Last update on March 11, 2019

Most people understand that as soon as you start earning money, you should start saving. The way we save and store our hard-earned cash can make a huge difference to saving and investment goals.

The economic uncertainty since the height of the global financial crisis has made life difficult for everyday savers. Cash in the bank no longer generates any return due to historically low interest rates, while inflation continues to increase the cost of buying a home or even everyday groceries — and more people than ever are facing retirement without enough money to fund their lifestyle. We explain how expats can learn to save their money better and more wisely to achieve their long-term financial goals.

Disposable income and where to save it

Personal financial planning

Many people consider themselves to be savers because they are careful not to spend everything they earn. While this is a great first step towards achieving your long-term financial goals, if that surplus money each month is just going into a bank account, it might as well be buried in the garden.

Cash in the bank does not grow — in fact, it loses spending power over time due to inflation, and it only earns money for the bank and its shareholders. A savings account, on the other hand, is great for making sure that you have enough rainy-day money for emergencies and short-term costs, but any more than that is just collecting coins. A good rule of thumb is that you should keep between three and six months of your regular household expenses in cash accounts at any time.

How to save money

For the rest of your monthly disposable income, regular savings plans or periodic investments can be very useful. Some investment plans are specially set up for small, regular deposits and can be much more cost effective than using a generic trading account. Finding a tax-efficient solution can also reduce the cost of any tax that might be applied to the growth of your investments in the future.

Define your savings goals

The most important thing when choosing the right vehicle for your regular savings is to consider your eventual target. Once you have defined the specific goal that you are working towards, it is much easier to create a strategy that is cost effective, tax efficient and disciplined enough to reach your financial objective.

Making regular, fixed-value transfers to your investment portfolio can have benefits of its own. Apart from helping you keep to your own schedule and ensuring that you pay yourself first, periodic investments benefit from something called cost-averaging. This is a simple concept that averages out the value of your invested assets as markets rise and fall, meaning that you can benefit from long-term growth in unstable economic times.

It is absolutely true that there is no one-size-fits-all solution for personal financial planning. Everyone has their individual goals and requirements. A good financial adviser will take into account your personal situation and work with you to create a plan that caters to your needs. Of course, this plan will most likely change over time, so it is vital to review your personal financial strategy regularly. One thing is certain, however: leaving your cash in the bank is not an effective way to plan for your financial future. It might be nice to see the numbers ticking upwards on the screen of an ATM each month, but what you won’t see is the real value of all your hard work gradually ebbing away as costs and prices rise.

Remember that savings accounts are often not the best tool for savings. Take the time to make your plan and seek help to find the best vehicle to carry it out.