You can't save your way to prosperity. You can't?
While in a conversation at work the other day, the statement was made “You can’t save your way to prosperity.” This is an old saying that I’ve heard before, but to be honest had forgotten about. The saying caught my attention and my immediate reply was “Really? I think you can.“ We didn’t get in a big conversation about it, but it did made me think.
What does it mean?
The origins of “You can’t save your way to prosperity” are unknown, but what it refers to is that saving money alone will not make you rich or prosperous. In order to be prosperous, you must invest your money to generate money. Doing some quick Googling on the saying, it turns out it’s commonly used by large companies and associated executives when explaining why they haven’t reduced expenses or when investing their money.
Can you save your way to prosperity?
At first, this old saying goes against many of the things I teach here on Gather Little by Little. I firmly believe that you can be prosperous by being frugal, managing your money, saving, and living on less than you earn.
As I mentioned, this saying advocates investing and that the true path to financial prosperity is through investing and making your money work hard for you. I don’t believe this is the only true path, but I do believe it will potentially lead to far more financial prosperity.
I think the essence of this old saying is about how we define prosperity. For someone that currently isn’t saving money and living paycheck to paycheck, prosperity may be just having an $1000.00 emergency fund and being able to place food on the table, pay the rent, and pay any other remaining bills. For others it may be having tens of thousands of dollars in a savings account, driving fancy cars, and living in a large home in an exclusive area of town.
Investing is risky. If someone has the cash to fall back on when making risky choices, than by all means they should do so. Risky investments are typically the one’s that can lead to the highest returns. If you don’t have the cash to fall back on though, making risky investments is just plain dumb.
Save first, invest later
I believe that the very first step to being prosperous is contrary to the old saying, and indeed starts by saving. The first step is to begin living on less than you earn. This is easily done by creating a budget. The difference should be placed into a savings account where an initial emergency fund is established (The Dave Ramsey baby steps recommends $1000.00). The next major step is to eliminate any consumer debt. This is best accomplished through the use of a debt snowball and by snowflaking payments.
Once all of these basic financial steps are in place, I might argue you are already prosperous. To begin building true wealth start investing. Investing will make your money work harder for you and grow your wealth over the longer term.
What are your thoughts? Can you save your way to prosperity? How do you define prosperous? Add a comment!
Photo by: Ordered Chaos