Dear Happy Investor, do you have a lot of savings and don’t know what to do it? This article is about what to do with savings. And I can already tell you it’s not about buying a new, expensive car. That is seriously the worst expense you can do (or wait, maybe buying fast food is even worse…).
No, you get the most out of your savings by making the savings work for you. This is a different Mindset. Instead of working for your savings, you will let the money work for you. After all, that’s the way to build wealth and become financially free.
People don’t get rich by working. People become rich by investing. In this article, you’ll learn what you can do with your savings so that you get the most out it.
Let us begin!
What to do with savings? Don’t put into your savings account!
What to do with savings? Let it work for you and become wealthy
Three ways to build wealth thanks to investing your savings
Conclusion on what to do with savings
If you regularly read my articles, you know that I write a lot about achieving financial independence. This is a luxurious position in which you have significantly more freedom in life. You will also experience less (or never) financial stress. In principle, this is also easier than you think.
Quite simply, it involves (1) earning more money, (2) saving more money, and then investing this money and making it work for you. As you can see, savings is not one of them. Savings are fun and make people feel safe. Contrary, investing is feared by many. But it is investing that allows you to build up wealth, not thanks to savings. In fact, if you put too many savings in the bank (or under your bed) you will literally become poorer.
Yes, if you hold too much in savings you will literally become poorer. You read that right. This is because of the culprit called inflation. Inflation causes your money to become worth less (because you can buy less for it). I can explain this by means of a simple calculation. Suppose you have 50,000 dollars. You put this in the bank, and you receive 1% interest annually. But the inflation rate is 2%. Because you receive 1% interest from the bank, but because inflation is 2%, your wealth decreases by 1%. In short, you think you will gain with 50,000 dollars * 1%. In your account, you will actually receive 50,500 dollars. But a 2% inflation rate means that you can actually buy 2% less. So with the 50,500 you can buy less, and thus you have become poorer.
Note: It’s not smart to put all your money in the bank. But it is smart to keep a small financial buffer of 5000. Or you can put your money on a savings deposit on which you get higher interest, such as through the banner below.
Buffering savings and receiving interest on them is not really smart money behavior. Investing, on the other hand, is. Very many people do not invest their money and therefore lose an enormous amount of money. The main reason for this is that people are afraid. They are afraid that their money will be worth less, because investing involves risk. At least, so they think because it is possible to invest money with little risk. This is all due to a lack of knowledge. Because those who delve into investing and the possibilities to do so, understand that this is the only way to make the money work for you. Make money work for you and build wealth through it.
If saving money doesn’t help you build wealth, how does it? Let’s look at three proven ways to build wealth.
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As I mentioned, investing your savings is hugely important. It answers the question of what you can do with savings. We now know that, in any case, you should not put your money in the bank. Your money will then become worth less. Spending money on products is also not very smart. Certainly not when you don’t need it at all. That leaves us with one option, and that is investing money. Let this be the best choice for what you can do with your money. The three ways below are a great option for what you can do with your savings.
Investing yourself or having someone else invest for you
One of the choices about what to do with savings is investing. You can invest yourself or have the money invested. If you don’t know about it, it’s better to have your money invested. Either way, investing money is really important because it makes you richer. In the earlier example, we had 1% interest against 2% inflation, making your money worth 1% less. And that’s every year! But with investing, you can get returns of 3, 4 to 6% in a reasonably low-risk way.
You can choose to invest in index funds such as the S&P 500 or Nasdaq. In that case, you ride along with all the shares in this index fund. As a result, you immediately have your money spread over a lot of companies. Spread is important for those who want to run less risk when investing their money. Besides index funds, you can also choose dividend stocks. Dividend stocks pay out a certain percentage of return each year. Suppose you buy a share of the company Exxon. They have a dividend of about 6%. If you invest 10,000 dollars, you will get 600 dollars of dividend payment every year.
Investing is one of the best ways to become rich. I invest with DEGIRO. Purely for the reason that they are the cheapest in terms of buying and selling shares. You can invest just fine yourself. That is cheaper than investing your money, but if you do this you must be sure of your case. You will have to learn about investing. Otherwise, you will lose a lot of money. So in case you have no knowledge about investing and don’t want to worry about it, you better choose for example for mutual funds.
Let Money Work for You! Starting on the best investment platforms is half the battle
Are you still working hard for your money? Why don’t you consider letting the money work for you! Create passive income and attain financial freedom. Starting on the best investment platforms is half the battle. Do you want to know what the very best investment platforms are? Then click on the blue link to compare the best investment platforms now. Here you can read my independent comparison of the best online brokers for stocks, crypto, and P2P. Save money and choose the best investment platform!
Another option about what to do with savings is to invest in P2P lending. P2P stands for Peer-2-Peer. This means that you provide loans to other individuals. This is a relatively new option for investing money. Recently, there have been platforms where you can lend money to individuals all over the world who are looking for money. Here you can get interest from 6 to 13%. That’s 13x higher interest than at your bank. But with P2P-lending platforms it is very important to pay attention to how well your money is protected.
Update 2021: recently I am investing about 10,000 dollars through Mintos. In doing so, I apply the Auto-Invest option to divide the amount among (314) different loans. Currently, the annual return is around 9.06%. For me, Mintos is a great alternative on what to do with savings. For example, I actually use Mintos as my savings account, receiving a significantly higher return. A crucial advantage to this P2P platform, is that you can immediately sell your loans and have your deposit back. In other words, it is highly liquid. This gives a big advantage: should the stock market crash, I can take out my deposit from Mintos and put it on stocks (buy the dip).
Note: 10,000 dollars sounds a lot, but this is less than 10% of my total net assets. Therefore, I would not advise otherwise putting less than 10% on Mintos. After all, investing always has risks to money loss and you should spread the opportunities!
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Real Estate Funds
For me personally, the best way for what to do with your savings is to invest in real estate funds. I do a little in P2P lending, and more in investing myself and in investing in real estate funds. The big advantage to a real estate fund is that you don’t have to worry about it. You invest your savings, and the fund uses these savings (and those of all the other participants) to build new properties. These properties are then rented out, and the fund receives rental income from them. From the rental income all costs incurred are deducted, as well as a fixed percentage fee for the fund. Unfortunately, they don’t do it for free 😉 . But everything left over is paid out to the participants of the real estate fund. For example, I myself receive around 6-10% return annually on my investments in real estate fund SynVest.
If you want to learn more about real estate funds (which is also my personal preference), you can read my SynVest review. There you can read about my experiences with investing in real estate funds.
Hopefully, I have helped you with what to do with savings. Keeping a small financial buffer is always wise. Think about approximately 5000 dollars. But you now know that you should not put other savings in your bank account. Inflation is slowly making us all poorer (as long as inflation exceeds interest rates, which has been the case for years!). Also, it’s not wise to spend your savings on luxury goods you don’t actually need. Yes, a new car like that feels good and fantastic but what good is it?
Instead, it’s better to invest the savings. Let the savings work for you and build up equity. Eventually, you will have built up such a large amount of capital that you can live very comfortably on the return on your capital. Because imagine you have 100,000 dollars in savings and you receive an annual 7.5% return on it (for example, thanks to the real estate fund mentioned above). Then every year you receive 7,500 dollars in return. If you save for three years, you can buy a very nice car. And actually for free, because you didn’t have to work for it yourself!
Therefore, my conclusion on what to do with savings is short: keep a small financial buffer and invest all the remaining savings so that you can build up equity! That’s the way to financial freedom.