One of the fundamental lessons we learn about handling money wisely is the principle of saving. Maybe Grandma gave us a piggy bank with the famous quote “A penny saved is a penny earned” inscribed on the side. Perhaps it was an uncle who opened a life insurance policy or a parent who took you to open your first bank account.
Whatever the source, it has become a nearly religious exercise to throw the loose change in a jar and save ahead for a rainy day. But there is more than one thing to know about saving, and what you don’t know might be costing you big bucks down the road.
The Fatal Flaw
Imagine for a moment that in 1950 a relative put $1,000 into a jar. They buried that jar in the back of the family property but passed away before they were able to reveal the secret stash and the location to anyone else. Now you are getting ready to plant a garden, and you stumble upon the jar.
For you, it’s a thousand bucks, and you aren’t sad to find it. You might buy a TV, or perhaps a new computer with that money. But what you can’t see just by looking at the money is that the jar is missing something. According to this inflation calculator, about $9,850 worth of purchasing power went missing in the last 70 years. Would you feel ripped off if you discovered that you could have bought $10,850 worth of stuff in today’s dollars?
Inflation is the silent killer of the value of money, caused by the increase in currency produced by the government. By adding more dollars to the market, there is more money to spend, but the power of each dollar gets a little weaker for every dollar added.
Think of it as paint getting watered down to stretch the paint further. You can keep on painting, but you will discover it gets harder and harder to get that paint to do what it’s designed to do. If you keep adding water to one gallon, you may end up with five gallons, but you also end up with far more water than paint.
In the same way, inflated money is diluted from its former value.
Burying Your Money
One of the sad truths about savings accounts is that you are rewarded for your diligence and good savings habits by actually losing your money as it sits there. The annual inflation rate is projected to be about 2.2% in 2021. The very best annual percentage yield for a savings account is only around a paltry 0.5%, so as your money sits in savings, it shrinks a little every day!
Essentially this means that placing your carefully earned savings into a basic savings account is hardly better than placing it in a hole in the ground until you want to use it. Like a child sneaking a cookie out of the jar, time is pilfering your goods a little at a time.
Save Your Savings
So what can be done? How do you rescue your savings from a long, slow death by attrition? The antidote to inflation is to get your funds into an investment avenue that gives a return that outpaces inflation.
By getting your funds into a well-managed investment, for example, you could stop the negative flow that inflation causes over time. Not only that, but you could potentially start building your wealth at an exponential rate through the power of compounding interest.
There are a lot of ways to accomplish this, and at Whittenburg Wealth Partners, we have the experience you need to help make that happen. We would love to help you navigate your options and get your hard-won savings on the right track.
Austyn Whittenburg is a wealth planner and partner at Whittenburg Wealth Partners, a family-owned and family-operated financial and wealth management firm located in Salt Lake City, Utah. Austyn has 7 years of experience as a wealth planner and spends his days helping business owners, emerging successful families, and their ensuing generations simplify their financial lives and discover meaningful solutions. Austyn received a Bachelor of Science in Finance from Brigham Young University and holds the Certified Financial Planner™ (CFP®) and Certified Business Exit Consultant (CBEC®) credentials, his FINRA Series 7 through LPL Financial and 66 registrations through LPL Financial and Stratos Wealth Partners, and his life, health, disability, and annuity insurance licenses. Austyn is active in his community of Herriman, Utah, where he resides with his wife, Ciera, and two young sons, Grayson and Graham.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Partners, Ltd. and Whittenburg Wealth Partners are separate entities from LPL Financial.