The first idea – simple but easy to overlook – is that building wealth has little to do with your income or investment returns, and lots to do with your savings rate. Fortunes can be blown as fast as they’re earned – and often are – while others with modest incomes can build up a fortune over time. Wealth is just the accumulated leftovers after you spend what you take in. And since you can build wealth without a high income but have no chance without a high savings rate, it’s clear which one matters more.
More important, the value of wealth is relative to what you need. A high savings rate means having lower expenses than you otherwise could, and having lower expenses means your savings goes farther than it would if you spent more. Since people require vastly different amounts of spending to get by each month, $1 of savings to one person is worth something totally different to another.
Past a certain level of income, what you need is just what sits below your ego. Everyone needs the basics, and once the basics are covered there’s another level of comfortable basics, and past that there’s basics that are both comfortable, entertaining, and enlightening. But spending past a pretty low level of materialism is mostly a reflection of ego approaching income, a way to spend money to show people that you have (or had) money. Think of it this way, and one of the most powerful ways to increase your savings isn’t to raise your income, but your humility.
So people’s ability to accumulate a meaningful amount of savings is more in their control than they might think. If you view saving more as something that requires a big (or higher) income, it can seem out of reach. In fact, it does for many people because their expenses grow as fast (or faster) as their income. But if you view saving as changing your perspective on how much you need to spend in a way that also lowers the amount of savings you need to become meaningful, it’s more in your control.
You don’t need a reason to save. Are you saving for a house? Or a vacation? Or a new car? No, I’m saving for a world where curveballs are the most common balls thrown. Only saving for a specific goal makes sense in a predictable world. But ours isn’t. Savings is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment.
But the best reason to save is to gain control over your time. Everyone knows the tangible stuff money buys. The intangible stuff is harder to wrap your head around, but can be far more valuable and able to increase your happiness. Savings gives you options and flexibility, the ability to wait and the opportunity to pounce. It gives you time to think. Every bit of savings is like taking a point in the future that would have been owned by someone else and giving it back to yourself.
That flexibility and control over your time is an unseen return on wealth. When time isn’t on your side you’re forced to accept whatever bad luck is thrown your way. But if you have flexibility, you have the time to wait for no-brainer opportunities to fall in your lap. This is a hidden return on your savings. Savings in the bank that earns 0% interest might actually generate a meaningful return if it gives you the flexibility to take a job with a lower salary but more purpose, or wait for investment opportunities that come when those without flexibility turn desperate.
And that return is becoming more important. Intelligence isn’t necessarily a sustainable advantage in a world that’s as connected and competitive as ours has become. But flexibility is, and I think it always will be. There are lots of smart people, and what used to be considered intelligence is increasingly automated. In a world where hard skills become automated, competitive advantages tilt toward nuanced and soft skills – like communication, empathy, and, perhaps most of all, flexibility. Having more control over your time and options is becoming one of the most valuable currencies in the world.
That’s why more people can, and more people should, save money.