There’s a saying that to be successful, you need to grow a habit of saving money. Is it still relevant today? Gone are the days that having a solid savings plan could get us to a comfortable retirement.
Times have changed and so have our needs. With society becoming more sophisticated, so have our needs and in tandem, given way to the rise of consumerism. A century ago, travelling from one place to another was never about exploration but more of a needs-based approach that caused people to migrate. Today, travel for us has become a habit. Some do it once a year and others even several times a year. It’s become a need which needs fulfilling, part of our bucket list. To not just survive but thrive in this era, you need to master the art of money management: Saving, Investing, and Trading.
Unfortunately, they don’t teach investing at school. The good news is, we are here to guide you through so that you are clear when you need to save and when to invest, the difference between the two concepts, and what products or instruments you can tap on.
Understanding the concept of Saving
The purpose of saving is to allocate a certain amount of money and put it aside to cover your needs. In short, saving gives you financial prudence. But saving by itself is useless if not followed up with a plan. For example, you could allocate 20% of your income for to save for a rainy day. Saving money is practically harmless. The amount of money you put into your savings account remains the same over time – unless you withdraw it.
Saving does have its own risk, however, especially in the long run. Although you receive interest from the bank, it is not enough to keep up with inflation. The bank in Singapore typically offers returns ranging between 0.05% p.a. and 0.30% p.a. for a regular saving account. It is grossly inadequate when compared against the country’s inflation rate which hovers around 0.5% – 2% annually. If you depend solely on keeping your savings in the bank, you’ll soon see the value of your money decreasing over the years. Take for example, say if you had $50,000 and deposited that into your bank, over time while you still have $50,000 sitting in the bank, the value of the $50,000 would decrease. Similar to how $0.70 cents could buy us a cup of kopi 10 years ago but today, that’s $1.20. (* Kopi refers to local coffee served at a coffee shop in Singapore.)
Saving is good for short-term goals like buying a new pair of shoes, paying for an online course, or planning a holiday. But when you talk about longer-term financial goals, investing might be a better answer.
Understanding the concept of investing
All of us should already understand the basics of investing – we set aside a sum of money and put it into an investment product which we forecast will increase in value over time despite the associated risks. Risks also represent uncertainty and stop many from taking their first step into investing. And we should not let fear of uncertainty be a showstopper.
“It’s okay to feel scared, it can help us get away from danger.” – quoted from my daughter’s story book.
Risks can be mitigated if we understand these risks by doing deeper research into what we are investing in such as, the industry we are investing in, the type of investments and even staying on top of current affairs.
Investing can be a good choice if you want to grow your money. The higher returns may also be a solution to beat inflation. You can also invest to achieve longer-term goals like buying a car, for business capital, or for your retirement fund.
Investments with Minterest offer higher returns than bank interest – up to 18% p.a.! This enables you to reach your goals faster with the same amount of money. So, why don’t we just ditch saving and go all-out with investing? That is because investing typically means your cash flow has less liquidity than a savings account which allows you to withdraw anytime.
Pros and cons of saving and investing
|Saving||The amount of money remains stable, low risk||Money doesn’t grow, low return/interest|
|Great for short-term goals||Might decrease in value as the inflation rate increases each year|
|Investing||Money can potentially grow, higher return/interest||High risk, the value of money depends on the market condition|
|Great for long-term goals||Less liquid, might need to hold when the market is bearish|
Saving instruments and investment products
Other than savings accounts, you can also utilize saving instruments such as deposits and government bonds to act as a money-saving strategy. Banks offer fixed deposits, where you pledge to lock in a sum amount of money in a fixed deposit account and agree to keep it with the bank for a certain period in exchange for a higher fixed interest rate.
Meanwhile, bonds issued by the government offer higher interest rates than deposits and potential capital gain. Although the term is a lot longer than deposits – up to twenty years – you are allowed to withdraw your money before the term ends and receive potential profit or loss.
Now on to investments. Today, there are numerous ways to invest and grow your money. You can buy physical assets like gold and real estate. Or if you’re more adventurous, you can buy stocks or digital currency.
If you think traditional instruments like gold and stocks aren’t your thing, you can try digital investment platforms like Minterest. Let our team of experts curate the deals from consumer loans to invoice financing for you. Download the app to invest anywhere, anytime and earn interest up to 18% p.a.
Both saving and investing are equally important to succeed. We say it is important to do both to cover short-term and long-term financial goals, as well as to mitigate the risks.
Here’s an extra money management tip from us. Before thinking about investing, you should first understand your financial health and risk appetite as an investor. Take a simple 3-minute survey to find out about your financial health here and pat yourself on the back for getting started on saving and investing!