Why you should start saving right now
Do you love to live in the moment? And do you keep reassuring yourself that you’ll start saving soon? It’s time for a reality check.
Tomorrow, if you were to lose your job and your only source of income, do you have emergency savings set aside to cushion the impact on your finances? And with every passing year, you’re inching closer towards retirement. The later you start saving for it, the more financially burdening it will become.
It’s a tempting proposition to live each day as it comes, but it most definitely isn’t a practical one.
Below are the reasons to start saving today and how your savings can work over time to ensure you meet your goals faster.
Be financially prepared for emergencies
Unexpected life events may catch you off-guard. It is best to account for emergency situations, which can come in the form of a sudden and involuntary loss of employment or an expensive medical treatment not covered under your health insurance policy. Having a sum of money set aside in a readily accessible emergency fund can be a saviour in such times of crisis.
So how much should you save for emergencies? This would depend on your lifestyle and what your usual monthly expenses are. Let’s say your average monthly expenditure is roughly AED15,000 for a family of four. This includes your rental contribution, groceries, utilities and telecom, kids’ school fees and loan instalments. In this case, you should at least set aside one to three months’ worth of expenses.
Start saving early for your retirement
Wouldn’t you want to maintain the same standard of living even after your days of regular income are over? Whether you plan to make retired life financially comfortable by investing in a retirement savings scheme, deposit account or real estate, it’s easy to do so, provided you save towards your retirement goal in a disciplined manner.
It might seem like retirement is a long time away, but the sooner you start saving for it, the easier it will be for you. Let’s assume your retirement savings goal is AED1,000,000 and you want to be able to reach that by the age of 60. If you start saving towards this goal at age 40, you will have to save approximately AED4,200 per month, but, if you start saving for retirement at age 30, you will have to set aside a smaller amount of AED2,800 per month.
Making your savings work harder
Now that you’ve decided to save a certain amount every month, the next step is to find the right savings tool – this could be a savings account, a fixed or recurring deposit, an investment in a savings scheme, etc. The aim is to ensure that your savings earn the highest possible returns for the entire tenure that you’re going to save for.
For example, if you save in a regular current account that doesn’t offer any interest or profit, you’ll have to save AED1,000 per month for ten years to accumulate AED120,000. Now, if you were to put your money in a savings account, which offers 0.60 percent per annum, you can reach the same lump sum savings goal by saving AED970 per month for ten years.
Bank accounts also give you benefits while working towards your saving goals. So, keep an eye out for accounts that give your more than just interest or profit. These days, bank accounts offer customers a range of lifestyle privileges, shopping discounts and better pricing on other bank products and services. In the UAE, current or saving accounts can come with pre-approved credit cards, discounts on remittances and rewards schemes. Reward schemes on debit cards can work similar to credit cards. You can earn points on your purchases and redeem them for miles, dining, entertainment or shopping deals and offers.
Make sure you do thorough research and compare the various bank accounts and fixed deposits available in the market before you make a decision. There are quite a few websites that may help you, such as Souqalmal.com, which lets you compare more than 300 current, savings and deposit accounts.