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Start saving before you start greying

Don’t procrastinate when it comes to saving money for your retirement. It’s simple: the earlier you start, the more you save.

UAE Dirhams
Image Credit: Supplied
"Don’t underestimate the benefit of saving early."

Mindset. A simple seven-letter word that affects everything we do. People often talk about a ‘glass half full’ or ‘glass half empty’ view of the world. Being a raving optimist or a relative pessimist is all well and good, and undoubtedly each side of the fence has its merits.

From my experience, whatever your mindset, one subject that has a canny knack of grouping virtually everyone together is money – and more to the point,
the subject of when to pop on your disciplined hat and make a concerted effort to start putting it away for a rainy day, AKA your retirement.

Many parents set up trust funds for their children that mature around the age of 18. Access to these funds is then given, providing a mid-sized pot of money for a young adult to start out in life to help with university outgoings or maybe provide a deposit on a house.

However, the sad fact is that very few young adults from the age of 18 onwards are educated by their parents, teachers or financial professionals to build on the good work that their savings has begun and start investing and building wealth themselves.

Far too many people I meet don’t even start thinking about investing their money until they’re in their 30s, or sometimes older.

My feeling is that this is because they aren’t given a call to action by somebody they look up to; and in turn they don’t understand the miracle of compounding or the cost of delay by leaving things until later in life.

But why should you wait until the grey hairs appear (if you’re lucky enough to have any left at all) before rolling up your sleeves and building a financial plan that will help you achieve the security and independence you deserve? The time to act is now, not when you start looking like your parents!

Take this case study of two investors: Simon starts investing at 25. He invests for ten years and allocates just Dh5,000 per annum, so Dh50,000 in total. This pot of money then remains invested for another 30 years, but isn’t topped up until Simon decides to retire when he is 65.

On the other hand, Andrew starts investing at 35, ten years later than Simon. Andrew invests for 30 years and allocates the same amount per year as Simon – Dh5,000 per annum, so Dh150,000 in total – three times more than Simon’s total input. Andrew then also retires when he is 65.

Here’s when things get really interesting. Who do you think will have the most comfortable retirement in terms of their finances – Simon or Andrew?
Most people I present this to say that Andrew will be most comfortable. They are wrong.

Based on an annualised return of 7 per cent per annum, Simon would have a pot to the value of Dh850,000 at 65, whereas Andrew would only have a pot of Dh661,000, even though he invested three times more money.

Don’t underestimate the benefit of saving early.

Sitting down with a full head of hair and starting your financial plan isn’t a crime or something to be embarrassed about. Quite the opposite actually –
just ask Simon (who sadly, is now bald!).