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Saving is no easy task, especially the way things are today. So many plans, hopes, projects, etc. As the cost of living keeps going up, it’s becoming harder to set aside a part of what we earn as savings. Nonetheless, regular savings can help us achieve the balance needed to maintain the standard of living we want to have in the future.

In this post we’ll explain the benefits of a regular savings plan and why time is so important with respect to the investments made using this type of contribution.

To begin talking about this type of contribution, let’s start off with the basics.

What are regular contributions?

  • Regular contributions can be defined as the amount of money you decide to contribute on an ordinary and regular basis to your savings and investment plan.
  • The main difference in comparison with extraordinary contributions is that they can be made at any time of the year. Regular contributions, by contrast, are generally monthly and you make them for an amount you decide according to your saving capacity. They offer peace of mind in the sense that you can modify them whenever you want depending on your situation at any given time.

1. Be more in control of your money

If there is one thing that gives us a sense of security in regards to our investments, it’s being in control of our capital. Keeping funds that we’ve earmarked for savings separate from money for everyday expenses ensures peace of mind. Regular contributions can thus encourage greater savings discipline. The fact that you usually deposit them at the beginning of the month helps you better plan your spending.

2. Accumulate more capital

It will also allow you to earn interest on the kind of interest that an investment earns. This is known as the “multiplication effect”, which allows money to work better when it remains invested for longer periods. Due to this effect, interest is reinvested to accelerate asset growth.

3. Varied timing of investment

Products that invest in markets are subject to daily price fluctuations. In this regard, another advantage of regular contributions is that they help to reduce investment risk, as successive contributions tend to balance out over time. You’ll diversify, you won’t be so dependent on the specific times when you make contributions “playing one card at a time” and will therefore be able to obtain a stable average price.

4. Take care of your financial health

In previous posts, we helped you develop healthy habit routines, but one aspect of health often gets overlooked: financial health.

Good financial health starts with knowing how to manage unforeseen events and having a plan for the future that is linked to your interests. This will be the key to peace of mind and carefree living.

In this regard, regular contributions offer greater convenience when making investments. Because they are automatic, you make them once and then don’t have to worry about it.

 

The importance of time in contributions

With this type of contribution, time is on our side. The graphic below presents the example of two twin brothers who make contributions at different points in their lives.

 

Monthly savings

Elena and José save €200 per month on the same product. Elena contributes from the age of 25 until she is 45; Jose contributes from the age of 45 to 65.

Who will have accumulated the most capital by the age of 65?

As we can see in the graphic, Elena has accumulated more capital than Jose because she started contributing 20 years earlier.

 

We know that meeting goals plays an important role in terms of motivation and self-fulfilment throughout the different stages of life. At Sabadell Seguros y Pensiones we’ll answer any questions you may have about our savings and investment products in order to help you better understand the potential of your capital, and we’ll help you manage it in a way that best suits your needs.

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