Making Money in a nutshell #2 – saving

moneyYou may have heard that saving money is the way to wealth. Especially those more conscientious readers (who apparently, are less likely to get Alzheimers, lucky you!). We’ve all heard it, the power of compound interest, blah blah blah. In Australia, we are encouraged to do this by ploughing all our spare money into superannuation.

Keep in mind that saving money has a big downside. You can’t spend it. Food, booze, a massive TV and an outside spa are all things you can’t buy if you save your pennies. Let’s analyse this save for wealth plan.

The idea of saving is that at some point you’ll have enough cash to not have to work. Assume then that all your saved cash will replace your existing work income. Throwing in a few more assumptions:

  • Income of $80000. This can be anything. It doesn’t affect any calculations.
  • An investment return after inflation of 10%. This is very generous.
  • An interest rate return equal to inflation. OK, so it is usually 1 or 2% above this but this will be offset by the other more generous assumptions.
  • You manage to save 10% of your income. Superannuation is currently 9% so this too is generous.

So, under this scenario you need to save $800,000, so you can get your $80,000 a year as a 10% return on investment. Put away 10% of your income each year and guess how long it will take you to reach this figure?

100 years.

OK, so maybe those assumptions are out. It might only take 50 years. 50 years! That’s practically a life time after you take out the essential growing up and school. If you start seriously working around 20, then you’ll be 70 before you can declare, “I’ve hit the jackpot!”. That is, if it “only” takes 50 years. Great.

Conclusion: don’t bother saving. Spend up now. What is the point of finally having enough cash, when you are about to cark it? Old and senile and unable to take advantage of your wealth, attained during your youth. Your youth which you wasted working and saving!

A cynical viewpoint would see the whole saving and superannuation strategy as one designed to keep the youth busy and occupied with a goal that can only be realised once they have lost the energy and will to force change. But that may be a bit too conspiracy.

There is a saying that we spend our youth attaining wealth, and then our wealth regaining our youth. Here’s a short-cut: spend the cash now.

Suggestion: raid those savings and buy yourself a jet-ski. Check out the other articles on this blog for money making tips.


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