For most young professionals, making a conscious decision to start saving early can be a daunting prospect — a distant dream, rather than a practical necessity. And with so many leisure opportunities on offer in the UAE, it is easy to slowly fritter away any excess disposable income that a tax-free salary provides.
However, it literally does pay to start saving earlier, as it will cost you a lot less in the long run to achieve your goals, and could potentially result in a large nest egg for you to spend at your leisure. The sooner you get into the habit of making regular savings, the more likely you are to realise a significant amount of money for your retirement.
Don’t suffer the cost of delay
Obviously the earlier you start to save, the earlier you are likely to achieve your savings goals. It is quite an eye opener to see how much delaying saving — even for a few years — could cost you in the long run. Let’s look at an example to illustrate the importance of starting to save sooner rather than later.
Miss A is 30 years-old and Miss B is 35-years old when they decide to start to save for their retirement. They both plan to retire at age 55 and each choose to save $1,500 per month. Assuming a growth rate of 5% per year — they would accumulate $883,681 and $612,686 respectively. While Miss A will pay $90,000 more in contributions, she will have accumulated a retirement fund of almost $271,000 more than Miss B.
As you can see, delaying the start of saving by just five years could make a considerable difference to your standard of living in retirement.
Have a plan
It is important to develop a plan for your retirement as soon as you can. The first objective is to understand the lifestyle you would like in retirement. People often forget that they will continue to spend money when they retire, especially with the extra time they will have to do the things they really enjoy. You also need to consider the age at which you plan to stop working — do you want to retire early, say in your fifties, for example? With all these variables in play, I always recommend speaking with a financial adviser about your goals and aspirations in retirement, to ensure that you create a solid financial plan that suits your current situation and the plans you have for the future.
Get into the habit of saving regularly
Once you have established a savings plan and decided on your retirement goals, you can begin to develop the habit of saving regularly. With high living costs and the temptations of a UAE lifestyle, the sooner you become accustomed to making regular payments into a savings account the sooner you will start generating results for the future — while enjoying all that the UAE has to offer. Setting up automatic payments from your bank or credit card into a savings account can be a great way to ensure you are making adequate provision for the future without having to really think about it, and you will soon become accustomed to getting by with less disposable income.
Reduce debts to increase your savings
Another element of successful retirement saving is reducing your debt. Saving is made easier when you are not paying off outstanding debts, and your retirement fund will last longer if you have no debts when you stop working. The longer you avoid paying off debt, the more interest you will pay.
You can choose to forego all four of these strategies — potentially burdening your future self with having to make crippling amounts of retirement savings, or unending employment. However, if you’d like to be planning that retirement in the Bahamas in your fifties, speak with a financial adviser about your personal situation and get started on your journey.
The writer is Managing Director of Middle East and Rest of The World at Friends Provident International.
