“Ka-Ching” for Life – Savings for the Long-Term
It’s that time of year again, when the sound of Chinese New Year classics replace Christmas carols, when youth’s eyes beam up at the prospect of getting “Ang Paos” (pocket money) from their loved ones.
So what would you do when you receive money during festivities?
For Stashaway’s country manager, Wong Wai Ken, he recalled his excitement of getting “Ang Paos” every Chinese New Year. However, he didn’t spend any of the money as it was a norm for his family to save up the extra money received. His parents would then invest the money in low-risk investments such as Unit Trusts or Fixed Deposits. Fast-forwarding to the present day, he understood why it was so important to save and why it is crucial for youths to save as early as possible.
The compounding effect of saving is profound in the long-term, especially if you make the money work harder for you by investing. As an illustration, Wai Ken used the investment gains from his “Ang Pao” money to partially fund his wedding. Savings such as allowances or part-time earnings can be put into fixed deposits, money market funds or high yield saving accounts, all of which will generate some form of return (anywhere between 2-3%) without risking your principal. This will help you reach your financial goals quicker, whether it be to pay off your mortgage or kid’s education.
How much should you save?
Wai Ken recommends around 6 months’ worth of salary or expenses for your emergency fund. It may seem overwhelming at first, but you should start somewhere by paying yourself first, for example, setting money aside for savings and investment. The worst mistake would be not saving at all. Thus, forming the right habit of saving is essential towards achieving financial security.
It is difficult for some to make ends meet, and they find it virtually impossible to save. According to the RinggitPlus Malaysia Financial Literacy Survey 2019, around 21% of Malaysians do not save their money due to obligations and daily expenses. This is due to the low disposable income after deductions such as Employee Provident Fund (EPF) contributions and Potongan Cukai Bulanan (PCB). In these circumstances, striking a balance between saving and spending is vital. One should evaluate their spending habits and decide whether the money should be saved instead. For instance, ask yourself if you can afford the lavish car when you spend the majority of your salary on hire purchase repayments. There is no need to be stingy, but Wai Ken iterates the importance of setting spending priorities.
Who exactly are you saving for?
Studies have shown that people find it challenging to save for their future selves – as if paying money to a different person. This is especially true for youths since 54.6% of respondents aged 20-29 years old from the previously mentioned survey do not have a retirement plan. Wai Ken stresses the importance of a mindset shift because people cannot live on EPF contribution alone as 2 out of 3 EPF members aged 54 have retirement savings of less than RM50,000. They will be living below the poverty line for the foreseeable future, making it impossible to retire.
Retirement plans do not have to sound so daunting. For example, you have a sum of money invested, but you do not plan to withdraw the principal and returns; this could become your retirement savings. There are two key things to remember when it comes to retirement – know how much you need and how much time you have before retiring. These will help you formulate an investment plan. The general rule would be to take less risk if you are approaching retirement, but it highly depends on your risk tolerance.
As a closing note, Wai Ken’s advice would be to look at all decisions when it comes to spending by setting priorities. Always pay yourself first, even if it is a small sum of money, and invest to beat inflation. He remarked that investing is often associated with speculation and aggressive behaviours, but even something as simple as putting the savings into Fixed Deposits, it is still better than keeping it all in cash form. The compounding effect will make the money work harder for you.
“Saving is good but investing is better.” – Wong Wai Ken, Country Manager, Stashaway
Do stay tuned for our next article about “Stashing Towards Long-Term Growth; A Youth’s Guide to Investing” where Wai Ken continues to share his insight on investing.
Interested to know more about Stashaway and how to empower people to build long-term wealth and meaningful financial services? Fortunately for you, you can check out their job opportunities for brilliant minds like yours here.
Additionally, if you are an existing FLY committee member, do spend some time exploring Stashaway’s Exclusive Investing Offer.
Journalist: Amanda Lee
Reviewers: Sara Yow, Elizabeth
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