What’s your money’s purpose? No one ever got rich by saving money

44 thoughts on “What’s your money’s purpose? No one ever got rich by saving money”

  1. Nicely said. I think saving is essential early on in wealth building. At some crossover point, compound interest takes over and does the heavy lifting. Investing on multiple fronts will help fund early retirement and other purposes you have in your life. We like objective based investing for our different accounts.

  2. Ultimately the road to wealth is a three pronged attack, earn, invest, and save. Ultimately you need a mix of all three to get wealthy. So in some ways I agree with the statement, savings by itself doesn’t bring wealth.

    1. Yup, totally agree. Saving is just one component within the larger wealth-building strategy. Alone, saving won’t make a huge difference, but when combined with earning and investing, it absolutely makes a big difference after compound interest has an opportunity to take over.

  3. ESI would be proud, Steve. Compound interest is an amazing thing to watch. After tracking our net worth for decades, it’s rewarding to see our net worth increasing in recent years WELL beyond the additional savings we’re funneling into the pot. Burn, FIRE, burn. Compounding is the fuel. An early exit is the reward. Screw you, Corporate America (smiles).

  4. Ah snap….you mean I have to invest what I save….

    This was a good rant! Thank you….It is interesting how success begets success (at least in this market). The stocks grow, your net worth grows, and boom it grows quicker every day. They say the first million is the hardest to save, I am still trying to get to a 6 figure net worth (though my savings are in the $300K range).

    I will be trying to teach my son to invest young and often. He can have fun with his friends, but if he gets money in the market, then at 30 he won’t have to worry as much about it and can pursue a life less lived (meaning a life without daily work, etc.). Sounds like a dream to me.

    1. Ha! Yup, who knew?!? And I absolutely agree that success begets success. It’s an exponential curve, just like compound interest. The idea of building upon your previous increases is an amazing thing – and totally ER-enabling!

  5. A good reminder today. I tend to fall into the trap of saving but then letting it sit around in the checking account for too long instead of putting it to work. I’m far too conservative at times. I guess there could be worse things. Take care!

  6. Haha that office space scene. My favourite is when family guy duped it with Peter’s the bird is the word CD.

    Everyone in my family puts their money in the mattress. I grew weary of fighting with. Old school chinese people can be extremely stubborn. 10 years ago my mom had 30K in cash and today, she has 30K in cash. Sigh.

  7. Setting your investment goals and then having those amounts automatically invested (kind of like the evil auto payments, but good) is the easiest way to climb the mountain. The benefit to this is that then, you don’t need to budget. All your investments are automatically made, you merely have to live long enough for your goals to materialize, and in the mean time, you can spend away on what is left to you after your auto investments are made. None of that pesky and stingy saving stuff. Couldn’t be simpler.

  8. Yeah, I think saving money only comes into play when you’re applying those excess funds to wealth-building. Right now for us, that means applying surplus funds to debt, since any stock gains will be canceled out by the interest on our debts.

    1. Thanks Mrs. Picky Pincher. Spot on – applying surplus funds to dead is an awesome way to become debt free. And once that happens, wealth building has the tendency to skyrocket.

  9. It is important to distinguish between reducing expenditures and saving. Many people can reduce how much they spend in a given transaction by getting a good deal or accepting a lower end item. But then they just keep on spending until they are out! It sounds obvious to those of us who are reducing expenses so we can save more, but actually saving your savings is a really big step.

  10. This post struck a chord with me (wish I’d read it 10 years ago!). I’ve been in my company pension for a long time (under-contributing but rectifying!) and am actively starting to boost my stocks and shares ISA (UK tax efficient product) having left money for far too long in a cash equivalent. However, when you’re in your 40s and hoping to retire within a 15 year time span, the temptation is to take more risk than you’d ideally like to try to make up for lost time. Do you have a view on the best approach for investing with a relatively short (12 years) timeframe? Trying to reconcile the need for investing with the fear of losing money. Good post, thanks.

    1. Hi Sarah – excellent question, and I can only speak for me when I say that I’m a little more risk tolerant than the average person. Therefore, I would probably be a little more aggressive with my investments – but that said, I do NOT pick and choose stocks. I just don’t know enough about them to feel qualified to make those types of determinations.

      What I might do is talk to a local financial planner/advisor in your area and see what they think about maximizing your short term gains. My wife and I have always been long term investors, so it’s tough for me to comment on strategies for the short term. It probably includes investing in individual companies.

      Again, I don’t invest for the purpose of short term gains. But, that also doesn’t mean it can’t work.

  11. I’m definitely with you that savings alone won’t get you there. Hell, inflation alone kills the value of non-invested cash pretty quickly – at 2.5% inflation, your money’s purchasing power gets cut in half every 30 years.

  12. This is interesting food for thought, although I do think many people who are really rich are also really stingy. It’s just making the right purchases. I do think you need to have investments…..but I dislike needing to buy property to retire early. I’d rather just super lower my living expenses and live way below my means (I live on a sailboat)….and that makes the goal so much easier.

    1. Hey Kristin – I agree, a lot of wealthy people out there know exactly what they are buying. They know the value they get for the money spent. Unless you’re just absolutely filthy rich, I think these same principles definitely apply to those folks as well.

  13. Great read! Saving for the sake of saving will get you no where unless you put that money to work. This thinking is almost as bad as folks that think us aspiring early retirees are “only focused on money” when most of us only want the freedom that money can buy. Money is just a means to an end.

  14. Every now then a thought pops into my head. Every single dollar I have spent since graduating from high school has been preventing me from retiring early. Dang it. Every single dollar and item purchased.

    I also sit at times and wonder how this system where we work 40, 50, 60 or more hours a week, 5-6 days a week is still going. Smart people wouldn’t do this.

    So, we save, invest and plan to quit “before” retirement age. Will that be good enough? Probably not. It will be interesting.

    1. Interesting for sure, Wade. Of course, some spending is okay – gotta spend SOME money on ourselves. But, moderation is absolutely the key, and knowing what truly makes you happy. 🙂

  15. Great article! Gave us a bit of a wake up call.

    However, you do have to save money because it takes money to make money. The currently stock market (mutual funds) have been yielding an estimated 15% of ROI. The only thing depressing about it is, “Not having enough money or more money to invest in this current market.” So, you need to save money, so you can invest it, especially in times like this.

  16. You are on the right track, don’t take this wrong. I’m just a bit older and have been around the block enough to know that no plan is bulet proof and if you don’t take these things into account, you’ll have a gaping hold in your retirement plan one day that you may not recover from. My rules for retirement are similar to yours and my investments have taken on a life of their own. Very much like the “Tipping Point”, our net worth increases more each year than my wife and my’s combined annual income. And some years, significantly more, as in multiples of our combined income. Will we leave too much money behind when we finally leave this world? Probably. I’d rather do that though than depend on my kids to help me out because I didn’t plan well enough. So, here are a few of my tidbits to consider.

    First, to retire at the age you claim to have retired at, you would need a boatload of money that is NOT in tax deferred accounts. That would be necessary for you to draw from until you reach age 59 1/2 to avoid paying a 10% penalty. Assuming a 4% drawdown each year, and that may be too aggressive, you would need $800,000 in a non tax deferred acount to be able to live on a paltry $32,000 a year, before taxes and medical insurance. I don’t know if you live in a trailer out in the woods somewhere and have no living expenses to speak of. If so, you might be OK but health insurance alone is probably $1,500-$2,000 a month depending on where you live. Whoops, there went half of your income.

    Second, when that first 20% market decline occurs, you’ll be back looking for work to try to make up that sudden “shortage” in your plan. Problem is, you won’t have a nice, neat resume without a huge gap in it to fall back on. Might make finding a job a bit tougher.

    Third, I don’t think you are really retired, are you? You’re running this blog and it’s loaded with advertising and probably affiliate links to earn income from. If you stop blogging, the income comes to a halt. I haven’t read your entire blog, just this article since it was “featured” on CNBC. Maybe you explain that somewhere in here where you didn’t “retire” but rather “retired” from corporate America.

    Fourth, there is a difference between “early retirement” and being “financially independent.” They aren’t one and the same. I personally don’t want to sit around the house all day in “retirement.” I’d like to travel to Europe and do all the fun things there are to do in life.

    On money and investing, we have a few very simple rules. First, saving and investing should be automatic. It should be diversified (we are about 50% invested in the market and 50% invested in income generating investment property). Never borrow money on a depreciating asset (cars, TV’s, etc.). If you have to borrow money at all, it should ONLY be for income generating investment property, other than your primary residence of course. This can be single family homes, apartments, commercial property, car washes, etc. Whatever you feel comfortable doing and something you can do while you are still holding down a job and can do during your off hours.

    I sure hope more people get on the bandwagon of saving for a “realistic” retirement income so keep spreading the word

    1. Thanks for your concern, Ross, and I’m thrilled to find out that I’m on the right track! 🙂

      You might be surprised that I agree with some of your points, especially the first one about money. Especially in traditional retirement, you’d need a great deal of money if you’re retiring at 35 and you spend like the majority of Americans. But, we don’t. The “paltry” $32,000 a year allows us to live in luxury and camp out with million dollar views very often for free. We’re young, so our health sharing plan costs us about $300 / month to see any doctor in the United States. It works for us.

      Yup, the resume gap is a very common argument. And frankly, I think there’s truth to that. But, the last thing that I’d want to go back to is what I was doing before and tried so hard to escape. If you’re an early retiree in your 30s, you’re probably creative enough to figure out how to generate income when and if you need it without resorting to your previous life.

      Regarding your third point, I like to say that I retired from full-time work. But quite frankly, it doesn’t concern me all that much what the “retirement police” believe about my retirement status.

      I talk about the differences between early retirement and financial independence a lot on this blog.

      And yes – automation is key. Paying yourself first is also key, especially during the accumulation phase of your life. Your views on borrowing money I believe are spot on.

      Congratulatons on being a little less risk tolerant than me. We’re all different, and we’re all doing what we believe is best for us and our families.

      1. Steve,

        I’m a debt free believer, we buy used cars and our living expenses are relatively low since we are way past that consumerism stage in life. We still have a 55″ rear projection Sony HD TV that works great, as it should since it has so few hours on it.

        We have seven rental properties. Five of those are paid for and the other two have about a dozen years left on them with 4 1/8% mortgages on them. We might consider paying them off early if the market were to falter. Our cars and primary residence are also paid for. Credit cards are paid off in full monthly and only used for racking up airline miles and using someone else’s money free for a month. They are only used for necessary expenses, not “stuff” we don’t need. We developed a “don’t need it” attitude many years ago.

        Tracking where you spend your money is so incredibly important. I have Quicken files going back to the late 1980’s. My wife teases me because she swears I can tell you how much I paid for socks back then. The sad part is, I probably can. 🙂

        Your young age certainly helps when it comes to medical insurance costs. I just turned 65 so my insurance went from $850 a month to about $150 a month so the older you get, the more can expect to pay for that same policy. I’m still trying to wrap my head around getting a $700 a month reduction in premiums and, so far, getting the same level of care I received in the past. It’s the first time I’ve ever heard my wife say she wished she could get to age 65 quicker. She is still paying something close to $700 a month in health insurance premiums.

        I “retired” when I turned 58 but it didn’t last long. All of the math was solid. I just didn’t count on that “emotional readiness” checkbox. Must have missed that checkbox somewhere along the way. At 59, I started yet another self employed business and it’s growing like crazy. At 65, I still have that fire in my belly and as long as I do, I’m going to go with my gut. Besides, when I had a choice to do anything in the world I wanted to, I finally took on a business that wasn’t based on how much money I could make but rather on how much enjoyment I could get out of it. It’s been a match made in heaven and I completely understand the old adage of “if you do something you love, you’ll never work a day in your life.”

        As far as me being less risk tolerant than you, it’s probably the exact opposite. I’m still going full speed ahead with aggressive “retirement age” investing. Any monies we won’t need for the next 5 years is very aggressively invested.

        We probably aren’t that much different in the end except you guys are perfectly fine living in an Airstream and we prefer the comforts of home. Since we live in Sugar Land (Houston, TX area), we certainly don’t have the views you get while you are camping out in the Airstream but I do have a lifetime pass to all the National Parks that cost me $10. Since my second passion, other than working, is photography, I will wear this pass out before I die.

        Like I said before, keep spreading the word. There is more than one way to achieve financial independence and I hope more people catch on. If I had to sum it all up in one sentence, it would be “Start early, spend (way) less than you make and invest the rest.”

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