Getting Rich By Saving?

savingWhen we think of ways to get rich, most of us picture making tons of money, so much money in fact that we can live the rich life, where how much money we spend becomes irrelevant.

The truth is, that picture is flawed (to say the least). In recent years we’ve seen actors, former athletes and formerly successful businessmen who burned through tens, (sometimes hundreds) of millions of dollars.

But before we get into a debate, we need to agree on what we refer to as “saving”. And in that regard, I tend to favor Robert Allen, the author of Multiple Streams Of Income, among other personal finance bestsellers.

Here’s Robert Allen’s take on the subject:

There are two meanings for the word save: (1) to pay less for your purchases, as in “Safeway saves you more!”; (2) to create a surplus, as in “I need to save money for retirement.” Some people are good at the first save. They like to shop for bargains. But they are terrible at the second save. Wealthy people are great at both.

The second save involves taking that money that you refrained from spending and actually putting it to work (also known as investing it). Finding ways to save money can only take you so far.

I was recently watching a commercial for a Robert Kiyosaki seminar where he flat out says that “Savers are losers”. If you keep the money you save in a bank account, inflation will, slowly but surely, erode its value. If you put that money into a money market account, or a CD, you’ll barely keep up with inflation. That’s sticking to the first save.

When you look at it this way, Kiyosaki is totally right. Just understand that you’re not a loser not for saving, but for failing to invest what you’ve managed to save.

Actually, it’s hard to get rich without getting some sort of hold on one’s finances. And if you do strike it rich while your finances are a mess, your prosperity will likely be short-lived. Saving is indeed the cornerstone of financial success, but you can’t get rich through saving alone. It has to be complemented with investing for it to translate into financial freedom.