The Truth About Saving Money Part I

As I write this, the average percentage of income being saved in America right now is 3.2%, which is around $168 per month. This number has been on a declining trend with less and less money being saved since the mid 1970’s.

To add to that, the average savings account with a bank right now is paying just 0.58%. And the median savings account balance for an American family is only around $8,000.

If we do that math on an $8,000 balance and $168/month going into it, earning 0.58%, in 5 years an American family will have only grown their balance to $18,460. $18,080 of this was their own contribution, which means that over 5 years they’ll have only earned $380 in interest.

Not to mention that inflation will erode away at the purchasing power of those dollars and taxes will be due on the whopping $380 of interest earned.

In one of the wealthiest countries in the world, we do a miserable job of saving money.

Well, as with any situation where there are poor financial results, it means there is poor financial understanding and poor financial training (or lack of financial training at all) and that usually leads to a Law of Wealth being violated.

In particular, the Law of Wealth being violated is this:

“It’s not just what you make, it’s what you keep. But it’s not just what you keep, it’s where you keep it and what you use it for.”

This Law of Wealth has a few components that I want to break down and we’ll start with just the first part of “It’s not just what you make, it’s what you keep.”

This one isn’t new. I first heard this law when I was growing up and it made sense to me. If I earn income and don’t save any of it, it doesn’t do me much good. This part simply goes back to two Laws of Wealth I’ve covered before:

1. “Income is the gas pedal, so always earn a LOT more than you spend and always earn it before you spend it.”

2. “Always pay yourself first. Start with a set percentage and work toward saving 40% or more of your income.”

There will always be about 20% of the population that thinks they can’t earn more income and that the cards of life were unfairly dealt to them and that’s fine, that isn’t who I am addressing here. I am talking about the 80% of us who believe life happens because of us, not to us.

The first thing to do here is to pay ourselves a percentage of our income first. You should minimally be saving 10–15x your age per month. Work out what that dollar amount is, divide that by your income to get a percentage of income you should save, and make sure you pay yourself first with that percentage every time you receive income. This part isn’t hard at all. It’s a point of actually wanting to and being disciplined about it and I’m sorry to say that those who don’t do this simply either don’t really want to build wealth or they do want to build wealth, but they lack discipline.

The next part of this Law of Wealth is “…it’s not just what you keep, it’s where you keep it….”

I may have been a little harsh on the first part of this and rightfully so. Nobody is going to save your money for you. That’s on me and you personally if we aren’t doing it and there’s nobody else and nothing else to blame.

However, if you’re like me, you like to see positive results for doing the right thing. When you win the game, you like to earn a reward right?

Well, earning 0.58% on my savings isn’t quite the motivation I’m looking for. I believe many Americans don’t save more money because it the rewards aren’t great enough.

I personally keep very little cash in the bank. Usually about 1 month’ worth of expenses or less personally, and 3 months’ or less for my businesses.

Why?

Because I understand a little rule called The Rule of 72. If you divide the number 72 by the interest rate you are earning, that will tell you approximately how long it will take for you to double your money.

If I earn 6%, 72 divided by 6 is 12. So, at 6% it takes me 12 years to double my money.

If I earn 12%, 72 divided by 12 is 6. So, at 12% it takes me 12 years to double my money.

If I earn.58%, 72 divided by .58 is 124. So, at .58% it takes me 124 years to double my money.

For one, I’ll be dead! And on top of that, I wouldn’t be able to withdraw any money for 124 years because if I take it out, I won’t even earn the .58%. And I can’t leave out the fact that inflation will have destroyed the value of my savings and I’ll have paid taxes on my .58%.

I used to be a competitive bodybuilder and a personal trainer and I liken this to losing weight. Imagine going to the gym, eating right, and doing your very best to be disciplined only to find out that it will take you 124 years to lose .58 pounds. Nobody would do it.

I used to train dozens of clients per week and when they saw the scale go down, they got excited. When they didn’t see the scale go down, they got discouraged. Even if they lost body fat and replaced it with muscle (meaning the scale didn’t move or they may have even gained weight since muscle weighs more than fat) they would still be bummed out if the scale didn’t go down. As human beings, we like to see positive reinforcement and we like to experience results and wins.

Saving money means we chose not to spend it. We are foregoing things we want in the present in order to build a better future. But saving into a system that pays us .58% doesn’t build a better future and there is no real reward.

A key to saving more money would be that it rewards us enough to make it motivating to do.

Now the other place most Americans would say that they “save” is with Wall Street in retirement plans. This isn’t saving. This is investing or speculating (depending on what you’re buying in the retirement account).

First, retirement accounts aren’t accessible. Often, the funds in these accounts cannot be touched until age 59.5.

Second, they are expensive. A study done by Anderson Law Group shows that all of the fees and costs in a typical retirement account add up to 2–4% per year. And if you work with an Investment Advisor, you’ll pay another 1–2% per year on top of that.

Third, they aren’t safe. At least a bank account has a guarantee against loss. A Wall Street doesn’t. If another year like 2001, 2008, or 2020 occurs, you can lose most of what you’ve built up in there.

A key to saving more money would be that the funds are accessible when we need them, our savings aren’t eroded by fees, and that our money is safe and protected from loss.

When I think of the ideal place to save money, I think of exactly the things I’ve listed so far.

I’d like a decent amount of growth so that the rule of 72 works in my favor.

I’d like my money to stand a fighting chance against taxes and inflation.

I’d like to be able to access my money when I need it.

I’d like the fees to be minimal, if not zero.

I’d like my money to be safe and protected against loss.

Imagine if an account existed like this where you could earn 3–5% per year or more, your money couldn’t be taxed and at least kept up with inflation, that you could access it whenever you needed, where there are no fees or minimal fees, and that no matter what you could not lose money.

I know for me personally, this would motivate me to save a lot more.

Would it do the same for you?

An account like this does exist and we’ll talk more about that in other lessons.

But for now, I want you to find out how much money you’ve saved per month in the last 3 months and find out what that represents as a percentage of your income. Take a look at how much you have saved now and what it’s earning. And lastly, determine how much you’d need to save if you saved 10–15x your age per month.

In closing, my mission in life is to help good people build more wealth who make the world a better place.

So, if you’re a good person who wants to help make the world a better place and this article helped you, I want to encourage you to join our free Facebook community , Wealth DynamX Nation.

I want to encourage you to start putting this into practice. And feel free to write to me and let me know how it went. Or if you’re a client of mine and you’d like help leveling up, send an email to my team with “Level Up” in the subject line to [email protected] .

If you’re a follower and have not read my book The Blueprint to Financial Freedom yet, that is the place to start. This book covers the specifics for each level in the various chapters and you can grab the book for free as my gift.

Click here to get a copy!

The Blueprint to Financial Freedom by Jerry Fetta

To Purpose, Wealth & Freedom,

Jerry Fetta

Jerry Fetta is the CEO and Founder of Wealth DynamX. He is a nationally recognized financial expert featured in Forbes, Yahoo Finance, Fox, Chicago Weekly News, New York Finance, interviewed on 100+ podcasts with world renowned experts, earning endorsements and affiliations throughout his career with names like Kevin O’Leary, Grant Cardone, Dave Ramsey, and Pamela Yellen.

Jerry’s mission in life is to help create millions of financially educated and solvent families achieving greater financial freedom and sharing the truth about money with those around them.

Learn more at www.WealthDynamX.com

(DISCLAIMER: The information in this content should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Wealth DynamX can and does not provide advice unless/until engaged by you.)