How do I get financial security

Financial security: answers to the most important questions about pensions answered

How important is financial security? How Much Money Should You Save? And how long does it take to achieve financial freedom? We answer these and more questions here.

Financial security: answers to the most important questions about pensions answered
Financial security: answers to the most important questions about pensions answered

How important is financial security?

How important is financial security to Germans?

A survey by the Allensbacher Markt- und Werbeträgeranalyse (AWA) showed that in 2020 only around one in ten Germans (11.73 percent) over the age of 14 would be particularly interested in private retirement provision and financial security. 28.53 percent are moderately interested, and 30.37 percent are hardly or not at all. This means that the values ​​are relatively stable compared to 2016 (11.87 percent; 29.67 percent; 28.03 percent).

Objectively speaking, how important is financial security?

In Germany, more and more people are affected by old-age poverty. According to the Federal Statistical Office, the at-risk-of-poverty rate among people over 65 has risen by around 4.7 percentage points to 15.7 percent since 2005. The problem will get worse, predicts poverty researcher Christoph Butterwegge in an interview with the German press agency. The reasons: the lower pension level, which will continue to fall after 2025, as well as the broad low-wage sector. So in old age, financial security is often just a dream. It is therefore definitely worthwhile to think about effective retirement provision at an early stage.

In addition to financial security in old age, enough freedom in everyday life is also important. It would be fatal, for example, if a suddenly occurring caries treatment for 1,000 euros or several thousand euros in costs for an urgently needed new heating system were to tear a hole in the household budget that could hardly be repaired. Or an unexpected job loss. Not depending on others for financial security, such as the state or one's parents, is just as important for our well-being.

How do you create financial security?

Of course, there is one thing that cannot be avoided: saving. So don't give in to every purchase impulse, don't knock bonuses on the head straight away, make sure that there is something left over from the salary every month (see below for how much). But just leaving the money lying around in the account does not make sense due to inflation. We present two common investment opportunities:

Financial security through a home

Rent-free living is easy on the strained wallet in old age. The earlier savers take care of the financing of a property as a retirement provision, the more flexibly they can work towards the goal. And if you plan correctly, you will save money in many areas. For example, if you combine real estate financing with a building society loan agreement, you can lock in the current interest rate right up to the last installment. If you secure a low interest rate in this way, you can save tens of thousands of euros.

If you are planning your house construction, you can provide additional financial security in old age by dividing the room: for example, position the children's rooms so that they can function as an independent living unit after the offspring have moved out. Then you only have to install a kitchen and you can rent out the area and thus increase your income or your pension. You only need to pay attention to tax exemptions, because any pensions and rental income that go beyond this must be taxed.

Financial security through investing in ETFs

If owning your own home is not for you, then maybe ETFs, i.e. exchange-traded funds. This investment product combines a large number of stocks. It is considered to be lower-risk than actively managed mutual funds and the returns are often higher. If you have little money to invest, you should find out more about ETFs.

How much money do you need for financial security?

Experts recommend a savings rate of 20 percent, i.e. 20 percent of your income every month. This makes it possible not to be completely overwhelmed by costs that suddenly arise, such as a car repair. Or to pay off a loan in the long term. Depending on your income, however, more may be needed for this. For some, such as low-wage earners or single parents, even 20 percent may not be possible. Calculate your household expenses to find out the maximum amount you can save per month.

Private financial planning should not be underestimated. You can find out how to protect yourself in all situations in our guide.

How long does it take to build a fortune?

How long does it take to achieve financial security through stocks and the like?

Of course, that depends on how much money you can save every month without restricting yourself too much in everyday life and when you start saving. The Quirin Bank made interesting calculations on behalf of the Handelsblatt. The background: Some investors have joined together in a movement called “FIRE” - “Financial Independence, Retire Early”, in German “to be financially independent, to retire early”. Your goal is to be financially secure at the age of 50 and no longer have to work. According to the calculations of the Quirin Bank, a 25-year-old would have to invest around 1,250 euros per month, half in stocks, the other half in bonds. This should achieve an annual net return of 3.65 percent. If he goes through with the plan, by the age of 50 he would have enough financial security that he could live on his accumulated assets and regular income. At 67, he would then receive an additional pension. The later you start saving, the more you have to wiggle monthly and the later you get financial security.

How long does it take to achieve financial security with a home?

According to the “Wohnatlas 2015”, it takes an average of 25.8 years in Germany to pay off a loan for a 110 square meter condominium. In order to determine the value, the purchase prices in all 405 German districts and cities in Germany were set in relation to the respective income level. The calculation was based on an interest rate of 2.5 percent per year and a maximum of 40 percent of the net household income as a monthly expense. Special payments were not taken into account. Experts recommend a maximum funding period of 40 years.

How do I motivate myself to take care of financial security?

The most important thing when it comes to achieving a goal, and recommended time and again by psychologists and coaches: start! Eternal procrastination only makes you unhappy and when the first step is taken, the second and third are much easier. For example, make an appointment for a bank meeting to finance the construction of your home.