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Author Topic: 3 Reasons Why Saving is Risky  (Read 1030 times)

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3 Reasons Why Saving is Risky
« on: September 25, 2014, 03:37:16 pm »

By: RK

And why investing is the key to a secure financial future

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

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

There were many reasons why rich dad reminded Mike and me that working hard and saving money was not the way he got wealthy. He knew that working hard and saving money was good for most people, but not for someone wanting more than just security and comfort.

Specifically, rich dad gave three main reasons to Mike and me:

1. 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.

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

2. 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.

The result is often a net loss. That is why rich dad thought that working hard and saving money was a hard way to get rich.

3. 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.

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.