Tuesday, January 31, 2023

Ndindi Nyoro: This is why saving money will not make you rich

In business classes at the university, the take-home message is that a culture of saving is the gateway to financial freedom. However, nothing can be further from the truth. The school of thought that savings lead to wealth is unyielding.

From the economic pedestal, the culture of saving is supposed to contribute to a pool of money where investors, industrialists and those who engage in economic activities can borrow. The culture of saving from the great majority are supposed to help those expanding their investments by providing new capital.

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Consequently, these investments are supposed to create jobs, more value and spur the economy. However, the modern day hailed call to save, is slavery to doctrines that yield no results. Saving just as a matter of principle leads to a never-ending destination that leads to mediocre lives.

For example, a person who earns Sh.30, 000 and after paying rent and other basic amenities is able to save Sh5, 000. What if this individual is advised to try and save more? This would push him to reduce his expenditure, move to a cheaper house and even park his car at home, in favor of public transport. The other option to more savings would be to cut down on their menu and other such crucial expenditure.

Therefore, increased savings can only happen if the expenditure is condensed. This means relegating your standard of life. When you work so hard, the intrinsic motivation is to lead a good life with trappings of as much as can be afforded. This, unfortunately, is not possible if all you need to do is save.

On the contrary, to lead a good life, one needs to expand their income streams, not constrain the expenditure. To be wealthy is not a determination of saving from the same stream. It is a variable of having more, not spending less. You make no money by saving money.

Money is only made by engaging in more commercial activities. This, in turn, gives one freedom to actually consume more and delight life with more adornments. Therefore, if your income stream only affords you to live in a Sh10,000 per Month rental house, you make no money by moving into a Sh8,000 house.

You only likely end up in a house further from the road and other amenities. It only makes more sense to concentrate on expanding your current income stream and fostering new ones. This will liberate you to move into a Sh20,000 house which will likely be more comfortable. When this happens, economic activities increase and velocity of money is improved.

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The effect of this is a robust and vibrant economy. Reducing expenditure on the other side and almost invariably contracts economic activities. We better learn to spend, live large and indulge in the best that life can offer but we must keep replenishing the source by opening up the supply side of resources.

If employed, a side hustle will do. To those in business, you have less to do; just expand your lines and open new ones. In other words, the only kind of ‘saving’ that makes sense is that which transits to investments.

And the only investments that are worthwhile are those that create more revenue streams. Wishing you well and you plan to save less or none at all.

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