Long-term savings plans can be an excellent way to build wealth and achieve financial goals for the distant future. These goals might include paying a child’s college tuition, retiring, or simply saving for a dream purchase. Regardless of your goals, a long-term savings plan is an excellent way to set aside and protect money you don’t expect to need in the immediate future so it can grow safely. Thanks to compounding growth, the longer you leave the money alone, the more the account will flourish.
Setting aside small amounts in a long-term savings plan can make a huge difference in your life over time
Many people are uncomfortable with the idea of a long-term plan. What if there’s an emergency and you need the money? Of course, you should always prioritize keeping an emergency fund on hand. However, setting aside small amounts in a long-term savings plan can make a huge difference in your life over time. Evolving past the fear of not having all your money immediately accessible is a huge step in most people’s financial journey. Arguably, it is the one step that separates the average person from the rich. The rich understand how to use long-term investing to grow their wealth without any additional work (this is called “passive income”). A savings plan is a valuable tool that works in tandem with other financial strategies to ensure you are protecting yourself and achieving financial freedom.
Consider the cost of college tuition. When your child is born, college may seem very far away (especially when they are tiny infants keeping you awake every night). However, as all parents come to realize, time seems to pass in the blink of an eye. Suddenly your child is all grown up and ready to leave home. In the eighteen years since the child was born, you could have been setting aside small amounts each month in a dedicated long-term savings account. If you’ve been doing so, college tuition will not be a shock or major disruption to your financial wellbeing. You can plan carefully to ensure you’re setting aside the right amount to afford the cost of tuition. If you haven’t, however, the 50,000-100,000 AED per year cost could require loans that will set you back from achieving goals like retirement. And if you plan to send your kids to the United States, Canada or the UK for their further education in say 10-15 years, those costs could actually double by then.
The longer your money stays in the account, the larger the potential for exponential growth
How Does Long-Term Investing Work?
The reason setting aside money each month and not removing any funds for 15+ years is so incredibly powerful is because of compounding interest. When you put money into an investment account, it grows by a small percentage each month. Then, those gains are also reinvested and added to your total pool of invested income. This means that the longer your money stays in the account, the larger the potential for exponential growth. Of course, nothing is guaranteed with investing and your account may not grow each month. The market ebbs and flows. This is another reason to leave investments unbothered long-term so that you can benefit from the long-term growth of the market.
Many investors get scared when the market faces a downturn and withdraw their funds. This is the worst decision you can make because the market is almost guaranteed to correct itself, and missing out on the subsequent “good days” outweighs any potential benefit of that strategy. Attempting to “time the markets” is generally a losing strategy, especially without the guidance of a qualified financial professional. This is another reason that savings plans are powerful. They do not give you the option to panic and withdraw funds early. Learning patience and watching your money grow can be a great first investing experience, especially for young people or inexperienced investors.
Making small long-term investments on a regular basis takes the guesswork out of achieving future goals. Since the money is taken from your account on a regular basis, you can easily adjust your monthly spending. You can even commit to adding additional income, like gifts or inheritances, to grow the pool faster. Then, when a big life event like purchasing a home or retiring arises, you’ll already have money set aside. This is much more feasible than coming up with a lump sum at short notice.
The idea of long-term investing through savings plans makes many people uncomfortable because of the loss of liquidity. In truth, however, it is one of the best ways you can protect your future financial health. By committing to setting aside money on a regular basis and leaving it alone to grow for 15-20 years, you can gain passive income and pay for large future purchases without struggling.
If you aren’t sure how to get started, working with a qualified financial professional could be beneficial. They can help you understand how much you should be setting aside each month to achieve your personal financial goals. They can even help you understand how much you’ll need for retirement.
Ready to get started? Contact Abhishek Datta at Abhishek.Datta@cfsgroup.com.
Author : Abhishek Datta
Abhishek Datta has been offering sound financial advice as a Wealth Manager and Financial Planner to a diverse global clientele for more than 15 years and has been with Continental for more than 5 years. He started his career in the capital markets of India and transitioned to Wealth Management to provide a holistic approach to financial planning. Abhishek’s expertise lies in asset allocation, long term wealth creation and creating risk-adjusted portfolios for his clients.
He has qualified to be a part of the prestigious MDRT for four consecutive years. At MDRT 2018-19, he had the honour to be a part of the Court of the Table and the elite Top of the Table since then.
His vision is to encourage youth and millennials to take the first step towards managing their finances from an early age. He offers a simple, uncomplicated approach focused entirely on helping his clients achieve their financial goals while assisting them in preserving and growing their wealth. He helps his clients build secure financial futures, leaving them free to focus on living their best lives.
Connect with us at Clientservice@cfsgroup.com