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Saving vs. Investing: How NOT investing is costing you money

Saving is great! I LOVE it! However simply saving cannot grow your money the same way investing can. This blog post is going to help explain why.

What are you losing by not investing?

If you have money to put away and you chose to deposit it into a high-interest savings account you could actually be losing money when you factor in inflation. (Inflation is what eats away at your savings by increasing the cost of living by roughly 2% a year; it is the rate at which the general level of prices for goods and services rises and, consequently, the purchasing power of currency falls). So, if you are earning only 0.8% in a savings account, and the cost of goods and services is rising annually by 2% you are actually losing 1.2%/year in purchasing power on your savings.

Please take Jane as an example. Over the last five years Jane has invested roughly $19,650.00 by diligently putting away $150/paycheck. When deciding to save Jane considered both a high-interest savings account and a mutual fund. If Jane had chosen a high-interest savings account (earning about 0.8%) she would now have $20,048.18 in savings (earning $398.18 in interest). That’s a pretty decent amount she has tucked away and she definitely didn’t lose any of her principal. In a different scenario Jane chose to invest her money in a mutual fund within her TFSA (Tax-Free Savings Account). The mutual fund that was selected for her by her Financial Advisor has done very well and earned a rate of return of 9.45% over the last five years. Because Jane chose investing over saving her account currently stands at $25,130.82 and she has earned $5,480.82 in interest. If Jane had chosen to save over invest, her decision would have potentially cost her $5,083 in earned interest.


Believe you can’t afford to invest?

According to a survey done by bankrate.com, “more than half (53%) [of millennials] said they don’t have the money to invest. To which I would respond: It’s about priorities and you can’t afford NOT to invest.


That brand new car you purchased which is now costing you $700+/month in payments, eating lunch out every day to the tune of $100+ a week, that annual all-inclusive vacation, or what you spend at the bar in a weekend all add up and in effect all deduct from the amount you could be saving. I won’t tell you how to spend your hard-earned wages but making smart decisions regarding your money is the first step to allow you to begin investing. By spending less/earning more you can afford to save and invest. How do you do this? Simply by being aware of where your money is going is a good start. Monitoring your expenses and tracking the money flowing in and out. If you look back and evaluate where your money is going you may think twice about whether or not that particular expense or spending habit is worth it. Hindsight is, after all 20/20.


What is keeping you from investing?

In the same bankrate.com survey of millennials who currently do not invest, “one in five (21%) said they don’t know enough about stocks to invest.” If you are unsure about how to get started talk to a Financial Advisor, they can help you assess your financial situation and offer advice. They can motivate you to pay down that student debt, set up an emergency fund or save for the purchase of a new house. They are able to help you select investments that are appropriate for you and your situation.


WHY is it so important to start now?

Plain and simple: the power of compound interest. Let’s say each person below has a goal to retire at 60 years of age. All contribute the exact same amount bi-weekly, each begins at a different age. Estimating an 8% rate of return on their investment, each has saved the following amount by the time they are ready to retire at 60 years old.

Person 1 begins investing at 25: $749,291.62 ($612,641.62 interest earned)

Person 2 begins investing at 35: $310,738.47 ($213,088.47 interest earned)

Person 3 begins investing at 45: $113,159.99 ($54,509.99 interest earned)

Whose retirement funds would you rather have? Investing smaller amounts earlier on in life, has a greater impact on your long-term investment goals than attempting to put away larger amounts later on in life. If Person 3 wanted to accumulate the same amount of savings as Person 1 they would have to begin putting away $1,000 bi-weekly to catch up ($754,399.93), and even once they caught up they would only earn $363,399.93 total in interest $249,241.69 LESS than Person 1, and would have invested $254,350 of their own capital to save as much. By putting off investing until later in life, you are potentially costing yourself hundreds of thousands of dollars in earned interest years down the road.


How to start NOW (like, yesterday!)

The first step is to make that initial contact whether it is via email, phone call or text. Contact someone who is eager and excited to help you get a handle on your financial situation and offer sound advice. I’m here waiting, and would love to chat with you today!



Brooklyn Scott is a Financial Advisor/Mutual Funds Representative for Lewis & Jones Group/Desjardins Financial Group/Desjardins Financial Security Investments Inc. in Killarney, Manitoba.

Mutual funds are distributed through Desjardins Financial Security Investments Inc. For insurance products, Desjardins Financial Security Investments Inc. acts as a national insurance brokerage agency.

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