This Is What Happens If You Don’t Invest Your Savings
Like math, geography, or English, saving should be a compulsory subject in schools. Yes, you read it right. If we want responsible adults with financial literacy, it is essential to instill this habit in children from a very young age. But today we will talk about what happens if you don’t invest your savings.
Because saving is not everything. It is very important to know how to cut expenses, have a frugal life or live below our means in order to save, but it is also just as important what we do with that money saved.
Storing it at home under the mattress, at the bottom of a flowerpot or in a hollow book, is not a good idea. They could steal it from you, burn in a fire, and countless misfortunes. You might even forget the hiding place. Can you imagine the “this only happens to me” face that would stick with you? If you don’t invest your savings, it will be almost like not having them.
Stacking it in the bank in a checking or savings account isn’t too bright an idea. Although it will be much safer than in the previous case, being “still” will lose value as time goes by. And if you hire a bank deposit you will hardly get a return, so it is not an interesting option either.
No matter how many turns you give it, the best destination for your savings is the financial markets, or what is the same, the stock market. Not investing your money is an unwise decision and with serious long-term financial consequences. Here we explain what are the consequences of not investing your savings.
These are the consequences of not investing your savings
If you don’t invest your savings, you lose purchasing power.
Surely you have read in many places that inflation is the number one enemy of the saver. Inflation is defined as the generalized and continuous increase in the price level of an economy and is used to measure how the cost of living evolves.
Because of inflation, the value of money is getting lower and lower. It does not have to be a huge inflation; a small rate is enough to reduce your finances in the long term. A 2% annual inflation, for example, will cause prices to rise 22% in 10 years and almost 50% in 20. That’s nothing.
If you don’t invest your savings, you don’t benefit from compound interest.
The compound interest refers to the ability of an investment to grow long term if interest on the same reinvested, integrated into the main capital. The more years, more capital invested and more profitability.
To give you an idea of the magnitude of what we are talking about, if you save 300 dollars a month for 20 years, in total you would save 72,000 dollars after that time. But if you invest that money and achieve a 7% annual return (the average of the stock market is 8%), thanks to the compound interest you will accumulate 157,914.50 dollars. More than double.
As you can see, not investing your savings is not a smart option: not only will your money be worth less as time passes, but you will also lose the opportunity to multiply it by obtaining a return on it. Therefore, when you invest, you must obtain at least an interest higher than inflation, since otherwise you would be losing purchasing power.
Now you know. Saving is as important as investing. If you want to know what the best investment options are, take a walk through the blog’s newspaper library. We have written a lot about it!