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It was Benjamin Franklin, one of the founding fathers of the United States who is credited as saying ‘A penny saved is a penny earned’ but is it really true? As interest rates have stagnated since the financial crisis of 2007, you could be forgiven for challenging Franklin if your money is sitting in the bank – at current rates, your investments will be lucky to keep pace with inflation.
However, it is still really important to keep saving towards your financial goals and here are four reasons why.
Compounding is the process of earning interest on interest as your money benefits from the snowball effect. The longer compounding is left to work its magic, the more powerful it gets. By the power of compounding, a simple $1000 investment which earns 6% interest and is left untouched for 50 years will grow to be worth over $18000.
It sounds like a complicated technical financial term but all this means is that if you invest regular small amounts, rather than a large lump sum, you reduce exposure to falling markets because you are not investing all your money on the same day at the same price. Pound cost averaging is an investment method that can iron out the peaks and troughs of share prices and eliminate concerns over finding the right time to invest. Of course some of your monthly investments will be made at the height of the market but these will be balanced out by those which are purchased when prices are low. Investing little and often is a great way to start building a portfolio to achieve your long-term financial goals.
There are products on the market in many countries which provide tax advantages to savers, such as ISAs in the UK. As an expat you have the opportunity to benefit from a wealth of international investment solutions which allow your savings to be tax efficient.
‘The road to hell’ they say is, ‘paved with good intentions’ and human nature being what it is there is always something to spend your money on other than ‘boring’ savings. A regular plan encourages disciplined saving and in the long run will breed success.
So I would say that Franklin was correct – a penny saved is indeed a penny earned but only if it is saved right. Why not talk to one of our professional financial advisers who can find the right vehicle for your savings and ensure that your investments are outpacing inflation and working as hard as they possibly can for you?