Saving Money Is Costing You 7% a Year (Here's the Math)

There is a very correct versus not correct way to frame saving versus investing in the world of personal finance, and that is what I want to talk about in this video. We're going to talk through the difference between those two terms and concepts, and then how it relates to you and how you save versus invest, and then where a lot of people go very, very wrong with this. Let's get into the video. I hope you're having an amazing day wherever you are in the world. So we just went through a bunch of tools that upgrade how you work, and here is one that upgrades something most people never think about, how you actually hold your money. So this part of the video is sponsored by Rumble Wallet, and think about it, right? You've modernized your workflow, your content, maybe your whole business with AI and new tech, but your money probably still sits in the same setup you had 10 years ago. And Rumble Wallet is an upgrade, one app where you can buy Bitcoin, hold a stablecoin, peg the U.S. dollar, and own digital gold backed by real physical gold, and all of it is non-custodial, meaning you control access to your funds, not a bank, not a platform, you. Now the setup takes minutes. It connects with Moonpay, so you fund it with a debit card, credit card, or your bank account, and you're done. So this is one you want to add to your stack. You can scan the QR code on the screen, tap the link in the description, or comment Rumble to get a link under this video. So download Rumble Wallet and enter promo code JOHNLAW5, J-O-N-L-A-W-5, to claim your free $5 in U.S. stablecoin. It's a limited time offer, so grab it now, upgrade how you hold your money, and get started with Rumble Wallet today, again with code JOHNLAW5. Terms and conditions apply, so see the description or rumble.com forward slash promo official rules for the full details video. I've had a lot of conversations with people, which is the reason that I'm making this video, which goes something along the lines of, oh yeah, I'm saving money. And I'm like, cool, well, what are you doing with the money? Like, what are you putting that money in? And what they'll say is, oh yeah, I have it in my savings account. Or yeah, I have it in cash. I have it just sitting in my checking account. And that's really not good. Now when some people say saving, they mean investing. So that's fine. But that's what I want to pick through in this video, and then talk through again kind of the framing or the real cost of something like quote-unquote saving. Saving versus investing denotes what you actually do with the money. If you do anything with it, you are investing it. The thing you are doing with it is the investment. If you are saving money, you are doing nothing with it. It is just sitting there. So that is the framing. If it is doing something, if it... So that is the framing. If it is doing something actively... So that is the framing. If it is doing something, it is being invested. If nothing is being done with it, it is being saved. If you have cash under your mattress, it is being saved. If you traded it for shares in a company, then that value, that capital has been invested. So with that framing in mind, then we can talk through, okay, what are the actual costs or benefits that are involved first in saving? If you save your money, e.g. you do nothing with it, it just sits there, then no, it is not actually just sitting there. There are two costs. Number one is inflation, or basically as things get more expensive, the actual purchasing power or what you can buy with that money decreases a certain amount per year. And then number two is the opportunity cost or the return that it could be generating in other uses. And in the world of economics, we consider that a very real thing. If you could have bought, and let's forget anything with risk, just a bond, a zero risk bond, and you could have made 4.5% and you didn't, well, you lost 4.5%. Your opportunity cost, a very direct cost there, was 4.5% because you could have purchased that return for a price of zero, with zero risk attack. Let's assume that's a U.S. Treasury bond, not something sketchy. And then here's where that starts to get bad. Saving money as a short-term, right? I'm parking it here for a few months until I figure out an investment, or I have my rainy day fund that's just kind of cash on hand for an emergency. That's one thing. If saving money is a methodology that extends over a period of years to decades, that completely alters the trajectory of your personal finance. And that's for this reason. We're all familiar with the notion of compound interest. But what about compound disinterest? That's a bad way to phrase the opposite of that. Whereas if we just look at inflation, right? 2% a year, 3%, 4% right now. That might not sound that bad. But try compounding 4% losses per year for 20 years. The value, the actual purchasing value of your money will start to go like this. And it doesn't feel bad in this period, but then you just fall off a cliff. And that is really not a situation you want to be in if you're saving for something like a big purchase or retirement. And then that's only if we consider inflation. If you are actually saving money in the sense that it generates no return, not even something like a savings account, 3%, 4% APY, then your actual cost is more like 7% a year. And then if we start to talk more about investing in the sense of assets with risk, then that changes the conversation slightly. But even then, if you're young and you want to save or invest for the long term, if we're considering a savings account, which does generate 3% or 4% or 5% a year versus more aggressive assets over the long run, at least going off the last few centuries, those risks on assets are going to be the better play for you. Basically, the more your money is doing something for you, the closer you are to investing, the better you're going to be in the long run versus saving. And in no situation should you ever save for the long run for that exact reason that we described. And then in the case of savings accounts, generally those are going to pay less than something like a money market fund, which is risk-free or just literal U.S. treasuries, like the actual risk-free rate. So in most situations, this can depend, but in most you're just going to be better off saving that money if you want to go completely risk-off in either your money market funds or direct in treasuries and a brokerage account as opposed to any conventional savings account. So again, really in no situation should you keep a large volume of cash in a checking account, number one, or in a savings account, number two. You want it to be in a brokerage account, whether in a risk-off or risk-on set of assets or out there in the real world doing something for you or finally being invested in yourself. That is the big other category that we talk about on this channel when if you're not high income already, you're probably going to be able to benefit the most from investing and raising your active income as opposed to purchasing assets out there in some of the most competitive games on earth, like the stock market. Now, the next step you may be asking yourself is, OK, well, how do I go invest? And look, personally, the way that I approach personal finance as a whole is always risk-off, always hedge. I've taken that stance with my career. I've taken it with my investments. I want to go kind of really risk-on in some cases and then really risk-off in nearly all the other cases. And so what I'm not saying here is go invest all of your money in super risky assets. What I'm saying here is there is a category or a notion or frame of saving your money that you should absolutely never do because it makes zero sense. Then there's a way to save correctly, which is at the very least, get your risk-free rate of return. And then we can start to talk more about your risk-on assets that will probably generate over the risk-free rate of return over a long enough period of time, but may also lose value. If you buy your Coca-Cola stock, you buy NVIDIA or your tech companies, they could generate 10% a year while bonds only pay 5% a year, but they also could go down. And because, like I said, I approach that, I think, generally in a more risk-off way than most people, I'm not going to sit here and spiel to you on how risky you should be in your investments. And also, a lot of that just depends on your financial situation specifically. But that question of how risk-on do you want to be is only a question if we get away from the other, just red line, do not cross, do not have a ton of money sitting in a checking or a savings account. That is the core message I want to get across in this video. If it applies to you, I hope you find this helpful. If it doesn't, send it to someone who does. Because again, compound disinterest, I'm coining the term, is a very real and a very painful thing over a long enough period of time. And that's the video. Hope you have a good day, and I'll see you in the next one. Cheers.