dollar was real money linked to gold and silver, which is why the U.S. dollar was known as a silver certificate. After 1971, the U.S. dollar became a Federal Reserve Note -- an IOU from the U.S. government. Instead of our dollar being an asset, it was turned into a liability. Today, the U.S. is the largest debtor nation in history due in part to this change.

Taking a brief look back at the history of modern money, it's easy to understand why the 1971 change was so important.

After World War I, Germany's monetary system collapsed. While there were many reasons for this, one was because the German government was allowed to print money at will. The flood of money that resulted caused uncontrolled inflation. There were more marks, but they bought less and less. In 1913, a pair of shoes cost 13 marks. By 1923, that same pair of shoes was 32 trillion marks!

As inflation increased, the savings of the middle class was wiped out. With their savings gone, the middle class demanded new leadership. Adolf Hitler was elected Chancellor of Germany in 1933 and, as we know, World War II and the murder of millions of Jews followed.

In the closing days of World War II, the Bretton Woods System was put in place to stabilize the world's currencies. This was a quasi-gold standard, which meant currencies were backed by gold. The system worked fine until the 1960s when the U.S. began importing Volkswagens from Germany and Toyotas from Japan. Suddenly the U.S. was importing more than it was exporting and gold was leaving our country.

In order to stop the loss of gold, President Nixon ended the Bretton Woods System in 1971 and the U.S. dollar replaced gold as the world's currency. Never in the history of the world had one nation's fiat currency been the world's money.

To better understand this, my rich dad had me look up the following definitions in the dictionary.

Fiat money: money (as paper money) not convertible into coin or specie of equivalent value.

The words "not convertible into coin" bothered me. So my rich dad had me look up the word: "fiat."

Fiat: a command or act of will that creates something without or as if without further effort.

Looking up at my rich dad, I asked, "Does this mean money can be created out of thin air?"

Nodding his head, my rich dad said, "Germany did it and now we are doing it."

"That's why savers are losers," he added.

For more on this subject I recommend reading "The Dollar Crisis" by Richard Duncan.

Now let’s take a look at the three reasons, thanks to fiat money, to not save money...if you want to be rich.

Reasons #1 to not save money: Taxes

“People who work hard and save money have a hard time building wealth because, relatively, they pay more in taxes,” said rich dad.

He went on to explain that the government taxed savers when they earned, saved, spent, and passed on their money in the form of income tax, capital gains tax, sales tax, and estate tax.

There’s a reason why the government taxes savings rather than giving a tax break. As I’ve shared before, the government gives tax breaks in order to encourage behavior it wants people to participate in. Saving is not an activity the government really wants to encourage—even though it pays ample lip service to it—because saving does not grow the economy, debt does.

Why is this? Because when your economy is backed by fiat money, debt creates more money and more wealth...for those who know how to use it. Saving does not.

So if you’re a saver, you’re a loser because of taxes.

Rich dad also explained that another tax decimated savers—a hidden tax that Town discovered called inflation.

Reason #2 not to save money: Inflation

Rich dad used a simple figure of $1,000 to explain why savers almost always became losers in the economy.

Rich dad explained, “Your $1,000 is immediately eaten away by inflation, so each year it is worth less.”

Rich dad went on to explain that each year the interest the bank paid you was eaten away by both taxes and inflation. The government took 30 percent of the interest earnings through capital gains taxes and inflation ate away at almost all the rest…or more.

As mentioned above, $1,000 saved 50 years ago would be worth $137.45 today. That, coupled with taxes, means you are in the negative when it comes to the purchasing power of your dollars when you are a saver. That is why rich dad thought that working hard and saving money was a hard—if not impossible—way to get rich.

So, thanks to fiat money, savers are also losers because of inflation.

Reason #3 to not save money: Avoiding risk

When you work hard to save money, you place your “security” in those savings. It becomes very hard for those who spend all their energy saving money to branch out and invest it for fear all their hard-earned money will be lost.

“People who work hard and save often think that investing is risky,” said rich dad. “And when you think something is risky, you avoid learning.”

Rather than take a perceived risk to grow their money exponentially through investing, most people take the “safe” route of saving their money because it is what they know and understand.

Unfortunately, as we learned above, saving is not safe. In fact, it often is the riskiest way to use your money because of taxes and investing.

In a fiat money system, the spoils go to those who take risks and invest based on debt to create more fiat money. The system does not reward hoarders. The whole point of the fiat money system is to create more wealth through debt. Saving is counter to this. That is why the government makes it hard to save money and get rich. If they really wanted this, they’d make it easier to do through policies. But they don’t.

The need for financial intelligence

At the end of the day, why do people save? For most, it is to prepare for retirement. Yet, most of us know that saving itself is not enough to prepare for a secure retirement. This is especially true for young people who will never see a pension from their employer.

Today, everyone is expected to invest for a secure retirement. Unfortunately, our schools do not prepare us to invest wisely or well. So, it is up to us to become financially educated—and to teach our children financial education as well.

This is something the wealthy have done for generations. For instance, Mike, my rich dad’s son, had an investment portfolio of $200,000 by the time he was 15-years-old. “Whether he chose to be a policeman, politician, or a poet,” said rich dad, “I wanted Mike to first be an investor. You’ll become far wealthier if you learn to be an investor, regardless of what you do to earn money along the way.”

The rules have changed. In today’s digital age, you need a greater level of financial sophistication, and so do your kids. I encourage you today to increase your financial education and prepare for a brighter, securer financial future.

Original publish date: May 08, 2018

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