Tuesday, 1st October 2019
The saving game is not what it was….
The concept of saving is as old as the hills….
The Bible talks about it – telling us that the wise store up choice food and olive oil, while fools gulp theirs down….
The Danes and the Germans have a proverb that says money saved is as good as money gained….
The Spanish have one that says he who saves has, he who has gets….
Warren Buffett – a man many regard as the final word on how to grow wealth and keep it – says this….
‘Don’t save what is left after spending; spend what is left after saving….’
- A springboard to greater wealth….
I once had a friend who maintained that only a moron would die in credit….
He reckoned it was much smarter to leave behind a pile of unpaid debts than provide a surplus of cash for somebody else to work through and enjoy….
I can see where he was coming from – theoretically at least. But life is lived in practice rather than in theory….
And I think it is almost universally acknowledged that, in practice, life is a great deal more comfortable when lived on a soft cushion of credit rather than under a welter burden of debt….
Savings provide security – a firewall and a prop against the unexpected….
Savings take away the requirement to go into debt to finance the things we need and the things we want to do….
Savings give us the wherewithal to act quickly and to take advantage of opportunities – as and when they appear on the radar….
Savings – whatever their form – tend to become exponential. A lot of little things (interest, dividends and other accumulations) compound into a big result given a long enough track to run down….
In other words, saving acts as a springboard to greater wealth over time….
- The saving habit is worth adopting….
That’s the central finding of a book I was reading over the weekend – a book called Change Your Habits, Change Your Life by a guy called Thomas Corley….
Corley is a certified public accountant and financial planner. And he spent 5-years studying millionaires and figuring out how they got to be that way….
He interviewed 233 American high-net-worth individuals (177 of them ‘self-made’) with a gross annual income of at least $160,000 and net assets of at least $3.2 million….
He was looking for commonalties – the habits, behaviors and ticks shared by these people and which might have contributed to their financial success….
Two things he found caught my eye….
First, he found that 80% of the people he interviewed who might be considered ‘self-made’ didn’t get that way until they were 50+. In other words, the game is not over at 40….
Second, he found that prior to achieving ‘millionaire’ status, almost all the ‘self-made’ people had set themselves a goal of saving 10% to 20% of their incomes….
Their ‘saving’ activity was varied with money being put into pension funds, investment vehicles and straightforward bank deposits. But the connection between saving and wealth was clear-cut….
Corley concluded: ‘Self-made millionaires make a habit of saving. The more you are able to save at an early age, the more wealth you’ll accumulate.’
- Slim pickings….
If you’ve got kids or grand-kids – and you can get them to tune-out of PlayStation or put down their phones for 5-minutes to listen to you – it is probably a good message to get across to them….
In theory at least….
In practice, things are not what they were. Corley’s conclusion makes perfect sense but is not so easy to put into practice if you’re starting out in 2019….
The growing gig economy, the proliferation of zero-hour employment contracts, student loans, rising rents, the rising cost of living, flat-lining wages….
All these things are game changers for large swathes of today’s younger population. Regular money is not only harder to come by. But harder to hang on to….
On top of that we’ve seen a decade of the lowest interest rates ever experienced by man in 5000-years of human history….
These ‘emergency’ rates were introduced after the 08/09 global financial crisis to steady the ship and to help fund ‘recovery’….
Ten-years on, emergency interest rates remain in place and show no signs whatsoever of returning to anything that might be considered normal or median….
- A different climate….
That’s been great news for folk with money in the markets….
A fast-flowing river of cheap credit has seen the value of stocks, houses and other assets hit all-time highs over the last 10-years….
But for the common-garden man on the street who just wants to put his surplus cash on deposit and earn a few quid in interest payments, it’s been a decade-long diet of slim pickings….
And it could get worse. Sooner than you think….
Negative interest rates are already being applied in various European jurisdictions in one form or another. It could happen here too. The prospect is very real. And it would only serve to make an already desperate situation worse for savers….
In a negative interest rate climate, you wouldn’t get a single penny piece of interest on your cash. Nothing. Instead, you’d be paying interest to the bank….
Effectively you’d be paying a fee to the bank for holding on to your money. And if you let the bank hold on to your nest-egg for long enough, it would eventually disappear – one interest payment at a time….
In short, those folk who do still have money on deposit or money to save are being encouraged to either spend it or to divert it to alternative investments and financial instruments that carry significantly more risk than cash deposits at the bank….
I wonder how many of Corley’s self-made men would have done so well as they have had they started out in that climate….
Probably not many….
That’s the truth of it as we see it….
All the best,