31 October 2019

Save or Invest

What’s a good formula for saving? Most experts say, 10% is a good place to start, but for those who are little more accustomed to the monthly routine, the 50/30/20 rule makes practical sense, while offering a general budget guideline. It’s simply as follows, 50% for necessities, 30% for discretionary expenses and 20% for savings. Admittedly, the necessities and discretionary boundaries can sometimes be vague and differ from one to another, but allocating 20% to savings is a rather achievable goal.

That begs the next question, if you’ve been a consistent saver and have a reasonable amount stashed away, what’s next? Savings or fixed deposit account? Earn interest as you continue saving? While many might find that an assuring plan, in recent times experts have acquainted us with the occurrence of negative real returns on savings. Simply put, in relation to inflation and even economic conditions, the interest that you’ve been literally banking-on may result in you losing purchase power. In other words, your money is like an underachieving employee. Do the math and you’ll see it certainly makes financial sense.

So, where do we draw the line? Personal finance experts advocate the practice of putting aside 3 to 6 months for an emergency fund which you could access immediately if needed. This could act as a buffer in case of emergencies, loss of employment or other untoward incidences.

If one is to follow this rule, a diligent saver for several years would have a sizable nest egg for investment considerations.

Speaking of investment, there are many options out there to divert your money to work a little harder. Stocks, warrants, business trusts, REITs and more come to mind. Then again, they all come with their merits and risks. To most of us who’ve been indoctrinated in the rule of money not growing on trees, these options are often viewed with careful consideration. Every step is threaded mindfully where even a whiff of looming trouble can send us scampering. If the 1997 Asian financial crisis left us with something, it was the lessons we’ve understood about panic selling.

Okay, so we’ve established one thing. Risks, confidence, returns and common sense all matter if you’re thinking of your financial wellbeing. It’s again a game of risk versus returns, no matter how diverse a portfolio, or having the best investment experts at your behest.

But the quest for making money work harder has never relented in its appeal to us. Saying that, new “secrets” are being revealed every day. Just turn on the computer to have your fill of the ingenious ways in which people want to “put your money to good use.” Some are downright unbelievable while others border on the fringes of insanity. Bottom line, just as you are eager to make money work, there are those who can’t wait to take it away from you.

That said, recent developments in Peer to Peer (P2P) funding has made some inroads into the financial marketplace. Having had considerable success in the UK and the US, the trend for opting for P2P is sweeping the world with evident persuasion. Entrepreneurs, start-ups and businesses have now found a way to fund their business objectives through peer investors. In the same way, investors can put their money to better use by becoming peer investors to a variety of businesses. From even as low as RM100, one could have a share in a restaurant or trading business. Of course, it’s again about how much you invest and how well the company performs.

If P2P investing strikes a chord with you, it will be worth your while to do some exploring. Firstly, local companies operating under the P2P model are regulated and licensed by the Securities Commission of Malaysia, so do ensure you have that box ticked before you go any further.

Next, find out exactly what you’d be investing in. P2P companies conduct due diligence exercises on the businesses they represent. Most of the time, you’d be furnished with a list of companies to choose from, where tenure terms, conditions and returns will vary depending on the nature, standing and potential of each one.

At the end of the day, making an educated decision can spell the difference between hopeless frustration, mediocre returns or high yields with low risks. A close study of investment trends that have sustained an impressive track record in developed nations could also help point you in the right direction.

Take your time and be smart with your money. Make it work for you, the way you want it to.