I know a lot of people would disagree with me on this topic. Nothing can go wrong when you save right? How can saving be wrong and how could you be a loser for doing it?
Don’t get me wrong, it’s not that saving money is bad, it’s definitely better than spending money. But if you really think about it, let’s say you were able to save $10,000 dollars and you put it in a high yield savings account which earns 1.5% (which is a stretch nowadays, because realistically you’re probably looking at about 1%.) If you keep your money in the high yield savings for 10 years, your money would have earned $180 per year so your total money would be $11,800.
Now, let’s factor in the inflation rate of 5% per year. Bear in mind in 10 years inflation would have probably doubled to 10% but to be conservative we’ll stick to 5%. That means that in 10 years even with 1.5% interest your money would only be worth $6,500.
What if, instead of saving that $10,000 you invested it? I’m going use an actual investment that a colleague of mine did a year ago. He bought a 2-plex property in one of the cheaper states worth $50,000 and put down 20% for a 10 year mortgage which is $10,000. Each unit is rented for $690 per month so his total gross income is $1,380 per month. I won’t go into details on the financials but after his mortgage, property management, taxes, etc… his net income is about $350 per month. So that gave him $4,200 per year net income.
If you compute that in 10 years, he would have earned $42,000. That’s not factoring his tax incentives every year for owning a property. Plus the rent of course will also increase overtime because inflation kicks in. This in turn will increase the cash flow of the property. And note that he now owns a 2-plex free and clear, which would probable be worth more than $50,000 after 10 years.
As you can see both has the same amount of money but two different outcomes. Which one do you prefer?