1 of 4 millennials have over $100,000 saved in a bank but still are not optimistic about their financial future? Saving is a very good practice for any person that wants to start practicing money management. But it should concern anyone when those who are doing a great job saving are not very hopeful about their future. Saving has been an amazing tool for people to build safety nets for emergencies and accomplish certain financial goals with no need for borrowing.
However, although saving is a good habit to build, it is still not enough to achieve financial freedom!
“Saving money is the first step to grow your money. But, simply saving is an ineffective strategy. To create wealth, savers should go further and invest that saving, becoming investors” says Ro, co-founder of Ndovu.
There is a risk in saving:
If you fall in the millennial demographics, you have likely witnessed or read about historical economic events like the Great Recession in the United States that really shook people’s financial situations and made them rethink their futures. We are now living through another historical event, the COVID-19 Pandemic which has showed us how unpredictable life is and how easy it is to lose your job. Some countries hit record highs for unemployment rates. We are learning hard lessons that saving is good but not enough. Investing has to be considered if we want to create long term wealth allowing us to live financially secure lives.
Saving vs Investing
The average long-term rate of inflation for Kenya is 4.69%. This means the money you have saved up in your bank account will be 4.69% less in value in a few years than when you began to save it. While on the other hand, your money would instead generate c.9.8% of return if you had chosen to invest it.
Your money should be compounding, not just saved.
Saving is a good exercise to do when you want to accomplish some goals in one to two years away like a vacation, a car repair, or shoe shopping. However, a fixed deposit does not do sufficient of a job for long term goals like retirement or buying a home.
When you save your money, you are taking a risk on inflation and that is a threat you should not ignore as experts say. Post-tax returns on traditional investments such as fixed deposit are less than the inflation rate. If your savings earn less than the inflation, the value of your savings will steadily decline over time.
There are other factors, other than inflation that pose more threat to your savings if it is not invested instead such as some random outflows, some kinds of taxes, and emergencies.
Consider doing this to achieve financial success
All investments carry risks. You should know this very well. But also, some investments, when analyzed and studied thoroughly, are less risky than others. So make sure you do not invest in one thing with all your money. Smart investing is not the “all or nothing” game.
Even though nothing in this life is fully guaranteed, we could try to prevent some risks. Using strategies like Asset allocation and diversification could help manage some of the investment risks and have a higher chance of getting returns.
The purpose here is to pursue the compounding returns. Compounding is what happens when you put money in an investment and it earns a return, then you keep that return in the market for it to earn another return, over and over. That kind of investment is what eventually grows significant wealth.
Ndovu which is getting ready to launch soon to help you invest in your dreams. Ndovu asks you a series of questions to understand your financial goals and then recommends what you should hold to achieve these financial goals. The only way to grow your wealth exponentially is to invest in a mix of financial products in accordance with your risk tolerance and specific goals. That is exactly what Ndovu provides you: the opportunity to grow your own wealth with little risk.