Why Saving Money Is Good, But Growing Your Money Is Better

Money management is a critical skill that affects nearly every aspect of life. While saving money has long been heralded as a cornerstone of financial stability, it is only part of the equation. To truly achieve financial success, growing your money should take center stage when you start your career. In this article, we explore why saving money is good, but growing it is even better.

The Limitations of Saving Only

Saving money is the foundation of financial security. It allows you to create an emergency fund, achieve short-term goals, and provide a sense of stability. Nevertheless, saving alone does have limitations.

Inflation Erodes Savings: Inflation reduces the purchasing power of money over time. If you save $10,000 today and inflation averages 3% per year, that money will effectively lose a substantial portion of its value in a decade.

Missed Opportunities: By simply keeping your money in a savings account, you could miss out on opportunities for higher returns that could come from investing.

Low Returns: Traditional savings accounts often offer minimal interest rates, typically below the rate of inflation. This means your money isn’t growing—it’s stagnating.

Even if you focus on cutting expenses, limiting dining out and other entertainment or travels, there’s still only so much to be saved but, there’s no limit to how much you can earn. If you are not keen on investing, starting a side hustle to make extra money could help build wealth too.

The Power of Growing Your Money

Growing your money involves leveraging your savings through investments, entrepreneurship, or other income-generating strategies. Here’s why this approach should be an area of focus when there are so many job cuts we hear every now and then.

Compounding Returns: One of the most powerful forces in finance is compound interest. By reinvesting your earnings, your money grows exponentially over time.

Beating Inflation: Investments such as stocks or real estate can yield returns that outpace inflation, or at least check out fixed deposits, T-bills or bonds that match inflation rates to preserve your purchasing power.

Passive Income: Growing your money can lead to passive income streams, such as dividends, rental income, or interest payments. These can increase financial freedom and reduce dependence on a single source of income.

Achieving Long-Term Goals: Whether it is funding your wedding or higher education, buying a home and saving for renovation, or retiring comfortably, growing your money allows you to accumulate more wealth.

Striking the Right Balance

While growing your money is essential, saving still plays an important role. A balanced financial strategy you can consider includes-

Building an Emergency Fund: Set aside three to six months’ worth of expenses in a high-yield savings account to cover unexpected events. Save at least 10% of your take-home pay consistently if possible.

Investing Wisely: Diversify your investments across various asset classes to minimise risk while maximising returns. Invest at least 10% of income and 50% of your net worth if you can.

Continuous Learning: Educate yourself on financial topics to make informed decisions about where and how to grow your money. Increase your skills in other areas out of your current job.

For those doing a normal day job, try negotiating for a pay raise or change roles if there’s a better opportunity. If your side hustles are tiring you out, drop them. It’s super important that you moderate how you are earning money, so that you can earn money for the long run.

Don’t compare yourself with relatives and friends too. That’s hard but it just makes you feel worse but they could be starting off from a higher point to begin with.

Final Thoughts

Saving money is a necessary first step toward financial security, but it’s not the end goal. To achieve true financial freedom and prosperity, growing your money should be a priority. It takes a solid plan, discipline and money management skills as well. By investing wisely and taking advantage of compounding returns, you can ensure your financial future is not only stable but also flourishing.

When you have the bandwidth, start planning for a comfortable retirement. Do consider if you have the basic expenses in retirement, how much you need to sustain the lifestyle you aspire for, whether you have current CPF Full Retirement Sum (FRS) and any streams of other income. In the world of personal finance, the adage rings true: don’t just save your money—make it work for you.

Master Your Finances Wisely,

Value Vaulter