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ECONOMY| 08.09.2022

Tips to protect your savings as we head into fall

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The energy crisis, accompanied by rising prices across the board, is compelling citizens to be increasingly mindful of their personal finances.

With the summer season coming to an end, the iconic phrase “Winter is coming” from Game of Thrones has never been so befitting: gas supply issues (forcing Europe to stockpile as much as possible for the colder months), coupled with rising inflation and increasingly salient geopolitical tensions between the West and the East, are causing households to rethink their saving strategies to weather worst-case scenarios as best they can.

The latest data on inflation, which may or may not have reached its peak (in August it tempered to 10.4%, but core inflation, which excludes energy and unprocessed products, rose to 6.4%), already suggests that the coming months will not be easy for Spanish pocketbooks. With an increasingly likely recession on the horizon, it is important to tie up all loose ends and avoid unexpected surprises.

To help you get ready, MAPFRE has prepared some tips on how to protect your savings in the final quarter of the year.

Get your accounts in order. As we said before, the price level is taking its toll on everyone, and the only certainty is that this uncertain situation will continue for at least a few more months. An overall increase in prices ultimately means lower disposable income. In this sense, the quickest and, theoretically, easiest way to counter the effects of inflation is to reduce personal expenses, especially any non-essential expenses that are not a priority in your day-to-day life.

Manage your debt. Not all types of debt affect finances in the same way, as it depends on the interest rate, the amount outstanding, or the remaining installments. However, each individual can use these criteria to rank their respective debts according to which is costing the most. Nevertheless, another strategy for managing debts in difficult times like these is to consolidate them by combining all debts into a single loan.

Create virtual piggy banks. In the words of the Bank of Spain, virtual piggy banks “are a modern alternative to the traditional piggy bank.” They are a highly useful tool that allow part of your income to be removed from your checking account and set aside through an automated contribution system. At present, a large number of banks offer this service, which has become especially advantageous given the current context. It is, according to the Spanish central bank, a service designed “to help manage personal finances.”

Saving energy also means saving money. The energy crisis has forced companies and households to cut back on their consumption considerably. In the wake of Russia’s decision to cut off gas supplies to Europe, EU member states have begun rethinking their energy consumption strategies (such as the so-called ‘Iberian Exception’). In this sense, it is not only an environmental concern, but also an economic one.

Despite the measures put in place, electricity prices continue to soar and are setting us up for a difficult few months ahead, especially when the temperature drops. Hence, saving energy also means saving money: every little gesture counts, such as purchasing the right amount of power, using LED bulbs, outfitting your home with energy-efficient appliances, or even installing solar panels in your home/building.

Take out savings insurance. Generally speaking, this is a product that offers a guaranteed return after a certain period of time when you make regular or one-off contributions. Although it shares some similarities with bank deposits, the purpose of both is quite different. Fortunately, MAPFRE offers different savings insurance products that can be adjusted to the customer’s needs or preferences:

  • Individual Systematic Savings Plan (PIAS – Plan Individual de Ahorro Sistemático). This is a type of long-term savings insurance by which the policyholder is guaranteed a life annuity if he/she lives to the maturity of the contract. The main advantages are its favorable tax treatment and its flexibility, as contributions are not always required.
  • Unit Linked. These policies are considered a hybrid between savings and investment insurance, where the saver decides which assets he/she wants to invest in. They also offer the policyholder greater management capacity than other policies.
  • Life annuity insurance. This last type of policy ensures that the holder will receive regular income for the remaining years of his/her life, starting at a certain point in time. The amount of the regular income will depend on the capital contributed and the return generated.

Review your investment portfolio. In times of economic turmoil, markets can be subject to sharp swings. This is what investors have been experiencing in recent months following the onset of the war. Against this backdrop, it may be a good time to review your portfolio and assess portfolio movements. Nevertheless, MAPFRE’s financial experts recommend seeking the assistance of professional asset managers in such cases, as they can advise investors in situations of uncertainty.

Avoid emotional decision-making. According to Ignacio Amo, fund selector at MAPFRE Gestión Patrimonial, while a large portion of assets have been in the red since the beginning of the year, it is essential to avoid short-term perspectives and “not to get carried away by uncertainty, fear, and the stream of negative news, as these are not good advisors and should certainly not influence decision-making.”