Why You Can’t Save Your Way To Wealth

by | 02, Oct 2021

For today’s episode, we will be discussing an exciting topic, the difference between poor people and rich people.

This week we’re going over human behavior. More specifically, taking a look at different types of people and what separates them apart from one another.

We will talk about these things…and more in another episode of Multifamily Investing Made Simple in under 10 minutes.

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Tweetable Quotes:

I think that a lot of people are just kind of saving because they just don’t really know what to do and they’d rather save their money in the bank than do something that they don’t understand ” – Dan Kreuger

“the poor spend, the middle class save and the rich invest” – Anthony Vicino

“financial literacy and our understanding of systems and how money works and how saving isn’t really a viable option” – Anthony Vicino

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Anthony Vicino and Dan Krueger
Passive Investing Made Simple – Available NOW!

Why You Can’t Save Your Way To Wealth

Anthony Vicino : [00:00:16] Hello and welcome to multifamily investing made simple, the podcast, it’s all about taking the complexity out of real estate investing so that you can take action today. I’m your host, Anthony Vecino of Invictus Capital, joining me once again, as per usual, as per always, the one. The only Dan.

Dan Krueger: [00:00:35] I’m so excited. I’m happy to be here.

Anthony Vicino : [00:00:38] I’m excited to have you here too.

Dan Krueger: [00:00:39] You sound underwhelmed.

Anthony Vicino : [00:00:41] You know, I was listening back to an episode that we did. I missed the episode, but I came out last week, actually, and it’s the one where I was like, really, really amped up and excited during the intro. And this week we’re bringing it down. It’s all about what happened about the variability. We don’t want the audience to get too into a pattern where they’re expecting. It’s always the same thing. We’ve got to keep you guys on your toes. Yeah, it makes it exciting.

Dan Krueger: [00:01:07] Keep the I don’t know what I’m going to get,

Anthony Vicino : [00:01:09] Keep the excitement in the relationship, you know? So this week, speaking of excitement, we are going to dive into a very exciting topic. We’re going to talk about the difference between poor people and rich people. That sounds both inflammatory, but also potentially interesting. It sounds controversial. Could be. Maybe this is clickbait. Maybe there’s actually going to be something of deep, deep value here. I would just have to keep listening to find out.

Dan Krueger: [00:01:35] Yeah, I wouldn’t mind if there’s a little debate going on in the comments when people listen to this. Let us know your thoughts on our concepts here. We’re going to be talking about something that’s I find just really fascinating. That’s just, you know, human behavior, right? And really kind of take it a look at different types of people and what separates them apart from one another or what kind of behavioral traits are different. And so what are like the three types of people that we’re talking about today? And specifically,

Anthony Vicino : [00:02:00] We’re going to be talking about poor people. We’re going to talk to them about the middle-class people we’re in. Talk about rich people now. This is a moving target, and you can define this in all different types of ways. And we’re going to be talking hyperbolic and massive generalizations here. So this isn’t always the case, but the phrase that we want to use today, and we’re going to unpack why this is and you might have heard this before it goes like this the poor spend the middle class, save the rich, invest. So let’s unpack this. And of course, again, this is the disclaimer. This is broad hyperbole. This isn’t the case always. But generally, you know, one of the reasons why people who are poor or in the middle class and this is this goes for me too. If you rewind, you know, 15 years ago or so is because of our financial literacy and our understanding of systems and how money works and how saving isn’t really a viable option if you want to achieve financial independence or wealth. So, Dan, let’s unpack this a little bit. Tell me, what do you think when you hear the words that the poor spend the middle class saves in the rich invest?

Dan Krueger: [00:03:14] Yeah, that strikes a tone with me quite a bit, just because it really kind of aligns with where I came from in life. I came from a family that had a very, very 1950s, 1960s kind of philosophy when it came to money, right? The concept of saving was huge, right? And that’s something that worked for a really long time like that was a legitimate plan. You could use a savings account and do pretty well in life. You used to get eight, nine, and sometimes 10 percent in a savings account like so that was actually a legitimate strategy. For a long time. There were many generations including, you know, our parents were in our mid-thirties, so our parents were on the tail end of that where that actually was kind of a thing that worked. And that’s what kind of got passed down to me during a period in the 80s and 90s where that was actually in the process of changing. So we kind of got an out-of-date message, right? Mm-hmm. And that, unfortunately, is kind of like the message that has stuck with people that had fallen in lower-income categories and people that are typically don’t have a lot of money. They have this behavioral tendency to look at money as something that could be used for immediate gratification. Right. You can get something quick out of it. You can get a thing. You can get an item, a material item, a quick dopamine hit, or something like that. But they don’t look at it as something that could be used to produce something in the future, right? Or go some quick pleasure for some better future outcome.

Anthony Vicino : [00:04:41] Yeah, I think part of the problem when I think about the idea that the poor spend is one is is understanding that a lot of people, like 40 percent of the population live paycheck to paycheck or they don’t have any investable assets. And this is because they’re living so close to that threshold between their expenses and their income. So step one in that situation is to always try to increase the margin between those to decrease the expenses as much as you can. But the problem is that people that are struggling financially, use money often as. A reprieve, a respite from the struggles of everyday life of like waking up and working maybe two jobs, barely getting by and it’s just constant struggle, so than spending money on like a fresh pair of kicks or a new shirt or something that you can’t afford, but you put it on the credit card because you just need that little win, right? And so that’s what ends up happening for people who are in that low, low socioeconomic status is that they’re constantly spending they can’t ever get caught up because they’re using it as a surrogate for that dopamine hit that Dan alluded to before. And then from there, as you move up and maybe you maybe you’re now having that margin and you figured out how to start spending less than you make, and now you have a little bit that you can save. Well, now the problem becomes well. Saving isn’t a good alternative or a good option if you want to build wealth because it’s constantly being devalued through inflation and just, you know, the money that’s all being printed right now.

Anthony Vicino : [00:06:12] And so what you’re what you need to do is reframe your perspective on what money really is. And I like to think about it is money as a unit of time, right? Like, I had to exchange either my time or maybe an employee’s time or an asset that I control time to get a dollar. And now I can use that dollar in the future to purchase somebody else’s time. And that’s really what a product is at the end of the day, like a phone. Somebody had to invest time and energy into designing it, into building the manufacturing facility, to hiring people, to employing and to all the work that goes into it. And so when I spend that dollar in the future, it’s a unit of time. Now the problem is, is if you’re working and you think that you can save your way to wealth. While the problem is that you only have so much time, it’s a finite resource, right? You maybe have 80 years on this planet. And so even if you were working 24 hours a day, that’s not it’s not a viable option, whereas money is infinite in the grand scheme of things. So if you can find a way to make your money work for you, then you can divorce your time from the equation because now every one of your dollars has twenty-four hours. And if you can put them all to work for those twenty-four hours, well, then you can scale infinitely in a way that your personal time just doesn’t.

Dan Krueger: [00:07:27] Yeah, I think the main problem with the people that fall into the middle kind of category here, where they’re they’re making enough money to get by and they’ve got something left over and they’re saving as their strategy for the building. Well, I think the main issue with this cohort is just really a lack of deep understanding of how money works and what it truly is. And I think they hit the nail on the head when you described the dollar as a unit of time because that’s exactly what it is. And I think that’s the main disconnect between people that are investing and people who are in saving is they just don’t really fully appreciate the scalable nature of investing and the exponential growth. And they see what maybe they have $1000 that they can put to work now. And so they look at what they could potentially do with that and say, Oh, maybe I can get 10 or 15 percent like, that’s not that much money. Like, why would I go and do that? That’s not much, but they don’t really do the math and extrapolate it out 20 30 years and look like what it looks and see what it looks like if they keep investing and reinvesting the profits from these things.

Dan Krueger: [00:08:26] And so even on a very modest scale, consistent habitual investing behavior is going to end up working out pretty well for you. Even if you’re not, you know, in real estate and doing, you know what we’re in love with, you know, if you want to do just the stock market’s up because that’s what you get. It’s at least it’s something. But I think that a lot of people are just kind of saving because they just don’t really know what to do and they’d rather save their money in the bank than do something that they don’t understand, which I think is good. That’s a good place to be. I’d rather see people saving as opposed to jumping into something that they don’t understand. So, you know, spend your time in the saving camp as long as they need to to to learn enough to go in and do the next thing, but don’t get stuck there. Some people get stuck there.

Anthony Vicino : [00:09:10] A lot of people get stuck there because it’s scary. It’s overwhelming a little bit to think about all the different things that you could invest in real estate or stocks, bonds, crypto. It’s like there’s a lot that you can unpack. But the problem? I really want to encourage people to change their minds in terms of how they think about money is a lot of people think, whatever, I’ll just save it’s not a big deal. I’ll just work really hard. I’ll increase my income and I’ll just keep socking it away. And, you know, maybe in 40 years I’ll have saved a couple of million dollars. But the problem with that is like really understanding how much your money is losing and its value every year, especially in the last year where we saw like, here’s an interesting statistic is that like 30 percent of all the dollars in circulation were printed in the last year. And if you follow just basic economic principles of supply and demand like that devalues the value, the purchasing power of your dollar in real-time. And so if you’re not doing something with that, if you’re not investing it, it’s not just losing a little bit of value, it’s losing a lot of value. Really rapidly, and I think a lot of people just don’t, they don’t see it. They don’t see it on a graph. They don’t see it hit their bank account in real-time, so they don’t realize like in the last year, your dollar got devalued by 20 percent. Like, that’s huge.

Dan Krueger: [00:10:28] Yeah, that’s one of the biggest things that that that the people in this middle category don’t grasp or they have trouble grasping, which makes perfect sense because it is not an intuitive concept at all. But what people need to understand is there are really two ways that the government can get money. They only have two sources of revenue. One is taxation, and people tend not to like to be taxed. So there’s a better way to package that same process of getting money out of your pocket, and that’s just to print more money. And as the government goes out and spends that on all the things you want to spend it on before it works its way out into society and becomes worthless because there’s so much of it, right? So they get today’s purchasing power with the money they print. And then by the time it works its way into your hands, it’s worthless because there’s the same amount of goods and services and a whole lot more dollars. And effectively you’ve got monopoly money. And so each dollar is just going to buy you less and less and we can see this right now. Any restaurants you go into, you’re paying more than you paid two years ago for the exact same thing. And a lot of these places have also decreased the quality of materials they’re using. So you’re actually getting less for more money than you used to, and it’s really it’s a sneaky tax is what it is. If the government can’t tax people because it’s not on brand with what people want, then they’ll just print more money and still get the money they need and people don’t realize it’s coming out of their future pockets. So that’s the main thing that people don’t understand about inflation and why people look at me and scratch their heads. When I say I look at money in a savings account like I look at an ice cream cone on a hot day as it’s just rapidly, rapidly turning into nothing.

Anthony Vicino : [00:12:03] So and if there’s one point I could just drive home here, like when we’re talking about the poor and they spend, that’s really just learning basic financial literacy and understanding, like how do we bridge the gap between not spending so much, decreasing our expenses and increasing our revenue? You do that, you stop using credit cards and you start understanding the basics of financial finances. You can very rapidly get into that middle-class sector, and that’s where everybody gets trapped is in that savings thing because they don’t understand. They don’t see it in real-time like my money is losing its value. And that’s why, whether you’re investing in real estate, we like real estate because it’s a real asset that doesn’t lose its value in the same way. Like, you can’t just print another building, and therefore our building is worth exactly 50 percent of what it was before. Like, we can’t do that. So it retains value in the way that the dollar doesn’t because they could just keep printing that into eternity.

Dan Krueger: [00:12:59] Scarcity is where value comes from, really. If you have an unlimited supply of a thing, it becomes worthless at a certain point, right? So it’s a crazy topic, and it’s really kind of tough to wrap your head around the first few times you become aware of it. So you’ve got to really kind of sometimes see it visually. There are some good videos out there on YouTube that I found that have really kind of illustrating the process of money creation and the money supply and like how that all works.

Anthony Vicino : [00:13:24] I think Ray Dalio had a really good one, right?

Dan Krueger: [00:13:26] Yeah, I think Dalio had one.

Anthony Vicino : [00:13:28] It’s like the basics of the economic machine or something.

Dan Krueger: [00:13:31] He was talking more so just about the debt cycle in the market cycle. But there’s another one that I found. I’m going to see if I can find it and put it in the show notes for this, I can’t guarantee it’s going to be there, but there’s one that really used a lot of visuals to just show the logistics of the creation, like where the dollars actually come from and know they don’t actually print anything these days. It’s just, yeah, that’s a funny thing to a spreadsheet.

Anthony Vicino : [00:13:51] Yeah, they’re not actually out there like printing more cash these days.

Dan Krueger: [00:13:57] It’s just someone just enters a few extra zeros in their bank accounts at the Fed and boom, it’s there, which is

Anthony Vicino : [00:14:03] Even scarier if you think about it. Like it’s just somebody changes a dollar on a number, a digit on a spreadsheet and suddenly your money is worthless. Yep. Oop. Whoops. Anyways, OK, so this is a long, ten-minute episode, but it’s such an important topic that I’m OK going a little bit longer. Hopefully, you guys were joining us from home or in your car, or at work. Hopefully, you can forgive us for going a little bit longer. We appreciate you take a little bit of time, if you could, maybe just to go over to Amazon and pick up. You know this. This book was lovely. This lovely book, passive investing made simple. If you guys, I forget that this is a podcast, not a video. But if you’re interested in watching these videos, they all are posted to YouTube at multifamily investing made simple, so go check it out. You can see all of our podcasts there. Otherwise, we’ll see you guys next week. Thanks for joining us.

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