Cutting Edge Insights
with Dr. Lee

“Savers are Losers”

The title of this article is in quotes because someone said it. That someone wasn’t me. “Someone” refers to a well-known financial author; specifically, Robert Kiyosaki, the author of Rich Dad, Poor Dad, which is the #1 personal finance book of all time.

Because I need to cite the advice and claims of other well-known financial authors with whom I disagree, I think I should give all of them names within this article. 

So, I’ll call Robert “Skippy.”

Skippy says that savers are losers. That’s odd. Most of us were raised by, brought up with, and taught the advice that we should save money. We shouldn’t spend all that we have.

Let’s dissect this advice using our “Third side of the Story” logic (read about it here).

Q: Is Skippy telling us not to save?

A: It’s easy to draw that conclusion. It may or may not be accurate.

Note:  Regardless of whether or not I agree or disagree with someone’s idea,

  1. I’ll always recommend that you think for yourself.
  2. I’ll always back up my opinions with relevant data.

One of the most common ailments experienced by American families during the Great Recession was that their month lasted longer than their money. In other words, they did not have the financial capacity to meet their fixed monthly expenses and even if they were close, they did not have any savings to draw from.

With that in mind, one is likely to think that savers would be winners.

Indeed, it doesn’t matter whether you are talking about a household budget or a business budget, the relevant facts are whether there is enough money to last the month.

In the words of a highly intelligent speaker I heard in the early 2000s (unfortunately, I can’t remember his name):

“If your outgo exceeds your income, your upkeep will be your downfall.”

In the words of Donald Trump (pre-presidential days, talking about real estate, no politics here please):

“It’s always nice to have a little bit of dry powder.”

These ideas would seem to support the thought that savers are winners.

Why does Skippy feel that savers are losers?

Well, the answer is that if taken too literally, if all one does is save, then one falls victim to the fact that the American dollar is a wasting asset.

No, I don’t mean that the dollar may not retain its position as the world’s reserve currency. That’s an entirely different matter and one on which I’m unqualified to pontificate.

What I mean is that inflation, a silent tax, continually erodes your purchasing power.

I was at a mastermind conference recently and was speaking to another attendee, a remarkably successful gentleman from the east coast who owns over 8 figures worth of self-storage facilities.

He reinforced the idea that if you don’t have your cash deployed by using it as a down payment to purchase real assets leveraged by fixed-rate debt right now, you may as well kiss 10% of it goodbye per year – because that is the approximate rate at which your purchasing power is eroding in this economy.

I tend to take a contrarian approach. I know that highly liquid cash sitting around is being devalued and debased at the rate of inflation (except for the cash that is kept in whole life insurance policies – that’s a different story for a different day), but I like to have options.

If all of my liquidity were spoken for/leveraged/used as down payments for more and more investments, you can rest assured that there would be a killer investment opportunity that would present itself. That’s Murphy’s law.

And I would be caught with my proverbial pants down.

Warren Buffet, the greatest value investor of all time, has been known to say,

“When the tide goes out, everyone gets to see who’s been swimming naked.”

I like to have cash readily available for good opportunities.

But I also like to have cash available for emergencies and black swan events.

An engine or transmission blowing up/out.

An unexpected medical condition or treatment.

The furnace failing.

Anything that is an unbudgeted expense.

The answer to this quandary, I feel, is that each of us has to figure out exactly how much cash to keep readily available in liquid form. 6 months of living expenses plus $X for good opportunities? We have to do what we’re comfortable with.

And I would say, beyond THAT, “Savers are losers.”  Because if you can’t at least obtain a return on your money that is equal to the inflation rate, your cash is actually losing value every second.

So, I agree with Skippy, with the above-referenced caveats.

Q: Who do you disagree with?

A: Well…Uncle Dave and Aunt Suzy. Although these well-known financial authors and gurus give generally good advice that the masses need to hear (don’t accumulate credit card debt, don’t use your house like a credit card, have enough savings to live on for several months), they also give advice that is simply contrary to building wealth.

Q:  Do tell?

A:  Here are my problems with their approach:

  1. They tell you to get out of debt. They fail to make a distinction between good debt and bad debt. Good debt (debt on a real asset) helps put money in your pocket. Bad debt (that on a toy or a credit card) takes money out of your pocket. Good debt helps you beat inflation. Bad debt subjects you to the effects of inflation.
  2. They tell you to buy fake assets. “Invest $XXX in ETFs or mutual funds” and they are generally against real assets such as real estate. (You already saw this one coming and knew that I wouldn’t leave it alone. You were right.)
  3. They discourage storing cash in whole life insurance. They advise you to buy term and invest the difference. (Never mind that 97% or more of term policies never pay a claim and that the ultra-wealthy do indeed store their cash in whole life insurance policies. And never mind that no one who buys term, ever invests the difference. They buy a steak dinner instead.)
  4. In general, their advice is centered on getting out of debt and saving, not building wealth or cash flow. (To me, the former is defined by the latter.)

Q:  But what about when I accumulate your above-referenced cushion? Does more cash help me?

A:  No. We all need to do what we’re comfortable with, essentially what helps us to sleep at night. But any liquid cash beyond the aforementioned needs – you need  to put it to work for you. It’s called the velocity of money. Extra cash beyond your cushion is stagnant money that losing value. Again – a wasting asset.

If I had to sum up some of the best advice I have ever received, it would simply be to live on less than what you produce. Live within or below your means. That simple advice would save more marriages, bankruptcies, and relationships than any counselor, pill, consultant, or advice from a financial advisor.

As you think about that, envision your financial picture. Are you sitting on enough of a liquid cushion for your comfort level? Are you sitting on too large a liquid cushion to the point that the value of your wealth is actually eroding a little every day?

What you may find is that somewhere between the teachings of Skippy and Uncle Dave and Aunt Suzy lies the boundaries of your comfort zone.

Disclaimer:  I give ideas, not advice.

Except if you want to learn how to successfully and profitably invest in real estate. In that case, download our eBook below.

Until next time,

Dr. Lee Newton

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