Investing

Development of wealth: How the state helps

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There is an old athlete rule when it comes to investing: you have to be able to pocket it. However, this does not mean that everyone who has spent money in financial products for decades has to expect some setbacks on the financial markets. Anyway, you shouldn’t let them get you down. Rather, it is very simple about the numerous small (and sometimes large) grants and allowances that the state grants for private wealth accumulation.

Many Germans do not even take advantage of a number of grants and benefits because they do not know the allowances, miss deadlines or do not meet certain amounts. Such supplements make it easier, especially in the initial phase, to build up capital at all. Because especially young professionals and low earners are encouraged. But also normal and even large earners can collect a few extra euros for later.

Now the state allowance system is a double-edged thing. On the one hand, there is a risk that savers only invest in certain products because the state beckons with monetary or tax gifts – even though the contracts later turn out to be unprofitable. On the other hand, it can dampen your own propensity to save, because the state already gives something – you don’t have to do much yourself anymore.

That is why you should see the surcharges for what they are: small gifts that are sometimes on top of it when you choose a savings product that you would have chosen without the allowance. They should help you have more money later, not less.

capital accumulation benefits

For almost 40 percent of all employees in Germany, the following applies: Your boss voluntarily donates a few euros a year if you conclude a savings contract or repay a real estate loan. The code word for this is: capital-generating benefits (VL). The amounts are often not generous, but a lot has accumulated over the years.

The employer pays between 7 and 40 euros a month, depending on how much is stipulated in the employment or collective agreement. In the best case, this makes 480 euros a year, which he puts aside for the employee, either in a bank or fund savings plan, a home loan savings contract or to repay a current house loan. If the boss skimps, it is worthwhile for low earners to increase the monthly contribution to 40 euros. In this case, they receive an allowance from the state, the employee savings allowance.

Such VL contracts are saved six years each, the seventh year is considered a rest year, then only the allowances for the low earners flow. You can either withdraw the accumulated money after the seven years have passed or simply save further. And as soon as the savings phase expires, you can also sign a new VL contract. In the best case, this brings in 2880 euros every seven years, without any interest. With two percent interest, it becomes over 3000 euros, with a fund savings plan, it quickly becomes much more.

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