Nobody gets wealthy by keeping their money in the bank. This should be clear to everyone who desires a financially stable future where they won’t worry about the money.
If you are in the class where a bank account is for prestige among your peers, you are doing yourself a disservice. A bank account should only be for those transactions you cannot handle using cash. By the way, cash is still king despite all the technological advances.
And while we are talking cash, your liquidity does not show your financial stability. Money is here today and then poof! It’s gone. What your money does for you is the real deal and this is why keeping money in the bank won’t create you wealthy.
Money in the bank
There is nothing as good as having your money make more for you while you sleep, right? If your answer to this is in the affirmative, then this information is meant you. Let us grow wealthy together.
Now, if you have never wondered why banks tell you that your interest rates are per annum (per year), then here is why.
First, the bank is not there to make money for you but instead, it is to make as much money from you as possible. Imagine an institution that keeps your money for you but it does not trust you enough to let you use their pens without attaching a string to it. Doesn’t this goodwill by the bank feel funny?
Anyway, the bank will give you a deal that favours them more and in all the fine print what seemingly favours you too. In most cases, the favour for you is against your growth.
It’s not a crime, though, since to remain afloat, the banks have to make money.
Take this scenario for instance. If the bank is keeping Ksh1,000 for you for a year, the returns will not be more than Ksh200. Here’s why.
If the bank gives you a rate of 14% p.a., then you will make Ksh140 from your Ksh1,000 that year.
What many people do not understand is that the percentage offered by the bank is not monthly but yearly. If one goes in with the misconception that their money will earn 14% interest every month, then they will be in for a rude shock when they check their accounts at the end of the financial year.
Bearing in mind that there are costs that come with banking, even the Ksh140 may be hard to come by.
Making your money work for you
Using the same Kshs 1,000, let us look at a scenario where you invest your money so it brings you more.
Assuming that you are in a place and time where you can afford to start a small business which gives you not more than Ksh50 per day as profit. How much can Sh1,000 bring you in a year if you work every day of that year?
Well, if you manage to run your business successfully, then this is how it turns out.
Assuming that you can keep making the Ksh50 per day, then you will have started on a venture that could bring good returns.
If you multiply Ksh50 times 350 days assuming you took 15 days off from work for holidays and other engagements, then you Ksh1,000 will have brought you Ksh 17,500 assuming that the running costs are zero.
In comparison, the bank will not get anywhere near that amount even with the costs but you will never get that kind of return anywhere in a financial institution.
This is why wealthy people never keep their money in the bank but they have where it keeps working for them bringing in more. When the profits soar, they reinvest them and they keep on with the cycle which finally pays off handsomely.
Can you trust yourself enough to use your little money to become your own boss?