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Saving, the First Step


Wouldn't it be nice if greed kept us from procrastinating on important financial decisions, and Fear made sure we didn't jump into situations that could cost us dearly? Unfortunately, when they merge, Fear and Greed double our bad choices.


Greed pushes us into risky "investments".

greed rollercoaster

If we do end up making a good investment, Fear can turn it into a bad one by making sure we leave after we've lost a big chunk of money, but before the stock price can go back up.

fear rollercoaster

It is your feelings' crazy ride of Buy and Sell that is often worse than if you had never invested at all.

mixed emotions

Which begs a question that kept me from investing for much of my young adult life and has now taken over this post:

Is it worth putting my money out there at all if I could lose it? Isn't it better to just save my money, and put it in a bank account? So long as I don't spend it, I can find that same amount of money right where I left it.

No, "Surprise, you have half the money you had yesterday!" No, "I wonder how much money I have today (if I sell my stock)?"


First things first: Having money in a savings account, put away for a rainy day, is not just a good idea, it is a great idea. So great that it is the very first thing you should do, as soon as you get a job and start making money.


Money in your savings account is...


This means that if you need that money for something right now. You have it! It is ready any time.

So, if there is an emergency, like your car needs a new tire.


Or Fluffy gets sick...


Or you lose your job unexpectedly, and you still want to be able to have a place to live and food to eat until you find another one,


You have money to solve the problem. When money is liquid, it can be poured right out of your account at any time!


That's right! Should the unexpected happen, that beautiful savings account can swoop in and save the day!


Of course being


has a downside. It's easy to pour money out of your account even when it is not an emergency. It can be too tempting to spend that money on a coffee here or a trip to the coast there. Now you haven't actually saved as much as you had planned because you are spending it.


Let's say you don't have to worry about this. You never even look at that savings account. You only spend from your checking account. Your nest egg is safe and sound snuggled in the bank. Yes, I liked that idea a lot. But, for me, it was not just a first step; it was the only step.

Here's a couple things that changed my mind:

  1. Inflation.

In 1970, The average cost of a fast food burger was 18 cents in the U.S. Three years ago, in 2018, that burger cost $2.64.

For the cost of one burger in 2018,


You could have bought 14 burgers in 1970 and still had 12 cents left over. Two packs of gum only cost 10 cents so after freshening your burger breath, you still have 2 cents left.


The money you save now goes down in value a very little bit all the time. You won't notice it day to day (in the U.S. at least), but over years, it can make a difference.

If you saved $100 of your hard earned cash in 1974 when you got your first job. Now, it is 2021, you are 65 years old and you would like to retire. That $100 is still there, right where you put it in your bank account but it can buy less. You would need $528.34 in today's money to equal the worth of that $100 when you first saved it back in 1974. You lost more than $421 of buying power!


Some of you are asking, "But doesn't the bank pay me something for keeping all my money in an account with them?" Yes, but often not enough to counter inflation.


Still, Inflation on its own didn't convince me. Sure, I lose money over many years, but risking my money by buying stocks? Couldn't that cost me a lot more?


The answer and the real reason I changed my mind:

There are safe, responsible ways to invest that will likely pay out several times the initial investment given enough time. You are likely leaving a lot of money on the table by keeping all your money in that cozy bank account.

Say you put that $100 in a nice, safe, boring investment back in 1974. Then you forgot about it until recently. It is likely that you would have between $9,570 and $14,260.37 just from that $100.


That's right. Thousands of dollars where there used to be only $100. That got my attention. Maybe I should take some of my nest egg out of that savings account and invest it. Come back next week for more on this.



Warren Buffett's Ground Rules: Words of Wisdom from the Partnership Letters of the World's Greatest Investor

Websites listed here are not intended for kids to visit without adult supervision. Some of the numbers in this post are estimates and may not be exact, but the overall message is right on the money.,%2C%20or%2011.15%25%20per%20year.