How Your Money Saving Beliefs Are Stopping You From Building Wealth

By Isaac Chanakira

On my previous article (The 5 Easy Things That You Can Do to Save Money in The Diaspora) I mentioned that you need to develop a saving habit to be able to put money aside. What I did not tell you then is that saving, like any other habit whether good or bad, is very difficult to get rid of.

Now you are wondering why I want you to get rid of your saving habit after I have been encouraging you to develop it. I want you to eliminate that habit so that you can develop a new habit that will take its place and boost your wealth creation.

If your aim is to build wealth you must set a saving target and once that target is reached you should switch to investing.

Below are the reasons why you should replace saving with investing:

1. At the time of writing this article bank interest rates are below 1% and, in some countries, the rates are negative, meaning that you are paying the bank to keep your money. If you put your money in a term deposit you might be luck to get 1%  interest rate or a slightly higher rate than that. Now let’s do a little bit of mathematics to show how saving alone is not going to get you anyway fast. Let’s assume that your net pay (take home pay) is $50k. Assuming that you are a very good saver, and you are putting away $20k in your saving account with 0% bank interest and 0% inflation. It will take you 50 years to make a million dollars. I don’t intend to discourage anyone, but numbers don’t lie. My intention is to let you see how futile it is clinging onto a saving habit instead of switching to investing.
2. Numerous people do not invest their money for three reasons:
   • They have very little to no knowledge of what is involved in investing
     • Contrary to popular belief, you do not need to be an expert in personal finance to start investing, you just need to have the money and the mindset to get started. There are many ways you can get involved in investing such as buying mutual funds or ETFs. Little knowledge is required on your part because fund managers will do all the research and investing on your behalf at a small cost. I will write another article about different investment tools you can use.
   • They are afraid to lose the money that they have saved.
     • Even if you put your money in the bank for saving, there is still a risk of inflation that you must consider. On the example I have given above, we have seen that  saving alone will take you a very long time to become a millionaire. Some people also don’t know that banks have a limit of money they can insure should anything happen to the bank. In Australia only $250k is insured, so, if you have millions of dollars in a bank be aware that only part of it is recoverable should the bank go burst. It is wise to know how much of your money is insured in banks in your host country
   • They do not get paid enough money to invest
     • You do not need to have thousands of dollars to start investing but, you certainly need to have a starting point hence, the need to start by saving. Once you have saved enough for your emergency fund, direct all the other funds towards investing. There is a lot of information on the web regarding where you can invest and how much is needed to start the investing. Start as soon as you can and develop it into an investing habit, just like what you have done with your saving.
3. The biggest advantage that investing have over saving is the ability to enhance your returns. Instead of getting a 1% return on investment (ROI), you can get up to 20% ROI or even higher depending on your risk tolerance and the investment vehicle that you are using. Having said that, it is also important to recognise that they are  some risks involved and a chance of losing some or all of your invested money. So, you must take some calculated risks and have a lot of patience because investing is a long game. You cannot expect to invest your money for a short time and ripe huge benefits unless if you are an experienced speculator or day trader.
4. When you are saving money, you are relying only on your money that you can afford to put aside whereas when you invest there are opportunities to use leverage. See my previous article (The 14 Financial Terms That Everyone in The Diaspora Must Understand) to get an understanding of what leverage is and how it can help you build wealth.
5. Unlike saving, which is limited to money only, investing can include advancing your understanding of financial knowledge or gaining additional skills that can help you in your wealth building endeavors.

If you have been able to develop the saving habit you will find it easy to switch to investing because the basics are the same except that instead of putting your money in a saving account, you will be putting it in an investment account. The challenge now will be on your risk tolerance. You will need to study what kind of an investor you are and try to work according to your strength.

We can all share ideas on how to build wealth in a foreign country. It might sound like common knowledge to some of you, but you will be surprised by the number of people who might not know anything about investing, so, don’t be shy to share your opinions in this forum

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