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July 14th, 2014

Why do I need to Save and Invest?

 

When it comes to saving and investing the future is not predictable,but it can still be managed.The objective is not to foresee your future but to properly plan for it. Saving and investing are key ways to properly manage one’s finances to fulfill financial goals and deal with the unforeseen emergencies that can potentially alter one’s lifestyle.

These are some of the main reasons for saving/investing:

Savefor a “Rainy Season”

Life is full of surprises which can last longer than a “rainy day”, from the bill for an unexpected car repair to medical expenses that are tough to cover because ofan unexpected layoff.These surprises can quickly turn into emergencies that lead to additional debt, hence building an emergency fund should be a top goal of any investor.An emergency fund may be the most important difference between those who manage to stay afloat and those who sink in debt. To avoid the latter, we suggest starting with small, regular contributions that will build up over time. An emergency fund consists of a reasonable amount of moneyusually kept in an account that allows you easy access to your funds. One of the main benefits of anyemergency fund is the peace of mind that you’ll be able to keep up with your car loan, mortgageand other regular bills for a few months, should a financial setback occur.

You can start your emergency fund with $1,000 then work up to saving three to six months’ of expenses to take care of bigger emergencies. 

Save for a Larger Home Down Payment

Prudent money management can help you fulfill one of life’sgoals- being a home owner. Your negotiating power is increased when you have a significant down payment towards your home which could result in a reduced interest rate. The most effective way to save for a larger downpayment is to consistently set aside a portion of each paycheck. Saving or investing for a downpayment over a long term period of 3 – 5 years or more can be accomplished through mutual funds which cankeeppace with the effects of inflation and rising real estate costs. 

Save for your Children’s Education

Educational costs for your children are a significant budgetaryitem for any family. To start saving for your child’s education, it’s a good idea to sit down with a financial advisor and map out your child’s complete tertiary educational needs. Consider the following points:   How old is your child? What year will your child begin his or her tertiary education? What about post-graduate studies?  Will your child live at home or in residence during university?

By taking into account your child’s age, and the years in which he or she will begin school and start tertiary education, a financial planner will help you to determine how much you need to put away each month. 

Getting To and Through Retirement:

You can also save money for the long-term, such as retirement. It can be difficult to think about doing this, especially when you’re young and retirement seems a long way off. But it’s a good idea to start thinking about it now so you can maintain your current lifestyle during retirement. To achieve this you may need to sacrifice some spending now, in order to have a comfortable retirement and lead the kind of life you want to in the future. By investing in mutual funds whose funds are invested in stocks, bonds and money market instruments are all avenues to build your retirement savings over the long term.

The key point to remember is to start saving earlier rather than later in life. Save money now and someday it will return the favor, meaning it will be readily available in your account for future needs. While there may be different reasons for you to save, it is evident from the above discussion that inculcating a healthy habit of saving will help you achieve your financial goals.

Financial planning for life events is a critical aspect of saving and investing. The Unit Trust Corporation has a wide array of products and services to assist in achieving your financial goals. Log on to www.ttutc.com for more information.

Do you have any questions or comments about this column? Are there any topics that would like covered? Please email us at news@ttutc.com.