Illusions of Savings

We work hard daily for many different reason, some for family, others for self, and the rest to rise up the career ladder. We want our money to work hard in fighting off inflation, the invisible cost of holding cash.

Inflation is a general increase in prices and fall in the purchasing value of money.

So a baseline measure of what is necessary, will be a straight forward interest that cancels out inflation, and keeps in lockstep. Core inflation (year-on-year) was 3.1% in April 2024. This should be our target, albeit a moving one.

Leaving with the bank

With this requirement, leaving cash idle in almost all banks, physical or digital, is a silent spending of money. Our cash does not rise as much as prices rise, so our savings account are actually dwindling our value. In fact, this is how we are paying for all the bank services that we enjoy for "free". We lend our cash to the banks to fulfil their liquidity requirements, at little to no interest vis-à-vis inflation.

Spend more to earn more interest

We are all familiar with all kinds of promotions and deals happening around us daily, and if we are not a part of it, it feels like we are not making the best of our hard earned money. As with many things, the same act has different meanings to different people.

“I just bought something new at 20% off!” (or spent 80%)
“I managed to get bonus interest this month!” (or spent to hit requirements)
“There’s 1-for-1 deal today, let’s go!” (or not spend when there is no deal)

We could have just simply earn more by not spending the money, and placing them somewhere that gets us the rate we need. But maybe sometimes we prefer the feeling of "getting a good deal". If we take a step back, we would start to see that the amount we "earn" is often a tiny faction of what we spend, and we are actually worse off.

Lock up to earn more

We have been hearing this adage of discipline, and locking up money to force our savings habit with higher returns. Since there are a whole host of cash management accounts to chose from that can help us keep pace with inflation, how much more should we be rewarded for promising not to have access to this money? And is this extra worth it for the sacrifice you have to make?

Goals-based savings

The most important consideration is our expectations of our savings, when do we need how much for what purpose. We should use this information to guide us and ensure we take the right course of action to achieve what is crucial to ourselves. Then we just need to simply save at inflation or higher.