How the 'Abba effect' can help secure your family's finances

Open a high-yield savings account early to benefit from compounding interest and take out insurance cover

Pop group Abba in 1974. With a little strategy and inspiration from the Swedish band, you can solidify your family’s financial future. AFP

Money, Money, Money — Swedish pop group Abba were dreaming about it when they released their hit song in 1976.

Fast forward to October 2021 and the fantastic foursome had reportedly rung in a fortune of more than $1 billion.

If that is not the definition of securing your financial future, I am not sure what is.

Unfortunately, we can't all be billionaires. Of the approximately eight billion people walking the planet, only 3,331 have achieved this feat, according to Statista.

China leads the world with 1,133 billionaires and the most recent reports suggest that only 13 people in the UAE can stake such a claim.

With that said, Dubai also houses 200-plus centimillionaires (people with a net worth of more than $100 million) and around 68,000 millionaires, according to the Henley Global Citizens Report.

In Abba’s words: “... and still there never seems to be a single penny left for me — that’s too bad.”

But there is still plenty of money to go around; RankRed data shows that about $40 trillion is currently in circulation.

I think it is safe to say that you cannot secure all of it, but with a little bit of strategy and inspiration from the "Abba effect", you can get enough to solidify your family’s financial future.

Long-term horizon

Financial savviness is similar to a healthy diet. If you are trying to get in shape, it might be tempting to chow down on a burger and fries before washing it down with a milkshake, but it is not going to help you reach your long-term fitness goals.

You should opt for salads, water and tea while still enjoying a tasty treat from time to time — when you can afford to.

So, rather than thinking primarily about what’s best right now, your family will be better served if you think about what is best for them five, 10 or 15 years ahead.

For instance, if you are a new parent, or about to be one, you can open a high-yield savings account for your children and deposit increments of money that will compound over time.

With an initial deposit of $100, and then an additional $100 every month for 18 years at a 10 per cent annual percentage yield, your child will be able to start their adult life with a cushion of more than $55,000.

It will also set an example for them to do the same as they continue in life, and if they do this until they are 46, they will have more than $1 million in savings, according to consumer financial services company Bankrate.

Secure your life, secure their future

Last October, Zurich International Life polled 500 UAE-based respondents to understand how they would cope financially should they be diagnosed with a severe illness.

About eight in 10 were worried that becoming seriously ill would deplete their savings.

These concerns explain why more people have been opting for insurance coverage since the Covid-19 pandemic to protect themselves and their families from unseen risks.

Life insurance is an often overlooked component of financial security but two strong options are term life insurance and permanent life insurance.

The former offers coverage for a set amount of time, while the latter covers you for your entire life.

Depending on your situation and budget for premiums, select the best plan for you to add another layer of financial security if you pass away.

Seek financial assistance

Setting clear goals, budgeting to save, paying off debts and investing when possible are all strongly encouraged means of securing your family’s financial future.

However, if you choose to take on the responsibility of ensuring that the money you make and save is for the betterment of your family, it is important to view your finances objectively.

With 20 per cent of UAE residents saying they have less disposable income than a year ago, according to a recent YouGov survey, it could be helpful to seek guidance from a trusted financial adviser.

Since money is often an emotional subject, it is easy for your choices to become skewed based on what is most exciting, opportunistic or enjoyable at the moment.

These short-term decisions have long-term ripple effects that tend to produce less-than-ideal results.

Financial advisers can help you avoid these pitfalls by outlining a clear strategy that places you and your family on the right path.

By looking at your financial situation holistically, an adviser will take into account your goals and risk profile to devise a plan that is achievable for you.

The question is, do you want to be Abba in 1976 or 2021?

Bas Kooijman is the chief executive of DHF Capital, a securitisation company for financial services