Want to start saving, need advice!

[pinkbeetle]

Greeting everyone,

I am 26 and just returned home from Germany with a masters degree. My case is a bit tricky as I live outside of US, but would appreciate if you provide me with some friendly advice.

I live in Georgia (country, not the state), I just got my first job that pays decently and would like to start saving. Decent is a very relative concept, I would say it is decent for Georgian standards, thus I will not mention my salary, since of you may simply find it laughable.

After a recent pension reform, our government has created a pension plan in which every citizen can enroll voluntarily. One contributes 2% of his salary to his pension account on a monthly basis, his/her employee contributes another 2% and another 2% is contributed by the government. However, there are a number of drawbacks in here.

First of all, you can only have your savings account in local currency, Georgian Lari (further referred as GEL). The trust for the local currency is very low in Georgia, inflation rate estimated by the IMF until year 2020 is 4% on average, so having a savings account in GEL would be rather unwise (correct me if I am wrong). Georgia heavily relies on imported goods, another reason not to have savings in GEL.

There is also little trust in government pension plans due to the recent historical examples. All of my family members had pension plans/ savings account during soviet times, which were never paid out after the collapse of the Soviet Union. After Georgia declared independence, they were forced to contribute to the new retirement funds, which later also were dissolved, never paying them a dime.

There are a number of companies that offer private pension plans, but again there is a trust issue, as I do not want someone to run off with my money.

In a situation like this, I think it would be most wise to have a savings account, since there are a number of respectable banks on the local market.

I am open for discussions, please tell me what are your thoughts, what would be a rational decision in a case like this? I am a newbie to the topic, so forgive me if my train of though is heading in the wrong direction.

 

[Chazm]

I’m not a financial pro at all so this is just all my opinion. If you only have to put in 2% and you’ll get 4% added, why not take advantage of it? 2% is a small amount. But make sure you have other safer savings as well. Diversify.

 

[DHK]

Here is my opinion:

1. Save in a bank account. It's not for "investment" purposes or for the rate of return. It's the capital for potential investing later on as well as for emergencies. Should a real estate deal come up or other business endeavor, it's better to have available capital than not to. Sure, that concept might be laughable, but as you said, they are more reputable.

A noted life insurance agent from many years ago said "The most important aspect of financial planning is a bank account."

2. Just as Chazm said - you might as well contribute that 2% to your country's "social security" look-a-like program. At least it's voluntary there and your government is making their own matching contribution (social security doesn't do that here).

 

[Life Hawk]

I would also add... check your banks to see if they offer other investment plans other than just a savings account... but use the savings to build up cash.

But be balanced... also as much as possible... use a simple investment methods and be careful of overly complicated schemes...

 

[pinkbeetle]

After thinking and reading your posts, I might actually stick with the government provided retirement plan. However, the sheer idea that my money could quite possibly go down the drain just makes me insane.

I will also open a savings account in my bank. Luckily I was born to a hard working family, have my apartment, do not pay rent, can save a large chunk of my salary.

 

[LostDollar]

(Note: I am not an insurance agent or investment advisor)

I'm not sure we fully appreciate all the challenges of living in a new country, in an old land, in a centuries old military corridor.

There may be something to be said for "gold coins in a canister in the basement" as part of your approach.

Is life insurance a possible consideration in your plans?

Edit:
Unless the draft law from late 2017 has been changed, or your job consists of self employment, it doesn't look to me like you have a choice about participating in the new Accumulated Pension Plan.

 

[LostDollar]

I just reread this again. When you are talking about the banks, are you suggesting that you can convert your money to other (non-Georgian) currencies and hold that money in a branch of a bank from another country?

Edit: Given that you are probably required to participate in the new pension program (In Lari) and that you may want to return to Germany or other EU countries to visit friends, you might find benefit with 2 banking accounts (or 2 pairs of checking and savings accounts-depending on how it works there), one in Lari to support local purchasing and the other in Euros to support traveling and some longer term retirement backup.

 

[LostDollar]

The Grand Tour did an episode that started in Georgia. I enjoyed seeing the architecture and scenery in your country.

 

[scagnt83]

After thinking and reading your posts, I might actually stick with the government provided retirement plan. However, the sheer idea that my money could quite possibly go down the drain just makes me insane.

I will also open a savings account in my bank. Luckily I was born to a hard working family, have my apartment, do not pay rent, can save a large chunk of my salary.

If you save money under your your countries currency, then even your personal savings are at risk of government incompetence. And not being part of the EU... well... Im sure you understand the risks better than I do.

Diversify into different currencies along with both gold and silver. It will act as a safety net if something bad happens to the economy in your country.

 

[LostDollar]

(Note I bumped an old thread there-op may not see any of the new comments)