People like to lament that the rich get richer and the poor get poorer.
There is of course some truth in that, but not just because ‘the system is rigged.” For many practical and mental reasons, saving leads to more savings, and wealth leads to more wealth.
Imagine that every dollar in the world was redistributed evenly overnight. Where would all the money be in ten years? I’d say almost everything would be back to where it started because people either understand how to put money to work or they don’t.
This is what the financial independence (FI) and “stealth wealth” communities understand about how savings are constructed.
Life insurance becomes optional
My wife and I both earn income and have a high savings rate of 45%-50% (it used to be 65%-70% when we lived abroad, unfortunately).
If one of us fails tomorrow, so will the other would survive financially well. That means we can avoid wasting money on life insurance premiums. Read: more money for our savings and investments, instead of inflating the profits of insurance companies.
And yes, I realize the “infinite banks” crowd is having a fit about questioning life insurance. But they are making a strategic financial decision that is less about needing a death benefit than about tax savings and long-term arbitrage.
Avoid long-term disability insurance
The same principle applies to long-term disability insurance. We don’t have to pay for it because if one of us could no longer work and earn, the other partner could cover our family’s living expenses.
Achieve accredited investor status faster
As an organizer of a co-investment club, I know all too well how many other investment opportunities are available to the wealthy. The sooner you reach a net worth of $1 million (excluding home equity), the sooner you’ll have access to better investments. These are investments that are not open to ‘Joe Sixpack’.
Admittedly, in our fellow investor club we do everything we can to investigate investments that enable non-accredited investments investors at. But accredited investors still have many more options.
Avoid PMI
If you save more money, you can afford to put down 20% deposit on a house. And that means you don’t have to pay PMI.
Private mortgage insurance will not help you at all. It protects the lender, not you. It’s literal lost money That you rinse away every month.
Avoiding this will lower your monthly mortgage payment, allowing you to save and invest even more money each month.
Higher down payment, lower mortgage interest
Home buyers who put down at least 20% also reduce their monthly costs by getting a lower mortgage interest rate.
Lenders price their loans based on risk. The smaller your deposit, the greater the risk for them and the more interest they charge.
Higher credit score, lower interest rates
A high savings rate also keeps your debt utilization ratio low, which improves your credit score.
And of course, a higher credit score means lower interest rates, not just on your mortgage, but on car loans, business loans, and any other loan you’ll ever need.
Avoid unnecessary interest
Less debt means fewer total interest paidi.e. less of your money goes to the line the to fail from lenders.
High savers don’t pay interest on credit card balances. They pay them off in full every month so they get all the benefits of credit card rewards and none of the interest costs.
They often hold on to their mortgage, knowing that they can achieve a higher return on their investments than they pay in mortgage interest. But that is a strategic choice, not a necessity.
Option for high deductible health plans and HSAs
My wife and I recently had to decide whether to opt for more expensive health insurance or high-deductible health insurance combined with an HSA.
We have the luxury of that decision because we save enough money to cover that high deductible if a health crisis comes our way. A family with no savings has little choice but to choose the more expensive option with a lower deductible. (Of course, many do anyway, but then they’re in trouble when a health crisis strikes.)
That leaves them unable to open and fund a health savings account (HSA), which offers the best tax benefits of any tax-advantaged account in the US. You can deduct contributions, the investments are tax-free and you don’t pay tax on withdrawals.
Tax savings with sheltered accounts
The more money you save and contribute to tax-advantaged accounts, the more you’ll save on taxes, too. That could mean lowering your tax bill today with traditional accounts, or lowering the amount you need to save for retirement by avoiding taxes on withdrawals with a Roth account.
In 2026, Uncle Sam will allow you to contribute up to $7,500 to your IRA ($8,600 if you are over 50). You can also contribute up to $24,500 to a 401(k), or $72,000 to a self-employed 401(k)plus additional catch-up contributions for Americans over 50.
Additionally, HSAs allow you to contribute $4,400 for a single person or $8,750 for a family. I use my HSA as an additional retirement account, with even better tax benefits and easier withdrawals before 59 1/2.
But you do need that to reduce your tax bill to actually save and invest a larger portion of your salary.
Transport savings and health boost
My wife and I lived without a car six year when We lived in South America. After moving back to the United States a few months ago, we now share one car. We can get away with that because I work remotely and we live in a walkable area.
But it brings other benefits at. Walking and cycling through the city holds I’m healthier than the average American who drives everywhere. That keeps my healthcare costs lower, not only today, but also later in life.
I don’t know who first said, “Cycling saves you money and runs on fat. Driving costs you money and makes you fat.” Anyway, I offer this simple quote to anyone who claims, “Poor people can’t afford a healthy lifestyle.” Cycling costs much less than driving a car.
Lower target for FI and pension
The less you spend, the less you have to retire.
If you follow the 4% rule and want to spend $40,000 a year on retirement, you’ll need $1 million. If you want to to spend $80,000 you need $2 million. Do you want give out $120,000? You need $3 million.
By spending less and investing more, you will reach your goal faster. But from there, most early FIers continue to work and earn, but do their own dream work. Because they continue to earn, they end up building much more wealth than they do original focused.
Upward social spiral
You’ve heard it a hundred times: “You are the average of the five people you spend the most time with.”
When you surround yourself with top performers, they draw on you: their greater ambition and work ethic, financial sophistication, and network of people who help drive performance. These are people like business coaches, tax strategists, co-investing club organizers, mastermind organizers, and so on.
By the way, many of these high flyers can help you land better jobs or business opportunities. My own company exploded in growth after I joined a mastermind full of top performers.
By saving and building wealth faster, you can increasingly surround yourself with people who will help take you to the next level, rather than sticking to your base level.
The financial flywheel
We all know a braggart who is a enormous income, But spends every cent to ‘look rich’. They wear the latest fashion, drive a sleek car and live in a chic house.
But even if you make $200,000 a year, if you spend $200,001, you’re still getting poorer every year, not richer. Meanwhile, someone earns $100,000 but saves half their income will become a millionaire faster than you can say ‘keeping up with the Joneses’. (Not literally. But you get the idea.)
As I earn more, I find myself spending more, not on things, but on ways to better myself and my future earning potential. I recently hired a business coach to help me grow my business. I work with an attorney and a CPA team on tax treatment. And I joined a high-end mastermind group to surround myself with ultra-high achievers who hold me accountable and help lift me up upwards.
Wealth breeds more wealth – if you know how to use your savings to save and make even more money.
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