What’s a savings plan? There are so many variations that it is hard to give a definitive description to it.
Generally, a savings plan is a policy that can last about fifteen to twenty-five years. You put a sum of money, in the form of savings, into it every month or year. If you buy it from an insurance company, you might have some insurance component embedded into it. That’s what more or less a savings plan is.
But why am I adverse to savings plans? Perhaps I should clarify that I am not totally against, but I don’t really encourage it as well. Ultimately, the reasons to buy one are aplenty and it’s difficult to debate every of it. My sentiments are based on my perspective towards savings plans in general.
Firstly, I am against small returns. Small returns, to me, are as good as no returns. Assuming you have a sum of money, let’s say a thousand or even ten thousand, what’s the point of putting it in a instrument to subject (yes, I use that word) yourself to an annual return of 1-3 percent? Different countries and different companies will offer different percentage but they usually do not go much higher. What can those small returns do for you?
The money that we have accumulated are very valuable to us. Not because we can spend them away or sit on them, but because they can make us rich. The return we should be looking to gain from them should be in multiple folds! Not those puny returns?
Don’t let those phrases, “almost guaranteed,” “close to guaranteed,” or even “guaranteed” fool you. Guaranteed returns can protect you, but they will also keep you average and deprived.
Another reason you should not buy saving plans is because usually if you want to stop paying, be it due to choice or circumstances, you virtually can’t. If you suddenly find youself in an emergency, cashing out your returns could result in a huge lost. Meaning, you might have saved $20,000, you may be only able to surrender your policy and take back an amount in the range of “a couple of thousands”.
It doesn’t make sense that a significant portion of your first year savings could go into “other people’s pocket”. I have nothing against operation costs and commissions, but only if they are done so ethically and honestly, which I find many financial firms lacking of.
My conclusion is this: if you want to save, save. If you want to invest, invest. Buying a saving plan could tie you up for the next 2 to 3 decades. Think about what are the advantages and disadvantages clearly. Ask questions. Ask why should you buy it and why you shouldn’t as well. Take some time to make the decision. Don’t be pressured to do so. Be clear about your objectives because by choosing to be ignorant will always result in becoming the biggest loser.
What are your thoughts on saving plans? I would love to hear from you.