The purpose of a savings plan is to make sure that you have got money put aside to cover a wide variety of short-term, medium-term, and long-term financial needs. It’s a way to make sure that your money is invested well and growing as much as possible, whilst also being available for you to spend on ad-hoc larger purchases or expenses as you make your way through life. To succeed at this, your plan for your general savings needs to be flexible enough for you to change your plan whenever your circumstances change, as well as being able to add one-off amounts when you need to, and withdraw one-off amounts when you need to. Whilst a bank account does this, there is one important thing a bank account doesn’t do – a bank account does not grow your wealth.
Even if you receive some interest on bank deposits, it’s almost certainly going to be lower than the rate of inflation – the gradual increase of the cost of “things” over time. Check it out for yourself online – how much did a loaf of bread cost 50 years ago? How much was an ounce of gold 50 years ago? How much did a city-centre apartment cost, or a countryside farm? Literally everything costs more today than it did 50 years ago – or 100 years ago, or even 10 years ago – because of inflation. It’s a hidden “tax” which eats away at your wealth, unless you’re outrunning it – if you’re standing still whilst everything else is moving ahead, you’re falling behind. Over time, fiat currency becomes less and less valuable, as more and more of it is printed, which means that everything priced in fiat currency (literally everything) gets more expensive, in nominal terms. So if you keep your money in cash (or bank deposits), you are destroying your wealth – not a little bit, a lot.
It’s crucial for your long-term financial planning that your wealth is being invested in a way which makes you money, unlike keeping it in a bank account. Bank accounts give you flexibility, such as instant access to your money, but that comes at a price. There are only two parts of your financial planning where a bank account is a smart place to keep your money – one is your day-to-day accounts, and the other is for an emergency fund. For everything else, your options are either invest it well, or lose purchasing power.
In addition to outrunning inflation, you’ll want incentives to get into – and stay in – good savings habits, but you don’t want to lose anything big when your circumstances change and you need to change the amount you save, stop paying in for a while, or make a withdrawal. You need it to be safe and secure, and you need it to be flexible so you can fit your year-to-year financial arrangements around your life, not fit your life around your financial arrangements.
A good savings plan does all three of these key things – it keeps your wealth ahead of inflation, i.e. increasing its purchasing power over time instead of destroying it, it incentivises you to have, and stick to, a financial plan, and it gives you flexibility to take your life in the direction you want it to go in. The combination of sensible investing, combined with a disciplined approach to savings, and built-in flexibility to adapt to your life, is what will take your wealth to the next level, and beyond. Anything else, other than this combination, is going to compromise your finances, not optimise your finances. That is not intelligent financial planning, and that is not maximising the value of every dollar you save.
To fully optimise your finances, you will need to segregate your different needs and objectives, and find an ideal solution for each one of them – and you are likely to have various different needs or objectives by the way, we’re just covering one of the major ones here which apply to everyone – so don’t look for a one-size-kind-of-fits-all, half-baked solution; look for the best way to achieve each specific objective in the most effective way possible.
Regularly investing a portion of your income to plan for future financial needs is one of these ways – and this product from www.SavingsForNomads.com is the best flexible one we know of to help you achieve that.