The only logical reason for deferring gratification and not spending all of our income is either the hope of increasing our spending power or the fear of not having enough to maintain it. In order to logically defer spending, we need to find a place for our funds with "real" earnings.
Warren Buffett discussed this in Berkshire Hathaway's 1980 annual report stating, "If you (a) forego ten hamburgers to purchase an investment; (b) receive dividends which, after tax, buy two hamburgers; and (c) receive, upon sale of your holdings, after-tax proceeds that will buy eight hamburgers, then (d) you have had no real (my emphasis) income from your investment, no matter how much it appreciated in dollars." (I wish all annual reports were so easy to read.)
At least two factors need to be understood before engaging in the act of faith of deferring gratification. First, the place in which funds are stored need to have returns that keep up with inflation. For example, the $9.5 trillion of savings held in U.S. banks (from St. Louis Federal Reserve numbers) represent a significant likely loss of purchasing power with average interest paid under 0.5% while inflation exceeds 1.7%.
Second, Buffett's example shows that taxes must also be considered and today's low rates become even lower with taxes. Historically savers have done better. From 1925 until now, U.S. Treasury Bills (a proxy for savings) have yielded 3.3% while inflation has averaged 2.9%. For 94 years, savers generally increased purchasing power. However, by taking a tax rate even as low as 20%, the saver loses purchasing power. That's the "real" deal.
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