07 Jun 8 reasons saving regularly will make for a smoother life journey

First ask yourself, are you a saver or someone who wishes they were a saver!

We have reportedly gone from a nation of spenders to a nation of savers in a few short years. It is reported that household savings is close to €100 billion in Ireland at present and much of it isn’t working well in terms of achievable returns for its owners but is taking refuge in a credit union or bank. The central bank quarterly Q2 2013 bulletin tells us that “personal savings remains elevated………and will continue to restrain consumer demand for the considerable future”.

The main reasons we save are normally borne out of fear and necessity. Whereas wouldn’t it make more sense if we got the same sense of satisfaction from saving as we do from spending. Let’s look at the top reasons for saving today:

1. A new car or new home
2. Emergency fund to help deal with life’s uncertainties
3. Sinking fund so that when annual bills come up like home insurance, private medical insurance, annual holidays, you have access to cash without dipping into emergency fund.
4. Children’s and your own further college education
5. Retirement
6. Take advantage of investment opportunity, right place/right time!
7. It feels good and can lead to lower stress levels about everything!
8. Gives you greater control in your life

At times, loans can be a means for instant gratification for funding our needs and wants. If you wanted a new car, you got a car loan, if you wanted a new home, you got a 100% mortgage, and if you wanted to go on holidays without too much planning, you booked it and paid for it with your credit card and didn’t worry about how you were going to fund it.

Now, people are saving again to meet bills rather than running up an overdraft or credit card bill, they are exercising more restraint with their spending habits and accumulating the savings in advance of their bigger purchases.

There is always a need to save, and saving regularly is good practice. It’s also a good practice to pass on to the next generation, and instills a good discipline in our children.

There is a very good variety of saving account types to choose from when setting up a regular saver account.

Many institutions will offer attractive Annual Equivalent Rates (AER) to entice savers to save regularly into a basic cash account with terms and conditions including a cap on the amount and term. They are attractive compared to demand accounts which scarcely keep pace with inflation but offer little in terms of any real return. These accounts can be suitable if you are saving for a deposit on a house or for a car in the short term. For the more medium term savings needs and when saving regularly becomes a habit to address all your other savings needs (2-8 above), I recommend regular savings contracts with the opportunity to take on some risk depending on the individuals attitude to risk.

If there is always a need to save, and you can set aside a monthly amount (which you can vary up or down), I am favorably disposed to regular saver contracts offered by many institutions which give the saver access to low, medium and high risk funds should they choose. These contracts offer good upside potential in return for taking on some risk. The risk is considerably mitigated over the medium and long term by regularly investing, thereby reducing much of the risk caused by volatility in the markets.

I saw this to good effect with my clients whom I advised to regularly save in 2009/2010 through a regular saver contract with a life company. This was at a time when many were running scared of any risk after a tumultuous period in the markets and economically speaking. These savings accounts suited my clients’ needs because they were willing to save regularly for 4-5 years minimum, and just in case they had a need, they could access their money at any time as long as they left a minimum balance of €1,000. The average returns on these policies has given 12.14% annualized (after all charges) for my clients who started saving €250 per month. Their attitude to risk was medium to high, and they were at the late 20’s, early 30’s lifestage.

Good forward financial planning involves regularly saving and this will lead to greater peace of mind. In addition, it will help you minimize uncertainty in times of need and take advantage of opportunities and situations as they arise. In the words of Benjamin Franklin – “If you would be wealthy, think about saving as well as getting”.

Talk to your financial planning advisor today and get organized with a suitable regular saver contract. You know it makes sense!