“Start NOW with what you have”
“The eighth wonder of the world is compound interest,” rightly said by none other than Albert Einstein. Most of us live with this mindset that it hardly makes any difference if we don’t begin saving right away. However, time has a drastic impact on one’s financial well-being. Simply put, if we start early, we will always stand to gain significantly more. Let us see how:
Suman is 25 years old and has decided to retire at the age of 60. Suman can start saving now or postpone it to a later date. Assuming that the return on investment is 10%, following is the impact of delaying savings:
Suman is short by almost AED 2.5 million by the time of retirement! A significant cost of delaying saving just AED 1000 per month for 10 years!
Even if Suman decides to increase his monthly investments in the second and third scenarios with an aim to see that at least the total investment remains same across all the three cases, even then, he is unable to catch up due to lost time.
Delaying savings by even one year reduces your wealth by almost AED 500,000 by the time retirement comes along. Think about that! Moral of the story is, save now, even if it is small – compounding is your friend and it needs time.
If we have convinced you to start saving today, then the next obvious question is how to save? Keep it simple is our mantra. Based on your risk appetite, regular investments in the stock market through ETFs or Mutual Funds over a long period of time, has the potential to translate to reasonable sums of money. Using Systematic Investment Plan (SIP) makes life easier as the amount gets auto-debited from one’s bank account on a fixed date. It removes decision-making from your hands and forces you to save in a disciplined way.
Patience is a virtue and one should stick with regular savings to see the benefits of early investing. Avoid withdrawing your investments mid-way thinking that they have earned decent returns. The fact is, returns start to compound over time and more money makes more money. Any questions? New Age Insurance Brokers in Dubai are happy to help!
The 30’s are all about major milestones and new priorities – marriage, owning a car, having your own place, and maybe even kids! You are much older, wiser, and eager to leave the money issues of your 20’s behind you. However, there are possibilities of making mistakes that could have repercussions for the years to come down the road. Here are some financial mistakes that you can avoid in your 30’s and invest wisely instead.
1. Making debt a way of life
In your 20’s, you may have had to take on student loans, car loans and credit cards debts. But continuing to rack up debts into your 30’s, especially, that of credit cards and un-affordable mortgage can result in a downward financial spiral that is hard to recover from.
The best habit one can develop in the 30’s is to plan ahead of time and save up so that all of one’s purchases can be paid off with one’s current income and not potential income.
2. No record of daily expenses
Dubai offers both the opportunity to earn and spend. It is what you choose to spend on that matter.
Records of savings and expenditures are always a recommended practice in one’s daily life. Once a month, sit down and look at your bank accounts and credit cards to see where you have spent and how much you have spent. Keeping a close eye on expenses will not only helps you maintain discipline of keeping your outgoings less than your incoming; it will also highlight areas where you might be splurging more than you should. Perhaps, it is time to lower your restaurant bills by cooking more at home! These changes are easier to make when caught well in time before they become part of a lifestyle that is un-affordable.
3. Not saving for retirement
It is recommended that one should save at least 10% of their income for retirement. That is not easy but let that nothing holds you back from saving whatever little you can, now. Saving now matters, even though retirement is far away, because time matters. Time matters because of the magic called “compounding”. Read our blog here to learn more about the cost of delaying savings.
With so many options available for investments, Systematic Investment Plan or SIP is one great investment option where one can invest a fixed amount in a mutual fund scheme at regular intervals. SIP can lead to handsome wealth creation in the long run.
If you invest AED 1,000 a month, with the selected mutual fund scheme unit being AED 10 in the first month, you gain 100 units. The following month, if the unit price drops to AED 9, you gain 111 points and further if the unit price drops to AED 8 the gain would be 125 units. By the investment of AED 3000 over the 3 months, you are allotted 336 units. As per SIP calculator if the entire investment of AED 3000 was done in the first month itself then the units gained would have been just 300.
SIP investments can thus help grow your investments with compounded benefits.
4. Not investing in Insurance
As parents or to be parents, you always want the best for your child(ren), which is natural and healthy.
A lot of your financial and career choices are impacted by your wish to securing your children’s financial security. You know that life is complicated, unpredictable and throws challenges at us when we least expect it. So, while most of us make sure to financially protect our families while alive, we deprioritize protecting our families in case, just in case, something was to happen to us.
Life insurance is a way to protect your family financially in case of your sudden and unexpected demise. The toll of a financial loss will be the last thing affecting your family. The life insurance cover will be a means of steady financial income during hard times when your family is coping with a deep loss. Critical illness insurance and disability insurance are other options that one should consider as these can impact your income-generating ability while you are alive.
5. Don’t let your professional life stagnate
In your 30’s, it is necessary to actively invest in your professional development. The pay-scale study shows that 20’s is the time for significant income growth of about 60% but as one moves into the 30’s, one can expect to see a slowdown in salary growth to about 20% over the decade. The reason for this is- additional demands outside of work such as relationships and family obligations. This is why one needs to stay on top of industry trends. One must continue looking for career opportunities and stay prepared for challenges and growth.
Your determination to keep your financial life in order while you are in your 30’s, will lead to your building real wealth that lasts. Any questions? We are happy to help!
By Savitha Shetty, Vice President
“Why do I need Critical Illness cover? I have Medical Insurance” This is the typical reaction I get when I ask friends if they have a critical illness cover?
Let’s start with the very basic- What is a critical illness cover? This is a cover which pays out a lumpsum (sum assured) when one is diagnosed with a major listed illness. Most of the insurance companies’ critical illness list typically include about 32 illnesses like cancer, stroke, first heart attack, motor neuron disease and more.
Let us look at two real life examples which illustrate how this lumpsum payout could have significantly helped these individuals.
Story 1: Mrs. Sultan, an Arab national, was recently diagnosed with breast cancer in 2018. She has an above average enhanced medical insurance policy which was sufficient to met her regular medical insurance needs. However, when she got diagnosed with breast cancer the doctor prescribed many tests which aren’t typically covered by most insurance policies. The cost of treatment has now surpassed the available limits on her medical policy. Mrs. Sultan and her family are now digging into their savings to pay for these medical tests. Not only that Mrs. Sultan has young school going kids. Though she received some support from her family, she has had to hire some additional help at home to help take care of kids and manage the household while she is undergoing treatment. The financial stress in addition to the emotional stress of the illness has taken a significant toll on the couple.
A critical illness policy would have saved a lot of the agony, at least the financial ones, for the Sultans.
Story 2: Mr. Majumdar, aged 35 years,was working as one of the Directors at a large financial firm in DIFC. Due to economic stresses the company decided to shut operations in 2010. All employees were made redundant. Back in 2007,I had asked Mr. Majumdar to consider having a critical illness policy but after a lot of back and forth, he concluded that his medical insurance provided him sufficient cover and that he didn’t see the need to buy a critical illness policy.
As destiny would have it Mr. Majumdar was diagnosed with stomach cancer soon after he was made redundant. The timing
couldn’t be worse. He had NO MEDICAL INSURANCE to start with;two young kids with one ready to start schooling and; a household living expenses that won’t take a break.
Buying a new medical insurance was not an option as medical insurance gets more expensive when a severe medical condition is already diagnosed. Mr. Majumdar had to depend on social service organizations to fund his cancer treatment and all his savings were exhausted to ensure that his family is comfortable.
Had he CHOSEN TO BUY A CRITICAL ILLNESS policy, the scenario would have been different. He would have been paid a lumpsum (for eg. USD 250,000) as soon as he was diagnosed with cancer. He would have paid for his treatment without having the stress of where money for his treatment would come from. Instead of losing sleep over what has happened, he could have recovered faster, with his savings still intact.
Hope the above real-life stories help answer the question of “Why do I need critical illness cover when I have medical insurance?”
*We have disguised the names of the actual persons to protect their privacy
** Premiums will vary depending on every individual’s unique circumstance
Raising a child is one of the most beautiful experiences of anyone’s life, but that doesn’t mean it comes without any challenges. One of the major worries that plagues the minds of parents is their child’s education.
We can see this trend in the UAE, as an average family pays close to 365,000 AED for its child’s education from kindergarten to the first four years of college. The survey was done by HSBC,and shockingly, this number is more than double than that of the global average.
Studies also show that education costs are on a constant rise at a rate of 7% a year. This is primarily due to the high inflation rates in the education sector. So, by the time a one year child enters college, cost of education would have increased by over three times the current cost!
The above HSBC study also showed that 84% of the parents believe that their kids will have a bright future. However, in order to secure that bright future, it is more important now than ever, that parents and parents-to-be start saving early for education, as the impact of compounding interest cannot be under-estimated.
Let us walk through on how best you can protect your dreams and ambitions for your little ones :
Step 1: Decide where you want to send your little tot for education
It is hard enough to figure out which school and activities to send your child to so figuring out where your tiny tot will go for college,10 – 18 years from now requires a bit of foresight. However, the alternative, that is the cost of not planning, is immense. As this study by Friends Provident International shows, the variation in the cost of education between let’s say India and US is over 10 times!
One has to start thinking about whether one wants to send his/her children to their home country or abroad fairly early on to make sufficient provisions for the same.
Step 2: Consider inflation
Now that you have decided (well, sort of decided) where your children will go for their further education, one has to look at specific education inflation rates in each country to assess how fast these costs are growing. For example, in the US historically cost of education doubles almost every 10 years.
Step 3: Start saving!
Armed with the savings goal, there are various tools available in the market to safeguard your child’s education.
- One can put aside certain amounts from salaries on a regular basis in diversified assets such as stocks and bonds. Discpline is the key as there is always temptation to withdraw the monies and use the funds for other short to medium term needs;
- There are various savings plan offered by insurance companies such as Zurich International Life, , Friends Provident Interntionaletc which allow for investments in diversified portfolios in a systematic manner. The maturity amount of these plans are typically excluded from taxation, giving you tax benefits in the long run.
- Various governments have schemes to help their citizens save for education (example 529 plans for US citizens). These schemes typically offer tax benefits.
When making a decision of which set of options to choose, carefully evaluate the cost of investment, your risk appetite and whether the returns compensate you for the risk you are taking.
Step 4: Protect your savings!
Life is uncertain, that goes without saying. All the planning and savings takes a parent only so far. When it comes to a child’s education, one should hope for the best but plan for the worst.
For as long as you are alive, you will diligently save for your child. However if you were to fall critically ill or die, without a safety net protecting your income, your child’s future will be in jeopardy. It is always advisable to protect your income(s) via a term life or a whole of life insurance plan.
Opting for an education savings plan will help your child in his/her education but it is not sufficient. lt lacks the complete coverage that can only be offered by combining the savings plan with an insurance coverage. Hence, we recommend the purchase of a term life insurance plan in addition to a child education plan to offer your child the complete financial protection they deserve.
Choose wisely as different insurance companies offer different options to the consumer. Take the time to review plans and discuss their pros and cons. We are happy to sit down with you and share our experience and knowledge and guide you on your journey to safeguard your child’s future.
Please leave us a message at New Age Insurance Brokers and we will be more than happy to help.
From fresh organic breakfasts to fat-free lunches, the millennial’s are moving towards a healthier lifestyle. In addition to the precautionary measures taken by the general population, advancement in science and technology in the field of healthcare has led to an increase in the life expectancy. As per WHO, “Today, for the first time in history, most people can expect to live into their 60s and beyond”. However, good physical health cannot be considered the only determinant for making long life a blessing.
In our golden years, incomes are uncertain, but expenses are certain. We are more susceptible to ailments like Arthritis, Heart diseases or Osteoporosis, and hence being able to pay for the same ensures that the golden years are indeed golden. With Governments scraping off or decreasing the pension funds, retirement planning is no longer optional but necessary.
Retirement Planning Helps You to Be Prepared
While we are advancing in health care, artificial intelligence is not far in the race. With a single machine replacing a chunk of manual labor, the possibility of us turning to the chapter of retirement a little earlier than expected is high. Interestingly, most people do not invest sufficiently for retirement with a hope that governments or children will pay for the same. However, planning should be done keeping the worst-case scenario in mind while hoping for the best.
While imagining retirement, most of us dream of sitting in a comfortable lawn chair with a beautiful view, whilst sipping tea with our loved ones. And to aid this dream, we save a portion of our income in a savings account and hope to live off of it in the years to come. However, with the ever-increasing standards of living and inflation rates, these savings might not last as long as one had hoped. Growing old in a lonely setting accompanied by poor health is not attractive.
Tips and Tricks for Retirement Planning
Start saving early: Planning for retirement is mostly about a good start. The best-case scenario is early planning and saving because the earlier you invest, the better you will be down the line. So start now. Not tomorrow or on your next birthday but now. The retirement phase may seem distant but saving for it now saves you from the bumpy ride.
Every penny counts: Take out a proportion of your monthly profit or salary separately to be saved for your retirement. This amount can end up in significant numbers once you reach your golden years.
Health is wealth: Health is wealth and one should never take it for granted. Maintain good health and take care of your physical and mental fitness. Improved health will save you some hefty medical bills in future and allow you to enjoy your retirement years.
Expert help matters: While you are still earning, consult a financial advisor for an easy financial audit to ensure that you are ready for the expenses for crucial and mandatory events ahead in life. This may include planning about heavy expenses for marriage or child education.
So, living longer is a blessing, provided you have planned your life accordingly. Invest in retirement planning while you are young and enjoy old age with a peace of mind!