What is the point in regular saving? Read the following and see the light.
1. It is recommended that you save regularly over three different time horizons and for three different purposes: unexpected daily expenses, increasing your wealth over a long period of time and your retirement. A cash reserve provides security to your everyday finances so that you have the means to deal with minor and major unexpected situations.
2. A regular saver does not need to worry about ups and downs in the investment market. If you are a fund investor who saves regularly in order to accumulate your wealth, time diversification is your best friend. Example: You invest 50 euros a month in a fund. When the price of the fund units is low, you get more units for the same monthly investment. When their price goes up, you benefit considerably.
3. In regular saving, patience is a virtue, as time mitigates risks. If you are a long-term saver, you should not leave your money idle in your bank account but instead invest it in assets that generate a better return – all the while making sure they fit your risk tolerance level and investment horizon. Often this means taking a bigger risk than with bank deposits, but in the long term, it will pay off with bigger savings.
4. You should start saving as soon as possible because your gains will grow over time. Saving begins with self-discipline and a systematic approach. You should reverse your thinking by putting away your savings from your salary first, instead of waiting until the end of the month to see what is left. It also makes sense to save while repaying your housing loan. If the repayment period on your housing loan is, say, 25 years and you accumulate savings the whole time, you will probably end up with a handsome sum in your savings account by the time you have repaid your debt.
We interviewed Jari Ohrankämmen from Nordea's Wealth Management for this story.