If you’re after financial freedom, you’ve probably already heard a lot about how important it is to save money. But is saving an overrated and outdated strategy? You might have heard that Robert Kiyosaki claims that inflation has made savers into losers. Is there any value left in saving money or has that forever changed? In this article, we’ll be looking at the simple way to use a “saving” strategy in order to accomplish financial freedom.
The Purpose of “Saving” Money
In the four bucket financial system, one of the main categories for directing your cash flow is the category of cash reserves. This is where you put your money so that in case you have an emergency, you’ll have a lump sum of cash to draw upon instead of having to go into debt. The other purpose of cash reserves is for planned purchases so that you, again, don’t have to borrow money or put your purchases on a credit card.
This is the closest thing to saving money that you’ll ever need to do, the rest of your strategy is either focused on building wealth or you’ll end up losing money to inflation. By having money set aside for emergencies, you eliminate a LOT of the money stress from your life and also eliminate the need to plunge yourself into debilitating debt in order to handle an unexpected financial event. Then you’ll be able to focus all your attention on building financial security and increasing your personal wealth.
Beyond the Saving Step
Another place to direct your money in the four bucket financial system is towards investments. This is essential and it needs to be a priority. I’ve found that one of the major differences between people who are broke and those how have financial security and even wealth, is that the financial secure people invest their money before they pay their expenses. It’s typical of human beings to think that they have less money than they do and to be afraid that if they invest (or save) first that there won’t be enough left over to pay their bills.
I would challenge you to start spending your money like this: invest 10% first, give 10% second, save 10% for cash reserves third, and use the leftover 70% to take care of your expenses. If this is too much of a leap for you, then invest first, and pay your expenses second. As you do this, you’ll realize that you have a lot more money than you think you do to pay your expenses. Then, you’ll have the confidence to start making your saving and giving a priority as well, and that’s when you can really start building financial freedom.