, NAIROBI, Kenya, Apr 22 – We all have ambitions, aspirations or dreams for the future. The common theme in these is we all want to secure our long-term financial freedom. It is often said that retirement is the saddest day of a person’s life.
However, it could either be the saddest or happiest day of your life depending on how well you have prepared and what you can do to improve your retirement outlook. It is important that you re-evaluate your preparedness on an ongoing basis. Changes in economic climate, inflation, achievable returns, and in your personal situation will impact your plan.
The common investment theme today is financial planning. Education planning, health or medical insurance or even retirement planning are just but a few reasons why great thinkers need to take time to plan for the future. However, although most people are able to establish their goals for the future, getting started is often the most difficult part of the saving process.
This means that a penny saved is a penny earned, but a penny saved today is a penny earning more. It is important to start saving as soon as possible for events such as retirement due to the impact of compounding. If you start saving now you will need to save considerably less than if you wait a few years.
Albert Einstein when asked about man’s most powerful discovery replied “Compound interest.” The power of compounding is the single most important reason for you to start investing right now Remember, every day that your money is invested, is a day that your money is working for you.
There are several saving tips that can help you acquire long-term financial freedom. However, it is important to note that several factors may affect the value of your savings. Of great interest in such cases would be interest and inflation rates. You need to ensure that your savings are exposed to an interest rate that will ensure substantial growth to cover for your retirement.
Also note that the savings are intended for long term financial use and therefore their growth must exceed the inflation rate. In cases where the inflation rate exceeds the growth of your savings, then you need to look at alternative investment options.
Putting your money in a retirement account is one that you could save for the future. This also has tax advantages as tax authorities tend to encourage such savings. Retirement schemes such as the Retirement Benefits Authority in Kenya could also be of great use to individuals who want to save for their retirement.
It is important to note that when planning for retirement, you should project what you are currently saving and have accumulated to date, and see if you will have enough to meet your retirement objectives. Use this calculator to determine when/if the money will run out during retirement and it will recommend additional savings if required. If you fail to do that then you have ultimately failed the basic purpose of saving in the first place.
One needs to establish a personal budget that lets you set aside some money from your current expenses and invest it in your future. There are lots of good reasons for doing so including tax benefits and the miracle of compounding mentioned earlier.
It is important for savers not to touch their savings. The reason for this is that it is likely that they will lose their principal savings and compound interest. How you save can be as important as how much you save. Inflation and the type of investments you make play important roles in how much you’ll have saved at retirement. Know how your pension or savings plan is invested. Financial security and knowledge go hand in hand.
Start early. The sooner you start saving, the more time your money has to grow. Put time on your side. Make retirement savings a high priority. Devise a plan, stick to it, and set goals for yourself. Remember, it’s never too early or too late to start saving. So start now, whatever your age!
(Renaldo D’souza is the Marketing and PR Coordinator at Winton Investment Services Ltd, an Offshore Investment Advisory Company based in Nairobi)