Why you should not put your savings in the bank

Theme: savings are not the same as investment.

What is savings
Where to keep savings
What savings is not
Why you save
Paradigm
Shift


What is savings
What is left of your paycheck after expenses is savings.

Where to put savings
Savings should be put in tax-free financial instruments with capital guarantees (which do not have the risk of losing value). There are 2 types of capital guaranteed instruments: those for current needs (e.g. Savings accounts, chequing accounts) and those for long term needs (Guaranteed Interest Certificates, Bonds, Life insurance policy cash values,etc).

What savings is not
Savings is NOT investment. Investing means putting capital AT RISK in exchange for the chance of making a bigger return than your savings are making. To summarize: Savings are not at risk but investments are at risk.

Why you save
Long Term Savings are used to pay for items that are too big to pay for out of one paycheck. Long term savings finances every big ticket item you buy (e.g. Your car, your house). Long term savings also finances retirement.

What consumer debt does to kill long term savings.
Why is my mailbox full of offers to lend me money via credit cards, mortgages, etc? Not out of the kindness of the banks' hearts, but because these things are profitable for them. I applaud their business skill but I do want to make sure that I only do things that are beneficial to me and to the ones I love.

What a bank does is finance the purchase of items for you so that you will give your long term savings to them. Get it into your head. Your long term savings is a zero sum game: either you or the bank will make money off the finance of your car or home.

Q: How do you recapture the interest you'd otherwise be paying the bank, and turn it into savings that grow tax free?

A: Sinking funds. (next: sinking funds)