How far do you think you can stretch RM50? Not very far, especially in today’s conditions. How far do you think you can stretch your finances if you have a solid savings and investment plan as your foundation? The luxury of having financial security is a dream to most people, but knowledge on savings and investment could bring you a few steps closer. Everyone can earn a living, but how many of us know how to make that living last?
What is savings & investment?
Savings is the amount of money you put aside to keep, whether for a rainy day or a lifestyle splurge. Savings are liquid, meaning it is easily withdrawn as cash when you need it most. It is a safety net if one loses one’s job or the ability to work. It may seem like something everyone should have, but almost 30-40% of people in Malaysia have no savings at all, leaving them vulnerable in times of crisis.
Investment, on the other hand, is a way to make your money grow. This requires more risk and responsibility as a greater amount of money is involved compared to savings, and the money is locked in for a certain period of time to an investment fund, such as stocks, bonds or property. There is a risk of gaining a lot or little return from the investment, which depends on many external factors.
Savings, investment, or both?
We all picture ourselves achieving certain goals that we’ve set along the course of our lifetime. Whether it is financially independent to buy a house, start a family, or watch our children graduate, these are all things we want to see in our future; dreams that can be brought to life with good financial planning.
Depending on the lifestyle change you want in your life, either savings or investment can help you achieve that.
Will savings or investment help you buy a car?
The cost of acquiring a car is twofold: firstly, in the one-off cost involved at the initial stage, in the form of down payment, road tax or insurance payments for the car. The second cost is the long-term costs involved, which includes servicing of the loan you take for the car and maintenance costs. While most dealerships offer low or zero down payment and throw in goodies for the car, there is still the long term cost of maintenance to keep in mind.
Savings would be your ideal for buying (and maintaining) a car. Once you have squirrelled away a sufficient amount of cash that can cover the initial costs of owning a car, it is only a matter of making the purchase and ensuring you can meet the monthly loan payment for it. Upon purchase, continue practising the saving habit as you would need to account for the cost of petrol, repairs, regular auto services, and annual road tax renewal. Needless to say, owning a car is a long-term investment.
Take note that financial experts recommend your total debt obligations should not exceed 36% of your gross income. Here’s an example of how to calculate your affordability to buy a car1:
Gross monthly income: RM4,000
36% of your gross monthly income: RM1,440
Total existing debt commitments: RM1,000
How much can you afford to pay for your car repayment monthly?
RM1,440 – RM1,000 = RM440
Will savings or investment help you buy a house?
At some point in time, we all want to have a place we can call our own. While most banks offer up to 90% financing for a new home purchase, you would still need to fork out the 10% down payment along with additional costs for the paperwork involved in buying a house.
A smart combination of savings paired with the right investments would be a way to grow your finances to help meet your end goal of owning a home. Whether it’s through stocks, bonds or investment funds, there are short and long-term plans that can help you get there. Explore options and find one suitable to your age and current income.
Hybrid plans that offer insurance coverage and investment opportunities like the A-EnrichGold offer a guaranteed cash payment and potential growth in funds invested under the plan. At the end of the plan, you will receive a one-time large payment of 150% of the amount you are covered for. Depending on the sum assured and the cost of your home’s down payment, there could be sufficient amount here for the initial costs. As part of the plan, you will also receive guaranteed cash payments of 5-12% of your sum assured every 2 years or yearly, which you can use to fund other investments or add to your savings to help you reach your goal faster.
Will savings or investment help you raise a family?
Education is a primary concern for parents when it comes to raising their kids. Every parent wants to provide the very best for their children, but when the cost of living and education seems to increase all the time, it leaves little options for the parents.
Certain investment plans are solely focused on providing for your child’s education costs, like the A-EduAchieve 2. This plan not only ensures the payment for your child’s education when the parents are no longer around, but it also offers a University Startup Booster which helps enhance your child’s education savings when they turn 18. As it is an investment plan for the purpose of education, it may additionally qualify you for a personal tax relief of up to RM3,000 per annum, subject to the final decision of the Inland Revenue Board of Malaysia.
Check out our breakdown on the true cost of raising a child and our complete guide on how to plan and save for your child’s education.
Will savings or investment help you retire well?
In an ideal world, we all retire with enough money to see us through our golden years. However, without a proper retirement plan, the reality can be very grim. 65% of EPF members have savings of less than RM50,000 at age 54, very much lower than the EPF’s recommended retirement savings of RM228,000.
One plan that you should consider that offers both guaranteed cash payments and potential growth in funds invested is the A-EnrichGold. This policy encompasses coverage on death and total permanent disability and a guaranteed maturity valueso that you can maximise your returns to its fullest. Find out other retirement planning mistakes you should avoid.
Regardless of which life stage you are at, savings and investment play a significant role in shaping your future. The idea is to begin as early as possible, so when the time of need comes, you can rest your mind at ease knowing you have a plan already to take care of it.