Many Malaysians are oblivious to the importance for investing their money and the gap lies in failing to inculcate and empower Malaysians with fundamental financial management skills. Here are 8 main reasons why you should start investing today:
1) Hedge against inflation
According to statistics, the estimated average inflation rate in Malaysia is approximately 3.17% for the past few years. However, ask any Malaysian and they would tell you the pinch of inflation is about 6% annually. The average fixed deposit interest rate in major banks are about 3%-4%, which translates to losing 1%-2% purchasing power annually if you only choose to place your money in the fixed deposit account.
Have you ever tried future financial planning and determine how much money would you require to retire comfortably? Assuming you start working at the young age of 25 and decide to retire at the age of 55. Given the average lifespan of Malaysians to be about 75 years old, it means that you have 30 years to save sufficient money to sustain your lifestyle for another 20 years. If that idea alone does not scare you, here is a free, basic retirement calculator to work out how much do you need to be saving monthly to achieve comfortable retirement.
3) Weakening of the Ringgit
As of October 2015, the Ringgit has depreciated by 20.3% against the USD and 11.4% against the SGD vis-à-vis the exchange rates in January 2014. This means that you can bid the idea of traveling abroad adieu and saying hello to Cuti-Cuti Malaysia. For students studying overseas, that might mean tightening their belts and succumbing to the good old fashioned, fail-proof instant noodles.
4) Emergency funds
Financial emergencies can come in the form of job loss, significant medical expenses, home or auto repair. The last things you want to do is to be forced to rely on credit cards or a loan which could compound the problem. No matter how financially prepared you are, life has a way of throwing curve balls that you never expect. Even if you can't imagine a scenario where you would need rescuing, remember: Anything can happen.
5) Minimal salary increment
Despite statistics showing the average inflation rate of 3%, in reality we are witnessing a far greater increasing cost of living especially in the healthcare and property sector. A recent visit to the dentist has shown increased prices of 20% over the past year while the average salary increment is only about 5%! Additionally, you should never depend solely on your job as the only source of income. You never know when your company decides to downsize.
6) Giving yourself the choice and freedom
Money troubles can inject unnecessary stress, anxiety, and arguments into our daily lives, which keeps us in perpetual discontent. Financial freedom gives you the choice to determine what you want from life and allow you to pursue your dreams and passion without having to worry about dollars and cents.
7) Take control of your finances
By making the decision to invest your money, you are taking a conscious step towards being in charge of your own finances. Are you aware of how much you spend every month on grocery shopping and eating out? How much of your salary goes into your savings? If you don’t, it’s time to start. There are many mobile apps today that allow you to track your expenditures. Being in charge of your finances enables you to feel more secure and in control to plan for those big upcoming expenses, monitor your cash flow and achieve financial goals.
8) The magic of compounding
The table below shows you how a single investment of RM1,000 will grow at various rates of return. 3% is about what you may get from a fixed deposit account, while 6% is might be the payout for EPF savings. 15% return is what you could possibly get if you learn the right investing techniques.
Why is the difference between a few percentage points of return so massive after long periods of time? You are witnessing the miracle of compounding. When your investment gains (returns) begin to earn money, and then those returns start to earn money, your investment can mushroom very quickly. Extend the time period or raise the rate of return, and your results increase exponentially. For instance, if you start young, say at 15 years of age, note how quickly a single RM1,000 investment grows, especially in the later years.
Before taking any drastic measures, be sure to speak to a financial expert about it. The worst mistake you can make is to be financially educated, yet do nothing about it.
This article was contributed by Samantha Yong.
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