Jon Markman of MSN Money makes a relatively intuitive claim, “Saving is for suckers“. Of course, we have heard this before, and he places compelling arithmetic at our disposal and also sprinkles in some contemporary bank hatred along with it.

I have tried to read a bit on this philosophy, and have always come short of convincing myself of the ideology. There are times when since money is only worth as much as the goods it gets you, one should take as many loans as possible. This obviously has many advantages, which I won’t try to list here.

I am more concerned right now about Markman’s claims, and on cursory thought, it seems incorrect. Saving might be for suckers, variable saving isn’t.

Markman’s argument
If you simply put your money in the bank account, the rate of interest is never going to be enough for your money to overcome the cost of inflation. So, a $10 saving would be much less say 5 years down the line.

However
Money is not an absolute by itself. It’s worth is determined by what it gets you, at a particular instant of time. A $10 note might get you a candy bar today, which might be $20 a few years later. However, the important point is, you will keep earning higher (matching inflation) and you will have an equivalent note which will buy you the candy bar later.

Role of money
Money is not the end in itself. It’s the means to an end. Ends like retirement savings, or college education for your children, or a down-payment for your house which you plan to buy 5 years from now. So, to talk in terms of money as an end-goal is just an exercise in arithmetic, and serves no purpose.

The goal is to save up a certain amount of money by a particular time so that you may live comfortably. Say, this amount is $10000 today.

You have 10 years to do this.

You put in $1000 per year to achieve this goal.

However, say, inflation kicks in at 10% per year.

So, your yearly investments will look as follows:
$(1000 + 900 + 810 + 729 + 656 + 591 + 531 + 478 + 430 + 387)
= $6512 approximately by today’s standards

This obviously is a problem…

So, the key is to put in the same account, factoring in inflation, every year. So, your future investments might seem higher today, but they’re appropriate, i.e., $1000 value in the next year, and the year after, and so on. In this way, even though your eventual total would be much higher in absolute terms, it’s value would be today’s $10000.
$(1000 + 1100 + 1210 + 1331 + 1464 + 1610 + 1756 + 1932 + 2125 + 2337)
= $15865 approximately, equivalent to today’s $10000

Of course, the basic assumption I’m making here is that you’re earning and that your wages match inflation.
If you aren’t earning, you should already have enough money stashed away for survival.

So…
If assuming that the true worth of a goal doesn’t change, for example, $10000 is a worthy (by your standards) goal for a retirement plan, then you should invest the worthy amount divided by the amount of time you have per year. Whether the absolute value of money you invested in the first year went down in the next year shouldn’t matter because you’re concerned about dividing the worth of the money into timed installments, and investing the appropriate worth. All this assuming your worth (measured by your income) grows in accordance to the inflation (or whatever factor that reduces the absolute value of money).

Hence, saving is not for suckers. Far from it. There is no material flaw in investing in a savings account for a goal as long as you invest according to changes like inflation. To invest more because banks make too much of a profit out of your money is too reactive a philosophy to get into full-scale mutual fund/stocks/index funds investment. Instead, personal/professional growth translated into income growth is a much more fulfilling and tangible goal towards economic stability.