World Savings Day. A plan for unforeseen events or the future?

Athis saturday, october 31st, the World Savings Day and there is one question on which it is important to reflect: after all, should we save to respond to day-to-day unforeseen events or to build heritage and ensure a more comfortable future?

“ The answer is less polarized than it seems. Actually, the two objectives are important and complement each other. A balanced financial strategy is not about choosing between security and growth, but about realizing that there are different types of savings for different moments of life”, explains Ageas Portugal Group, in a statement sent to News to Minutes.

As part of today’s agenda, the company “strengthens the importance of financial literacy as a tool to help people make more informed decisions” and brings forward some principles to organize savings between the needs of the present and the objectives of the future: 

• Short-term savings: “A breakdown in the car, an unexpected medical expense or an urgent home repair are situations that may arise without warning. When there is no financial cushion, these unforeseen circumstances may require the use of credit and add a new expenditure to the family budget. For this reason, one of the first goals of a savings strategy can be to create a reserve for unexpected situations.
  In this case, liquidity is of particular importance. If the objective is to use the money quickly in case of need, it is important to focus on solutions that allow the capital to be available without compromising this purpose.
  Remunerated deposits, fixed-term deposits, savings certificates or treasury funds play an important role. Its main objective is not to maximise profitability with favourable taxation, but to ensure that money is accessible when it is most needed”;
• Long-term savings: “After creating a reserve for unforeseen events, a second dimension of savings arises: the construction of long-term goals. This is where projects such as the purchase of own housing, the preparation of reform or the creation of heritage for the coming decades come in.
  Setting concrete goals helps to understand how much time we can save and what features we should look for in a financial solution.
  Unlike emergency savings, long-term savings benefit from time. The higher the available time horizon, the greater the capacity to withstand market fluctuations and seek solutions with higher valuation potential. In this universe we find instruments such as investment funds, ETFs, bonds, shares, real estate or savings insurance”;
• Preparing reform also pays off: “Reform is perhaps one of the clearest examples of the importance of time in saving. In Portugal, there are specific solutions, such as the Reform Saving Plans (PPR), pension funds and capitalisation insurance.
  PPRs can also benefit from tax advantages. Under certain conditions, it is possible to deduct 20% of the amounts applied to the collection of IRS within the legally established limits and subject to the applicable conditions.
  Still, taxation is just one of the factors to consider. Each solution should meet the defined objective: an emergency reserve requires liquidity, while the preparation of the reform allows for a longer horizon and greater potential for valuation. The issue is therefore not to choose between saving to live and saving to build the future, but to reconcile the two goals in a balanced strategy.
  Saving for life means gaining security, knowing that there are resources to face unexpected setbacks and challenges. Saving for the future means gradually building greater financial freedom with more comfort. The two objectives are equally important and the good news is that it is not necessary to choose only one of them.”.