A 36-year-old who learned to invest like Warren Buffett explains how saving can cost you money. via CNBCMakeIt
If you're just saving and not investing, you're setting yourself up to lose money in the long run. That's a lesson Danielle Town, author of"Invested: How Warren Buffett and Charlie Munger Taught Me to Master My Mind, My Emotions, and My Money ," learned the hard way.
"Now, I realize that to some people who know about financial stuff, this sounds ridiculous," she says."But I didn't know anything about financial stuff. I knew inflation was a thing that felt very macroeconomic, but I had never connected it to my actual savings."What happens is that inflation causes prices to rise, which makes money less powerful over time. While a $20 bill will always be worth $20, what you're able to buy for that amount dwindles.
However, that same amount invested with compound interest would have grown to about $20,000, assuming a 6 percent rate of return. Even if you only earn a 4 percent rate of return, it still grows to around $7,000. The people who encourage saving mean that you should save instead of spending money. But because of inflation and the fact that what people buy will be more expensive 'tomorrow,' people spend all of their money and whatever they can borrow 'today,' so we need to be encouraged to save instead of spend. Nobody is saying, once you've saved some money, to keep it sitting in a savings account.
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