Savings... What's the Point?

Savings... What's the Point?

Mar 16, 2023
As a finance coach, you might be surprised to learn that I don't have a savings account.  

Why?  Because 'savers are losers' as famously quoted by Robert Kiyosaki author of Rich Dad, Poor Dad.   I never knew what he meant by this when I first read his book many years ago. 

My formal education had not taught me about how money and finance really works.  I felt quite ruffled about this statement since we are taught to 'save' it's what you do when you're smart with money. So who are you calling a loser Robert?!

Well, it turns out he's right and let me explain why. 

Let's break it down into simple terms so we can all understand it a little better. 

  • First, we must understand our purchasing power and what it is,
  • Second, we must understand inflation
  • Finally, we must understand the return on our money


  1. Purchasing Power = the amount of goods a single unit of currency (dollar, Euro, Yen etc) can buy
  2. Inflation = the rate at which prices for goods and services rise on an annual basis
  3. Return on Money = Interest paid i.e. the amount of money a bank or financial institution pays you for holding your money with them


The official inflation rate is 7.8% (Dec 2022, Australia)
The interest paid on savings accounts varies.   Mainstream banks will pay you anywhere from 0.01%- 2.5% for an everyday savings account and between 3.45% -4.80%  if you meet certain other stricter criteria. Let's be generous and call it 3.5% return per annum. 

If goods and services are going up by 7.8% and the return on your savings is only 3.5%, you are actually going backwards to the tune of 4.3% i.e. you are in a losing position.  Your purchasing power is eroding before your very eyes.  Eye watering isn't it 😩


Example showing you how savers are losers


Some experts say that the real rate of inflation is considerably higher than the official reported figures.


The official inflation figure is calculated based on price changes in a typical 'basket of goods'. What's in your basket, is unlikely to be exactly what is in the official basket!  


Inflation is like a thief in the night, a silent tax that we are all subjected to. To minimise this tax, we must invest in our financial education. I'll come to this more later.

To recap - 'Savers are losers' due to the rate of inflation being higher than the interest paid on your savings. The gap between the two is where you are losing your purchasing power.


"I love it when I find out I have less money than I thought" - said no-one ever.  


How Well is Your Savings Account Serving You?

Do you have a 'savings account' and how well does it serve you - really? be honest just think about it for a while. 


I meet many people who have 'savings', but then X, Y or Z happened and now they've got a big fat $0 or worse (that's another topic). 

When I did have a savings account, it was wishy washy at best. Like a classic Melbourne 4-seasons in one day weather pattern.  Chopping and changing, blowing in the wind, not sure what's going to happen next, is it a cyclone or just a passing storm, an earthquake or just a shudder.   Can you relate?


What's the Point?

Money is like an insurance policy against uncertainty.   And what sucks about uncertainty is that it's hard to plan at best,  and at worst the rules keep changing so we find ourselves in a constant whirlwind. 

The difference lies in how you approach the uncertainty and what level of contingencies you have in place. 


This is one of the most important concepts I challenge peoples assumptions around in the early part of their coaching journey with me. 


Before you read on, take a moment to fill in the blank:


"I'm saving for a ........................"


You might say either I'm saving for a rainy day, a holiday, a new car or something similar.


The problem is we have no rules around our 'savings' and it becomes a constant tug-of-war between money in and money out.  It ends up becoming just another regular account, that is hanging around waiting for the next emergency call from uncertainty.  i.e. the car needs a new gear box, you need a new filing,  the dog broke it's leg, etc.   

The crux of this problem is that we keep borrowing from our 'savings' never to fully replenish it. This often creates more shame and guilt feeding our negative self-talk around money. 

Your unconscious identity around money shapes every decision you make.  We cover this in detail as part of the Empowerment Program.


A successful savings account is one that has a defined job.  So give it one. A sole purpose, a sole task and stick to it. Give it a name. A name that identifies what it is and what's its purpose is for. Then it will know how to behave as you will be in command.


How to Become a Winner

If the habit of saving is purpose-driven then savers can be winners. 


Going back to my journey, I found a much more helpful and easy way to structure my accounts which helped me to win. 

I created accounts for specific purposes. i.e. I turned my savings account into a property deposit account.  I contributed every pay cycle and never withdrew on it. This was my non-negotiable. 

With discipline came reward.  I was able to invest in my first property at age 26.  

Think of your money as a team of people you employ. At the top sits the Director (YOU) yes - you it's time to take charge of your people.  You have your team running around keeping things humming.  Each team member has a defined role to play and a job to do.  You assign them a job with a specific purpose and off to work they go.  It's the same with money.  It needs a Master (YOU) and you control the servants (your money and accounts). 

Money performs best when it has rules and boundaries.  Think of any area of your life  - your business, your children, pets, sports.  All require structure and perform well when there is discipline and order.


Do Something. Your future self will thank you

As you may know or have guessed property is a big part of my world both professionally and personally.  For some it's shares, business or other ventures.  No matter what it is, you must do something! 

We live in a world where inflation is rampant, purchasing power is eroding and covering our basic cost of living is becoming ever more challenging. 


Summary

To get on the front foot, you need to plan ahead, create purpose-driven saving accounts and invest in assets which out-perform inflation to keep ahead of the curve.


What are you doing to ensure you are a winner, not a loser?



Don't Know Where to Start?

Easy - book in for a call with me so we can get your accounts working optimally and create a plan for your financial future!


Do it now while you can and don't let this opportunity to become financially empowered pass you by.




Warm wishes,

Personal Finance Coach - Empowering you to be in control






Disclaimer: this content does not constitute advice and should not be relied upon as such. Cashflow Mastery is for educational purposes only. It is not to be taken as Financial, Taxation, or Legal advice. Full terms are found on our website.