Don’t just save — invest!

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I didn’t have a savings account until I got married. Until then, all I had was my checking account which mostly hovered around zero dollars. I didn’t have much money to spend let alone save, and while I definitely could have saved something, I was never in the mindset to do so. Thankfully, my mindset changed. After I married, my wife put her savings account in both our names and we contributed to the account regularly.

We also considered investing in mutual funds but decided against it. We didn’t know enough about investing and didn’t want to put our money in something that we didn’t understand. What we should have done was learn more about mutual funds (and investing in general) and then invested. Instead, we were content with a savings account and didn’t pursue investing any further. 

We were in a stable financial situation, but that’s not necessarily a good thing. Doctors don’t decide patients are in stable condition and then stop helping them; they work to make sure the patient is healthy. My wife and I were perfectly happy being stable, but should have desired to be in a healthy financial situation instead.

One of the biggest threats to financial health is inflation. I’ve known for some time what inflation is, but I never considered its long-term effects on my savings; it is because of these effects that I strongly encourage everyone to invest.  Yes, there is risk involved with investing, but simply putting money in a low-interest savings account almost guarantees you will effectively lose money due to inflation.

According to InflationData.com, inflation in 2012 was at 2.07% – one to two percent higher than the interest rates on most savings accounts. So in 2011, if you had put $10,000 in a savings account with a 1% interest rate, you would have had $10,100 at the beginning of 2012. But due to inflation, something that cost $10,000 in 2011 cost over $10,200 in 2012 according to the Bureau of Labor Statistics. In other words, your $10,000 in savings earned interest but was still worth less in 2012 than in 2011.

Of course, I’m not saying people shouldn’t keep money in a savings account; even 0.25% interest is better than no interest at all. Also, having money in an easily accessible account is important for emergencies and big purchases. However, it’s also important to have long-term investments in addition to keeping money in savings accounts. Not only is it a better way to prepare for things like retirement, tuition for your children, and planned giving, but at the very least, it gives the money a chance to be worth in the future what it’s worth today.

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