One of the old adages I have heard a million times is this exact phrase.
You can’t save yourself in to being wealthy.
Translation: You can’t only save money and expect to accumulate wealth. It is impossible. The money you made yesterday is worth less than it is today. And it will be worth less the day after and the day after that.
Here is a great example. A very conservative one really. Because we all know 2% inflation is a pipe-dream right now. The government says it is currently at 4.9%, but if you do any shopping, especially grocery shopping, you know for a fact your grocery bill has increased by no less than 20%.
So if you just stashed away $100,000 dollars and did nothing else with it. Here is how much it is worth today.
To determine the worth of $100,000 today compared to 20 years ago, we need to account for inflation. The inflation rate can vary over time, but as an approximate estimate, we can use the average annual inflation rate over the past 20 years, which is around 2% in the United States.
Using the compound interest formula, we can calculate the equivalent value:
Equivalent Value = Present Value / (1 + Inflation Rate)^Number of Years
Using this formula:
Equivalent Value = $100,000 / (1 + 0.02)^20 Equivalent Value = $100,000 / (1.02)^20 Equivalent Value ≈ $100,000 / 1.4859 Equivalent Value ≈ $67,331.42
Therefore, $100,000 today is approximately equivalent to $67,331.42 twenty years ago, taking into account a 2% average annual inflation rate.
That is why we say money today is worth more than money tomorrow. And this is especially true if you invest it in something that outpaces inflation.
I am not here to tell you what to invest in, but I highly encourage you to invest in things that are positively impacted by inflation. Meaning when inflation goes up. It inflates the prices of your investment as well.
Real Estate is one of those things. If we just use the 2% inflation rate as an example. If you buy a house that just keeps pace with that inflation rate. Your house will be worth 2% more each year you own it. And then when you add in actual appreciation because of market forces, it could be double or triple that.
And while it is going up, you also are paying the amount you owe on it down. Or in my case if you own income producing real estate. Someone else is paying down the amount you owe, while you get the benefits of increased appreciation, inflation, and increases in rent.
The reason most people don’t accumulate wealth is because they don’t have the courage to put that money at risk. Which means you have to have the courage to put your money in to an investment that can provide you a return.
I am not only talking about your 401k. That isn’t very risky usually. It is stable, and you hope it outpaces inflation or doesn’t get crushed when the stock market has a downturn.
Find something that you have the opportunity to earn real money from. Money that you could potentially use today if you need to. Not 40 years from now when you are old and retire.
Have the courage, take the risk, your life and your future depend on it.
To your success and your future.
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