Does saving work for you?

Most of us have never been taught how to invest, let alone save.  Younger generations are living differently to their parents:  they're marrying later, spending more on 'lifestyle' and fearlessly taking on credit card debt.  As a result, many people have significant earning power but few assets.  Inevitably a time comes when you need to manage your finances better.  To be financially independent you need to build an asset base that generates passive residual income, but first, you need to get your debts, finances and home loan in to order

Most Australians know the answers to their financial goals; it's just the crucial step of how to go about achieving them that provides the biggest hurdle. The subject of "how to build wealth" is generally not taught in our schools, by the government or the banks, yet the wealthy possess these skills in abundance. What little knowledge we have obtained is more centred on how to budget and save money, rather than how to invest and make money – which is how most of the wealthy get rich.  In other words, we everyday Australians work harder to create wealth.  We must have our money work harder and ourselves working smarter.

I cut and paste this off our website and I believe it goes some way to answering your question about saving money.

I hope this was of benefit to you.

Sean,

I appreciate where you are coming from. Indeed, how to start saving is the key to creating wealth.

Here are some ideas:

1. Start with 10% of your NET income. Put it away into a separate account and refuse any offers of your bank to have an access card.

2. I never used to believe in the concept of “a lifestyle I have gotten used to.” But in my old age, I discovered it is true. People get use to a certain lifestyle. And it’s really very hard to wean them off the cafe latte. So, here’s the clincher: there’s no easy way. You will go through withdrawals. From the caffeine, the late nights, the high heels, the hair dresser. But it must be done.

3. Make it fun. My family have a contest going, who got it the cheapest! The recognition is massive. I buy my children’s clothes at St Vinnie’s and the House of Salvos. In the Paddington branch, at Sydney’s Eastern suburb, I bought my son’s office shirt. Hardly used, and it’s the genuine article: Ermenigello Segna. He works in a law office, so he really looks the part.

4. Going to a sale it NOT saving money.

5. Cut costs. Easiest way is to rent a cheaper place. My nephew lives in a boarding house in North Sydney, walking distance from where he works. He has no utilities costs, no bus fares, no need for a car. He only buys food. For entertainment, he’s got Facebook. In one year, he saved $20,000.

6. Dating: geez, make this romantic. Together, plan to surprise each other with the “no cost” dating. Such as bushwalking, picnics. Australia is so beautiful, you don’t have to go too far to explore and be a tourist in your own backyard.

7. Get a second job, just for fun.

Just a few tips.

Angel

Of course, this works the other way too. I saved the most money in my life straight out of university. I was used to living on next to nothing while studying, so found it easy to just continue that way. Over time my expenses went up, but those first few years helped set some good things up.

The ability to spend less than you earn is paramount to building wealth.

In the past the the following advice worked quite well:

• Do good at school.
• Don’t get into debt.
• Work hard in your job.
• Pay of your home as soon as you can.
• Save, Save, Save

One could retire quite comfortably by simply saving 10% of their income.

However, over the past decades the landscape and rules of money has changed considerably.

Our system today is no longer based on sound money, but is based on fiat currencies and debt.

Fiat currencies that no longer place any restraints on government spending.

Fiat currencies designed to lose purchasing power over the longer term.

Simply following the advice of saving may not yield the best outcome.

In an inflationary environment one's focus should be towards making more money and getting into good debt.

Ok .. I'm going to get angry on this one. Briefly .. and reasonably.

Listen to yourself spout the garbage straight out of the press. I hear it .. i listen to it .. and it bloody annoys me.

Name a period in history where currency wasnt FIAT.

When Australians arrived in this country .. they had the holy dollar minted by punching a hole in one, creating two coins with the original being worth 15 shillings and the central punched out 'dump' being worth a shilling. Creating a significant market markup on the original mexican and spanish dollars, it was australias first currency. Yes .. australias currency was created on a markup on old spanish silver dollars. A huge FIAT markup that was incredibly profitable for the colony.

Oh .. then you must have been talking about the time when it was gold and silver? Sure it was, but at the time your average sovereign was worth anything up to a couple of weeks wages. So it was not the regularly traded commodity that a copper penny or silver shilling was. And even at this period .. the main accreditation for the penny or shilling was a heavy markup on the initial metal price. Effectively making the coin FIAT for all its intrinsic metal value.

Then you must be worrying about the changeover from a backup of gold sovereign guarantee that was dropped from the money in 1932. That was due to the ongoing fluctuations in the 'stable' metal of gold due to demands placed on it. The government could not be producing sovereigns that were at any rate of markup over the gold value .. and effectively dropped the gold standard. This just meant that they were no longer offering a direct monetary to marked-up metals linkage.

Now that I've finished addressing recent history .. the Spaniards were complaining that they werent getting enough silver in their thinned down Reals back in the 16th century. The silver price was so great in the late 18th century with all the revolutions and wars that people were shredding the edges off the coins. This was the reason that 'milling' was introduced on coins (the rim edges of coins are milled explicitly for that purpose).

The weight of the coins of henry VII were so thin that people complained that the 'sovereign' was light these days, meaning the king.

I have more examples going all the way back to roman times. But please tell me .. you are so much wiser. At what particular time in history was the currency not FIAT?

The other thing to mention is that many a king and many a kings goverment were brought to the edge simply due to overspending and lack of effective mechanisms to stop this. It never had anything to do with the state of metals in the country or the intentions of its people. Traditionally .. a king and his bureaucracy were spendthrifts with the people's money.

So as you can see from the above .. FIAT money would have never made a difference at any time in history. It remains what the people assessed as the value allocated to the currency that gave the ongoing transactions any value whatsoever.

And historically .. no matter what the period .. goverments tend to overspend. That means that no matter how hard you save .. at least once or twice in your life .. you are destined to get absolutely SCREWED over by a period of rapid inflation which totally nullifies the value of any savings held.

In a modern western democracy over the last 50 years thats now happened at least 3 times. But in small South American countries and some parts of Asia and Europe it happened quite often in parts of the 20th century.

So historically .. holding onto a bank account and relying on an overspending government is a longer term russian roulette with your hard earned money. Even with investing it in a bank .. if the bank feels it can offer you 5% on your money (and you arent including bank and government taxes on that .. the 5% is GROSS), dont you think they must be making more on that money to offer you that 5% in the first place?

A savings account is a body of safety to stop you hoarding money under the mattress and give you easier access. It is not a point for creating ongoing wealth, but it does remain leverage for being able to create your own wealth.

Xdrew, you have every right to be angry and annoyed, and I appreciate you voicing your opinions about this issue in such a straightforward manner. And yes, you are right, the garbage that I have spouted comes from what I have read, heard and watched. To address your request about naming a ‘period in history where currency wasn’t fiat’ we first need to be on the same page – what is your definition of ‘fiat’? To me, ‘fiat currency’ is currency that is not backed by anything of intrinsic value.

In the book ‘Guide to investing in Gold and Silver’ Mike Maloney summarizes the pattern of currency debasement quite well:

1. “A sovereign state starts out with good money i.e. money that is gold or silver, or backed fully by gold and silver
2. As it develops economically and socially, it begins to take on more and more economic burdens, adding layer upon layer of public works, and social programs
3. As its economic affluence grows so does its political affluence, and it increases expenditures to fund a massive military
4. Eventually it puts its military to use, and expenditures explode
5. To fund the war, the costliest of mankind’s endeavors, it steals the wealth of its people by replacing their money with currency that can be created in unlimited quantities. It does this either at the outbreak of the war (as in the case of World War I), during the war or wars (as in the cases of Athens and Rome), or as a perceived solution to the economic ravages of previous wars (as in the case of John Law’s France)….”

Just to clarify my position… I have nothing against Saving money, and believe the ability to ‘spend less than you earn’ is an essential habit to develop. All I simply wanted to highlight is that the monetary system we have today is designed to work against savers, and simply saving on its own may not be sufficient to fund a comfortable retirement.

I agree with Duckster. Online savings and the savings system there is really no incentive is there? 

I believe it is hard to save because most people do not know how to save, unfortunately. It does not matter if you have a good job or not. It is all about discipline and buying things that you need not the ones you want. Additionally, it is important to know how to invest properly. Right and smart investing will soon lead to a financial independence. 

"Wealth is the transfer of money from the impatient to the patient." –  Warren Buffet

I'm a big fan of long settlements on property purchases.  The capital growth you enjoy before you've even stumped up the cash is a bit like earning interest on a bank account you have not yet deposited money into.