Whilst the specific terms and conditions of different savings plans can vary (you can see the specific details for this one here: https://SavingsForNomads.com/terms-conditions/), the basic principle is the same for all savings plans – you put some of your income into your savings plan on a regular basis, so that firstly you’re accumulating wealth which you can use for major purchases or expenses later on in life, and secondly that your money is invested and growing in an efficient manner.
It gives you access to investment-grade assets, such as investment funds run by large banks and asset management companies, without needing to meet the (much higher) minimum investment levels for any specific investment fund – you can invest from as little as 100 USD/EUR/GBP per month, and split the money you save into up to several different funds, so you can diversify your overall investment portfolio, even at a relatively low amount each month.
By using this model, you can pick the overall “strategic” areas you would like to be invested into, whilst leaving the specific stock/bond picking to experienced professionals who compete to attract your investment. For example, if you think the economy in one specific country is set to outperform others, you can allocate a fixed percentage of your savings to one of the funds which invests exclusively in that economy. Additionally, you can also pick funds which invest in specific economic sectors, as well as from different fund managers. It leaves you in control of the general direction of your savings and investment portfolio, whilst delegating the day-to-day management to up to 20 different fund managers. Whilst the return you receive will depend on the investment funds you choose, it is reasonable to expect a significantly higher return than leaving your money sitting around uninvested, in a bank account.
It also gets you into good savings habits – this will be the single most important factor in determining your future wealth, unless you’re one of the 0.1% of people who build a large company or win a lottery. You are forced to allocate a lot of your income to present-day expenses (rent, bills, food, entertainment etc), but nobody is forcing you to allocate any of your income to your future financial needs. If you are smart enough to create a financial plan, and disciplined enough to stick to it, you will have significantly more wealth in future, and be easily able to withdraw from your savings for those big-ticket items you’ll want and need throughout your life.
Assuming you’ve picked a good savings plan (i.e. one in your own name, that other people can’t change the terms and conditions of, which doesn’t have terrible investments held within it), there are three main things which affect the future value of your pension plan, in order of how much of an impact each one has:
1) How much you pay into your savings plan: The more you pay into it, the more you will get out of it
2) How long you save for: The longer you save and invest your savings plan, the more it will be worth
3) What it is invested into: This determines the investment return and the fees/charges you pay over time
It is a medium-long term investment (depending on the specific options you choose), not just from a financial perspective, but also an investment in yourself – your financial situation in the future is a direct result of the financial decisions you make in the present – this is always true, whether you’re young or old. A (good) savings plan is one of the most important ways that you can make sure that you are not financially struggling when you are older – you can’t avoid being old in future, but you can avoid being poor in future!