In this video, we're gonna be talking about: 1) the difference between saving and investing your money,
2) why its so important to distinguish the two, and
3) some practical steps you can to start saving and investing your money today.
We were always told to 'save' our money, but what happens after that?
Find out how to organise your savings and your investments so that you get the most out of your money.
SAVINGS VS INVESTMENTS
Savings represent your rainy day fund. It’s your emergency money and therefore should be easily accessible to you in the event of an emergency.
We’re talking about money you use when there’s actually been a real emergency like a you lose your job, or you get into a car accident, or you need to bail someone out of jail.
It’s good practice to have between 3-12x your monthly expenses in savings.
Yes, this is a large range, but we gave this number for a reason.
The reason is because you have to identify the sweet spot for yourself. And this sweet spot depends on how confident you are of securing your next income stream if you lose your current one.
If you have a lot of financial commitments like a family to feed, a mortgage or a car loan to pay, you should save at least 6 months of your living expenses.
If you’re a fresh grad and you don’t have a lot of financial commitments, you can get away with 3-6 months worth of your living expenses.
Now you know why we recommend not getting yourself into a lot of financial commitments especially when you’re young. We talk about that in our previous video on how to get started on your financial journey.
Now, it’s important to build your savings first before venturing into investments. This is because your savings will act as a safety net for your financial life if anything were to go wrong.
If an emergency happens, knock on wood, then it’s a lot less stressful if you had the cash to cover it.
As a bonus, when you have a reasonable amount of money saved up, you’ll have more confidence in making your financial decisions and you’ll avoid making risky investments based on emotions.
When you’re looking for places to stash your emergency funds, you should look for these 2 criteria:
(1) It has to be liquid. This means that you can access your cash quickly, for example withdrawing cash from an ATM machine
(2) It has to be relatively safe.
WHERE TO SAVE YOUR MONEY
With these 2 criteria in mind, let’s take a look at some of our options when it comes to stashing away your emergency fund.
Option 1 — underneath your pillow. Yes it’s as liquid as it gets, but it’s not very safe so that’s not an option
Option 2 — in your bank’s savings account. Like I mentioned earlier, this option is extremely liquid as you can draw your money out anytime. We recommend 30% of your savings or RM1,000 here for real emergencies that need cash immediately.
In general, savings accounts have a return ~1.5%. And when you compare this to Malaysia’s inflation rate of 2-3% and you’re actually losing money by keeping your cash in the bank.
And this is why it’s important to not only save, but invest your money.
If you only save your money and never invest, you will be losing money every day because of inflation.
Inflation is when the general prices of things increase and as a result you can buy fewer things with the same amount of money you once had.
Which brings us to our Option 3 — Amanah Saham, which in our opinion, is the perfect bridge between savings and investments.
It’s not as liquid as your bank account, but a quick trip to any major bank will give you access to your cash, which is good enough.
The true beauty of an ASB account is that you’ll be getting a 5.5% return on your money even in a bad year which blows away any savings account.
In the future, we’ll dedicate an entire video to explain exactly what Amanah Saham is and how you can get started, so make sure to subscribe to the channel so you don’t miss that video.
Option 4 is fixed deposits or FDs.
Nowadays, fixed deposits are incredibly liquid due to technology and online banking.
So tell your parents they don’t actually need a physical certificate anymore.
FD’s can be uplifted at any point and while you may lose out on interest, it won’t be a significant amount.
These are your savings after all. They’re meant to provide you with a safety net in case of an emergency, not to give you great returns.
Now, if you’ve already saved up a comfortable amount, you’re ready to have some fun with investments.
INVESTMENTS
Investments are where you let your money grow and where you build your wealth.
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Music: Bensound.com
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