Primary Argument 1: The Primacy of Savings Over Investment Acumen
The foundational argument of William Bernstein’s “If You Can” is a concept that is both profoundly simple and universally difficult: Your ability to build wealth is determined not by your investment genius, but by your capacity to save. Bernstein states this with stark clarity: “Even if you can invest like Warren Buffett, if you can’t save, you’ll die poor.” This assertion serves as the first and most critical hurdle an aspiring investor must overcome. It reframes the entire challenge of personal finance, moving the spotlight away from the complex, often intimidating world of market analysis and stock picking, and placing it squarely on the mundane, yet far more controllable, realm of personal spending habits. The core idea is that the rate of savings—the percentage of your income you consistently set aside—is the engine of wealth creation. Without fuel in the form of saved capital, even the most sophisticated investment vehicle is nothing more than a stationary piece of machinery.
Deconstructing the Challenge: The Simplicity and Difficulty of “Spend Less Than You Earn”
At first glance, the advice to “spend less than you earn” seems almost insultingly obvious. It’s the financial equivalent of a doctor advising an overweight patient to “eat less and exercise more.” Everyone knows the formula, yet obesity remains a widespread problem. Similarly, despite the logical purity of the savings principle, a vast number of people, even those with substantial incomes, fail to accumulate meaningful wealth. Bernstein argues that this failure is not necessarily due to a lack of intelligence or desire, but because modern life has erected a formidable series of obstacles designed to separate us from our money.
The challenge lies in the subtle, cumulative nature of spending. It’s rarely a single, catastrophic financial decision that derails a retirement plan. Instead, it’s a “death by a thousand cuts,” a slow erosion of savings potential through a continuous stream of seemingly small, justifiable expenditures. Bernstein highlights this with common examples: the daily latte, a premium cable package, the latest smartphone, a slightly-too-expensive apartment, or frequent restaurant meals. Individually, each of these expenses feels manageable and often socially necessary. A $5 coffee is a minor indulgence. An extra $50 a month for a faster internet and more channels seems like a reasonable price for entertainment. A new phone every two years is simply what one does to stay current.
However, the true cost of these expenditures is not their sticker price; it is their opportunity cost. This is a critical concept to grasp. The $5 spent on coffee today is not just $5 lost. It is also the loss of what that $5 could have become over the next 40 years if it had been invested. Let’s examine this with concrete numbers. A $5 daily coffee habit costs $25 per week, or approximately $1,300 per year. If a 25-year-old forgoes this habit and instead invests that $1,300 every year, assuming a conservative 6% real (after-inflation) annual return, by the time they are 65, that “coffee money” would have grown to over $200,000. That is the true cost of the daily latte habit—not a few dollars, but a significant portion of a comfortable retirement.
When you apply this logic to the entire constellation of small, discretionary expenses, the figures become staggering. The premium cable package ($600/year), the unnecessary phone upgrade ($500/year), a few extra restaurant meals ($1,200/year)—together, these can easily divert an additional $3,000 or more annually from savings. Over a 40-year career, that sum, properly invested, could grow to nearly half a million dollars in today’s purchasing power. This mathematical reality reveals why the first hurdle is so formidable. We are not wired to think in terms of decades-long opportunity costs; we are wired for immediate gratification. The warm satisfaction of a coffee today is tangible and immediate, while the vision of a larger retirement account in 40 years is abstract and distant.
Lifestyle Inflation: The Golden Handcuffs of Rising Income
A more insidious threat to saving than small daily leaks is the phenomenon of lifestyle inflation. This is the natural human tendency to increase spending as income rises. A recent graduate might live frugally with roommates, drive an old car, and cook most meals at home. A few years later, having received a promotion and a salary increase, they move into their own apartment, buy a new car, and dine out more frequently. Each step feels like a deserved reward for hard work and professional success.
The problem is that this pattern often continues indefinitely. A raise is seen not as an opportunity to drastically increase one’s savings rate, but as a license to upgrade one’s standard of living. The bigger apartment becomes a starter home. The new sedan is traded in for a luxury SUV. Vacations become more elaborate and expensive. While income grows, the gap between income and expenses—the surplus available for saving—remains stubbornly thin, or in many cases, disappears entirely. The individual becomes trapped in a cycle of earning more only to spend more, a situation often referred to as being on a “hedonic treadmill.”
This is precisely the point Bernstein makes by recommending the book The Millionaire Next Door by Thomas Stanley and William Danko. The central discovery of that book was that the majority of America’s millionaires were not high-flying doctors, lawyers, or executives living in lavish homes. Rather, they were often small business owners, plumbers, teachers, and engineers who lived in modest neighborhoods, drove reliable used cars, and, most importantly, consistently saved and invested a significant portion of their income over many decades. They understood that the optics of wealth (a fancy car, a large house) are often inversely correlated with the reality of wealth (a large investment portfolio). The high-income professional who feels compelled to “keep up with the Joneses” is often far less wealthy than the unassuming tradesperson who prioritizes financial independence over social status.
Mastering the savings hurdle therefore requires a conscious and deliberate decoupling of self-worth from material consumption. It involves recognizing that the purpose of a higher income is not solely to fund a more luxurious present, but to purchase future freedom and security. This is a profound psychological shift that runs counter to the prevailing messages of our consumer-driven society, which constantly bombards us with the idea that happiness and success are products that can be bought.
The Foundational Role of Savings in the Investment Equation
To fully appreciate why savings is the paramount factor, it is helpful to visualize the mechanics of wealth accumulation. The final value of your portfolio is a function of three variables:
- The Capital You Invest (Savings): The total amount of money you contribute over your lifetime.
- The Rate of Return: The average annual growth rate of your investments.
- Time: The number of years your money is invested and allowed to compound.
Of these three variables, the only one you have near-total control over is the amount of capital you invest. You have no direct control over the rate of return; the market will deliver what it will, and as Bernstein argues in later hurdles, trying to outperform the market is a fool’s errand for the vast majority of people. You also have limited control over time; you can start investing early, but you cannot turn back the clock once you have started. Therefore, the single most powerful lever you can pull to influence your financial destiny is your savings rate.
Consider two hypothetical investors, both 25 years old.
- Investor A (The “Average” Saver): Earns $60,000 per year and saves 5% of their income, which is $3,000 per year ($250 per month).
- Investor B (The “Bernstein” Saver): Earns the same $60,000 per year but disciplines themselves to save 15% of their income, which is $9,000 per year ($750 per month).
Both invest in the exact same portfolio, achieving an average real return of 6% per year for 40 years, until age 65.
After 40 years, Investor A will have accumulated approximately $495,000. This is a respectable sum, but may not be sufficient for a long and comfortable retirement.
In contrast, Investor B, by simply tripling their savings rate, will have accumulated approximately $1,485,000. That is a million-dollar difference, generated not from any special investment skill, but purely from the discipline of saving more. Investor B achieved a result three times better than Investor A simply by exerting control over the one variable they could: their spending.
This example illustrates a crucial point. For a young investor, the impact of increasing their savings rate from 5% to 15% is far more dramatic than the impact of finding an investment that returns 8% instead of 6%. The returns on your early contributions are dwarfed by the size of the contributions themselves. In the first year, Investor B has $9,000 invested. A 6% return is $540. The most important number in that first year is not the $540 return; it is the $9,000 contribution. The contributions do the heavy lifting for the first decade or more. It is only later, when the portfolio has grown large, that the power of compounding takes over and the rate of return becomes the dominant force. But to get to that point, you must first build a substantial base of capital through disciplined saving. Saving is what buys you the ticket to the compounding show.
Practical Strategy: Defeating Debt and Automating Discipline
Recognizing the importance of saving is the first step; implementing a system to achieve it is the second. Bernstein rightly points out that before one can begin saving for retirement, one must address the anti-saving: high-interest debt.
Carrying credit card debt at 20% interest while simultaneously investing in the stock market hoping for an 8% average return is like trying to run up a down escalator. The guaranteed high cost of the debt cancels out and overwhelms any potential investment gains. Therefore, the path to successful saving must begin with a ruthless campaign to eliminate high-interest consumer debt. Paying off a credit card with a 22% APR is mathematically equivalent to earning a 22% guaranteed, risk-free, tax-free return on your money. No investment in the world can offer such a deal.
Bernstein provides a clear hierarchy of financial priorities for a young person:
- Contribute to a 401(k) up to the Employer Match: This is free money. A 100% match on your contribution is a 100% immediate return on your investment, an opportunity that should never be passed up.
- Eliminate High-Interest Debt: Attack credit card balances, personal loans, and any debt with an interest rate significantly higher than what you could reasonably expect from long-term investments (e.g., anything over 6-7%).
- Build an Emergency Fund: Before investing for the long term, secure the short term. Accumulate 3-6 months’ worth of living expenses in a safe, liquid account (like a high-yield savings account). This fund acts as a firewall, preventing you from having to sell investments at an inopportune time to cover an unexpected expense, like a job loss or medical bill.
- Begin Serious Retirement Saving: Only after these prerequisites are met should one focus on hitting the 15%+ savings target through retirement accounts (like the rest of the 401(k) and IRAs) and taxable brokerage accounts.
The most effective method for ensuring consistent saving is to remove willpower and daily decision-making from the equation. This is achieved through automation. The principle is often called “Pay Yourself First.” Instead of saving what is left over at the end of the month, you treat your savings contribution as the most important bill you have to pay. You set up automatic transfers from your checking account to your investment accounts that occur the day your paycheck arrives. The money is gone before you even have a chance to see it and think about spending it.
This transforms saving from an act of discipline into a non-event. It becomes part of your fixed financial infrastructure, as automatic and unthinking as your rent or mortgage payment. By making saving invisible and automatic, you short-circuit the psychological traps of immediate gratification and decision fatigue that sabotage so many financial plans. You are, in effect, creating your own version of the old-fashioned pension plan that Bernstein laments the loss of—a system that forces you to be disciplined.
In conclusion, Bernstein’s first argument is a powerful call to re-evaluate our financial priorities. It teaches us that the path to wealth is not paved with complex algorithms or secret stock tips, but with the boring, methodical, and relentless habit of spending less than we earn. It is a challenge not of intellect, but of behavior. By understanding the corrosive power of small expenses and lifestyle inflation, appreciating the mathematical dominance of the savings rate in the early years, and implementing a disciplined, automated system to prioritize saving after eliminating high-interest debt, an individual can clear this first, most essential hurdle. Without conquering this initial obstacle, all other financial knowledge is purely academic, and the journey toward a secure retirement can never truly begin.