The importance of saving money cannot be overemphasized. It is not only the first step towards the money management path, but is essential to building a safety net that prepares you for emergencies and securing a healthy financial future. However, simply saving is far from enough.
While it is easy to agree that it can help you grow your financial net, experts consider saving alone an unproductive exercise. To truly plan for your future, you should go a step further by investing that saving.
Here are some reasons you should look beyond just saving money, and save for the future:
Value Wears Down Over Time
Inflation is one of the biggest threats to savings. After tax, what is left of traditional saving mechanisms like fixed deposit is usually less than the inflation rate. In this case, the value of your savings will continue to decline as the years go by.
Saving alone can help you accomplish your goals in the short term, say two years away. But this investment plan proves to be insufficient when it comes to fulfilling long-term goals like buying a house or life after retirement.
Asides inflation, unforeseen emergencies and unplanned expenses can destroy the value of savings if adequate investment is not done.
Low Interest Rates Mean Increased Saving
One of the downsides of saving or investing in financial instruments with low-yields is that you have to set aside huge amounts of money in order to achieve the corpus you desire for your goals. Stashing away big amounts, in turn, can affect your purchasing power as it will mean less disposable income for expenses.
Saving is a good habit that requires a lot of discipline, but it can get frustrating when it compromises your immediate aspirations. If you increase your savings to achieve a particular goal and make up for a shortfall, you may be smothering other goals in the process.
So, what do you need to do? How can you look beyond the immediate and save for the future, you may wonder?
Compound Money to Save For Your Future
Saving for the future requires a methodical approach towards compounding your money by investing and re-investing over time. Compounding is one surefire way to rapidly increase wealth. But to take advantage of the true power of compounding, you need to invest with long-term in mind.
Today, some mutual funds in the U.S. have no minimums, while most require an initial investment of between $50 and $3,000. You can ensure discipline in your saving effort by activating a systematic investment plan (SIP) in the mutual fund. Through this arrangement, you will be required to make equal and regular payments into a mutual fund; this plan allows investors save regularly and still benefit from the long-term benefits of dollar-cost averaging.