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In 1971, President Nixon took America off the Gold Standard. Previous to 1971 every dollar you owned was in essence a slip that entitled you to a certain amount of gold. When America was taken off the gold standard all your money ceased to be money and became currency. Currency is designed to go down in value over time. Currency is not based on anything (such as the gold standard was based on gold), but is rather just an idea. Your money is worth what everyone else thinks it is worth, and because it is not based on anything of real value the government can print as much money as they want (and they do).
Because the government is constantly printing money, the buying power of your money is going down in value over time. This is evident when you look at what $1 could buy you 20-30 years ago. 20-30 years ago you could buy a lot with $1. Now you will find it difficult to buy an ice-cream for $1, let alone anything else.
Because your money is a currency and is going down in value the old advice of "save money" is no longer relevant. In the industrial age this was good advice, but now it is outdated advice. If you are expecting the price of living to go up in the next 10-20 years (eg. the price of gas going up) then you shouldn't save money, you should invest money. However, if you think the price of living is going to go down in the next 10-20 years or more then you should go ahead and save money.
Personally, I believe that the price of living is going to go up, and therefore I am focusing on investing my money as opposed to saving my money. Always seek professional advice before investing your money. I am not an investment advisers and this article is for educational purposes only.
If you want to become rich (and I imagine you do otherwise you wouldn't be reading this article) then you need to invest your money like rich people do. Poor people save money that is a currency and going down in value over time, rich people buy assets that generate income.
If you want to invest like the rich do then first you need to understand the difference between an asset and a liability. In simple terms an asset is something that puts money into your pocket and a liability is something that takes money out of your pocket. For example, a rental property that generates more rental income than all expenses is an asset because every month it is putting money into your pocket. However, if that same rental property costs you more money in expenses than you are earning in rental income that is a liability.
The rich invest in assets that generate cash flow. Rental properties can be a great investment because as the value of currency goes down (the buying power of your dollar becomes less) that cost is passed on to the tenant of your rental property in the form of increased rents.
Savers are also heavily taxed on their savings. If you are earning 4% on your savings (current return on savings in Australia) then you will be required to pay tax on that 4%. If you are in a high income tax bracket then can be taxed up to 50%. Therefore your 4% effectively becomes just 2% after tax, all while your currency is decreasing in value due to inflation.
However if you invest in assets that generate income, like the rich do, then your assets go up in value as inflation goes up and your cash flow increases as inflation increases. So if you want to be rich, you should think about investing your money in assets that generate an income instead of just saving your money.
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Why Savers Are Losers
By Ryan Mclean
Most financial advisers and self proclaimed 'wealth experts' will give you the advice that if you want to become rich then you need to save money and live below your means. However, if you want to be rich then saving your money is a risky thing to do.