You can't save your way to prosperity. You can't?

By glblguy

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

9 Responses (including trackbacks) to “You can't save your way to prosperity. You can't?”

  1. Emily Says:

    I am with you. I think you can. And I intend to prove it :)

  2. Spencer Says:

    You just touch on a very important point, the ability to take on risk. Risky investments have the best potential returns, but if you have not been saving, and don’t have a solid foundation built, you will be in no position to take on that risk.

    One of the ironies of investing is that those who need the best returns (lower wealth investors) have the least ability to take on risk. Those that have already attained wealth have the ability to take on risk and great grow their wealth.

    It is important to build a solid foundation of savings so that you can comfortably take on riskier investments, such as stock market investing, leveraged real estate (any home with a mortgage), etc.

  3. Heather Says:

    Another important thing that you covered is taking on a budget. I know this is covered by a lot of people and how to effectively manage your budget, however the reason why they do is because of how important it is. I can’t tell you how many people that I have dealt with that keep catching that debt snowball.

    Put your money away. In some cases it is important to put your money in a safe place that you won’t be tempted to touch. Obviously don’t do this when you have problems paying off your debts in the first place.

  4. Steward Says:

    I think you can become prosperous (i.e. rich by American standards) by saving without having to invest … ever. You just need to be a professional athlete who makes millions but lives like a typically comfortable middle class person like me. For those that make a middle class salary and want to to be prosperous (i.e. rich by American standards) then they have to invest.

    If we broaden the term prosperous to include the rest of the world then most Americans don’t have to do anything to be prosperous because they already are within the top 25% of the world in terms of wealth – and I think the number is closer to 10%.

  5. "Mo" Money Says:

    You completely right about this. If must start with saving!

  6. Curious Cat Investment Blog Says:

    That saying is wrong. That is how you get their. Either that or extreme luck or extreme talent at something that pays very well.

    By the way Stewart I think it is closer to the top 5% (for how much wealth they spend every year on necessities, niceties and toys). Many in the USA seem to think that just because they can see some people that are wealthy fairly close to them they must be poor. There are over a billion people that don’t have reliable safe running water and reliable electricity.

  7. Sarah McElyea Says:

    I read (and saved) an interesting article by Thomas J. Elpel called “Building a House on Limited Means” yesterday. He causes one to think outside of the box as far as working for material things your whole life. He encourages resourcefulness, and though his writing is not Bible-based, makes you think about what is important to you as an individual or as a family. What do you really want to do with your life, and who do you want to SERVE?

    Hope you read and enjoy this article. I would copy and paste it, but that might be illegal. I just don’t know.

    God bless!!!

    By the way, I was 2nd out of 8 children. We grew up “poor” and without TV (probably the best thing they ever did for us), but my father was (and still is) very frugal. It has really paid off for them, and my mom will always be well taken care of, should anything happen to him. (He is very health-conscious, since his father passed before his time, and this pays off, too.) He studies his investments and will have a good retirement went he decides to stop working. I know that his saving and setting that example for us helps me be more understanding of my husband if he can’t give me “everything.” Daddy never took out loans and didn’t ask the government for any help, either. The Lord always took care of our needs when we brought them to Him.

    Again, God bless you!!!

  8. Randolph Miller Says:

    The main thing to keep in mind is that just because something makes a good investment doesn’t mean you can afford it. Buying a home instead of renting may seem like a good investment, but that doesn’t mean you should spend $500,000 on a new home if you can live just as well in a $100,000 used home. Investment is good, but live within your means!