3 Reasons Why Saving Won’t Solve Your Finance Problems – And What Will

3 Reasons Why Saving Won't Solve Your Finance Problems - And What Will

If you’ve been paying attention in the last decade or so, you would know that more and more people have shrinking savings, and increasingly growing debt. You may be making ends meet, but chances are you’re just barely scraping by. You know that you need to start saving, right?

The thing is, it’s not that simple. If you’re lucky, you managed to find one of the few remaining jobs that still offers retirement benefits. These programs take your money and save it for the future before it even hits your bank account, so you don’t miss it. But just saving money from your paycheck each month isn’t enough—and here’s why.

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1| Unpredictability

Life is unpredictable. Your car may break down. Your hot water heater may burst and flood your garage. You may face a medical crisis that you can’t afford. When life throws these curveballs at us, the first think we do is wipe out our savings, essentially leaving us back where we started. You start building your “emergency fund” again and hope that you’ll get enough money in it to cover the next disaster before it’s needed.

2| Access

For too many people today, the money sitting in a savings account is just too tempting. When you’re going to be short on your monthly bills, it’s easy to transfer that money into your checking account to cover what you need. And then a friend calls and invites you on a once-in-a-lifetime trip, at a fraction of what it would normally cost because the hotel is being paid for by their job. You just have to pay for the airfare. It’s too good to pass up, so you dip into your savings again, and before you know it, it’s gone.

3| Inflation

By far the biggest problem with relying on savings to finance your future is inflation. With average annual inflation rates regularly above 3%, and savings interest rates well below 1.5%, keeping your money in a savings account means that it will end up worth less than it was when you put it there. Even if you do have the willpower to avoid spending your savings, it’s not going to do you much sitting in a savings account.

So, what are you supposed to do?

The short answer: Invest

But investment tends to be a big scary word that many people shy away from. They believe that taking their money and risking it in the stock market is a gamble. They feel safer with their money in the bank, especially if they watched loved ones lose their investments during the recession. But as we pointed out above, you’re losing it anyway if you park it in a savings account. Investing your money puts it to work for you, creating passive income.

Real Estate

Real estate is usually a good place to put your first investment. Over time, if you maintain the property well, almost all real estate will increase in value. Since you’ve got to pay for a roof over your head anyway, buying a home is a great way to put your rent money to work earning value instead.

Stock Market

While the stock market has its ups and downs, over time it always increases. Even after the recession, the stock market has regained its previous value and continued climbing. With average returns of 8-10% annually, this is the place you’ll see the biggest gains. Just make sure that if the market takes a dive, you allow it to regain its value before you take your money out.

Cryptocurrency Trading

While a terrifying prospect for many, cryptocurrency is a great place to invest your money, as long as you get in early and do some research. There have been some huge gains in recent years, and while those large gains are not likely to be repeated, there will still be a general upward trend.

Peer-to-Peer Lending

A relatively new banking product, peer-to-peer lending allows investors (you) to lend to borrowers (someone like you) while eliminating the middle-men (big banks). So they can offer better interest rates to borrowers, and higher gains to investors.

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While savings isn’t the best way to grow your money, it has to be done if you want to have anything to invest. Once you have your emergency fund covered, take your next chunk of change and learn to invest.

Alana Downer is a money advisor, a finance blogger, and a traveller. Whenever not spending her time on some beautiful beach, Alana shares her financial knowledge online, writing on behalf of Learn to Trade – experts in the field of investing. She is particularly fond of smart time management tactics, and dislikes unproductive meetings.