Expert: additionally gained income should be used for savings
Survey* conducted by Nordea on savings shows that in Latvia more than a half or to be more precise 58% of population expect the increase in their income in the next 5 years, but 25% are of the opinion that their income will remain at the current level. “These results should be taken with some caution as they show a really optimistic attitude of the population on the further economic development. We have to remember that after a rise there always follows some decline, that is why it is better to channel the additionally gained income for the formation of savings and not for creation of new additional expenses,” says Anzelika Dobrovolska, Head of Nordea Investment Product and Service Development in the Baltic States.
Inflation is gaining the momentum
After the economic development has become stable and the unemployment has decreased, there are prospects that inflation in Latvia will gradually increase in the nearest future. During the last 4 to 5 years the average salary has increased for approximately one fifth, which respectively makes the companies – employers – raise the prices for the offered products and services. This chain reaction to a big extent allows for assumption that in the coming years the increase of the income of the population will continue.
We have started to spend and afford more – we can see that economy becomes stronger and the society starts living on a larger scale. However, we have to keep in mind that the increase in remuneration promotes the rise of prices for products and services, which is why the optimism demonstrated in the survey as a tendency should be considered very carefully. To ensure the stability, prior to big purchases you always have to think of the formation of savings.
It is important to make savings
The culture and traditions of investments in Latvia is developing very slowly. Rather often we think that only the wealthy can afford to invest. The truth is that every one of us may invest, starting with 30 to 50 euro per month. We have to take into consideration that investment is not only trading stocks or investments in the real estate, but it is also, for example, saving of funds in the pension funds or life insurance products. Formation of savings is a real chance to improve your financial stability and welfare in the long term, taking care of your old age. It is not a secret that the length of a human life increases every year, but the amounts of pensions provided by the state still do not correspond to the real daily needs of people.
After the crisis we have become more careful and seriously consider the extent of our income, however, when we talk about expenses, we usually mention only expenses for loans and public utilities. Emotional purchases and daily goodies that are not essential are the ones that let us down most often. After reconsidering your purchases, the saved money should definitely be channelled to savings.
How much of income should be allocated for savings?
The experts advise to undertake from the very first working day to invest at least a tenth part of your salary in your own future. In a long term prospective such a discipline allows to save a considerable amount of money. Additional profit may be also obtained from the compound interest, which Albert Einstein once called the eight miracle of the world. Namely, the profit earned from investments (interest) is invested further, which allows to earn even more. This is an avalanche effect, as the longer you make investments, the bigger is the effect of the rate of the compound interest. When saving money on a current account or term deposit, the chance to earn real money from the interest is not used.
The basic principles for investment
- Think over how you would like to live in the future and how much money you will need to implement all your dreams.
- Do not postpone your decision on making investments – begin now. In the investment field time is your companion;
- Consider critically your expenses, especially the emotional purchases;
- Save money, to get the funds for investments;
- Do not keep your money on your current account, where it loses the chance to grow and earn;
- Stick to your plan – make investments every month as a regular payment;
- Stay calm and be patient even at difficult times, when the profit of investment is negative. After the difficult times there always follows a growth, that is why the interruption of investments is the worst decision.
“Don’t be afraid to dream and set high goals. Everyone can invest even small amounts of money. Investing in the longer period of time it is possible to save considerable amount of money and fulfil the dreams,” says Anzelika Dobrovolska, Head of Nordea Investment Product and Service Development in the Baltic States.
* The online survey was organized by SIA “Omnicom Media Group”, applying the standards of the European Society for Opinion and Marketing Research (ESOMAR www.esomar.org). This survey was conducted in April 2017, 2293 respondents participated in all Baltic States in the age group 18-65.
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Edgars Žilde, Communications Project Manager at Nordea Bank; phone: 6 700 5434, mobile: 28 452 975, e-mail: firstname.lastname@example.org