January 2, 2020

2 min read

Finance management

Why should I start saving?
Well, why wouldn't you want to invest in your future?
Nicholas Flaherty Image

Nicholas Flaherty, Investment Strategist at FWU Invest S.A.


When we are young, saving, especially for retirement, seems so far away – it’s something old people do. But, at the risk of sounding nannyish, this is simply no longer the case – the sooner we start saving the better!

Let’s illustrate this by using a simple example.

Say you only start saving when entering middle age, say for example 45. At this stage, you have a decent income and can afford to put away 5000 euros a year. If you invest it relatively wisely and are able to achieve a 7% return, you will have EUR 338k at the age of 70. Not bad, but say you started earlier, at the age of 24, so once you start working, and put away a much smaller sum, 1800 EUR a year, amounting to 150 EUR a month. Well, once you are 70, you would have 550k EUR, which is considerably more, with a fairly small ongoing outlay. The trick is to start early and be consistent!

 

An important point in all of this, though, is that achieving financial goals means not just ‘saving’ on an ongoing basis, but also investing. This is really critical: in order to get those 7% returns, the money that is laid aside each month or each year needs to be placed into assets that generate value, primarily stocks and bonds. In doing this, especially by opting for stocks in the early stages of life and staying in the market for a long time, you could even get beyond the 7% annual return, allowing you to build an even greater nest egg.

In a nutshell, saving is not something we should do sometime in the future – it’s not just something for old people! As we saw, the earlier we start, the better the end-result will be. And the trick is to be consistent and not just save, but also invest.

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