Disclaimer: In Real Life is a platform for everyday people to share their experiences and voices. All articles are personal stories and do not necessarily echo In Real Life’s sentiments.
I grew up being quite ignorant about how to manage my money wisely. I understood the typical, “sikit-sikit, lama-lama jadi bukit” aspect of saving. So, imagine my horror to realise that saving my money in a savings account all these years was a BIG MISTAKE.
Over the last decade, I found out the potential money I could’ve earned and wished I looked into it sooner. So here’s a list to everyone out there to avoid these simple mistakes I personally went through.
- Check the bank’s interest rate in DETAIL
Source: SCMP
Most of us would just open a savings account in a bank we’re most familiar with, or our parents would deem ‘the best’.
However, most savings accounts only offer typically 0.05% to 0.25% interest rate per annum, and it differs from bank to bank.
So before opening your account, check each bank’s rates and the types of products on offer to get the best bang for your buck.
For example:
- Maybank’s Basic Savings account – 0.25%
- MBSB’s Cash Rich Savings account – 1.85%
If you did not pick the second account, that’s 1.6% of interest you’re losing out!
- Store your savings into Fixed Deposits
Many people, myself included, avoid putting our savings into fixed deposits because of the flexibility of withdrawing it whenever you want. However, many years later, I still have not touched these savings, and instead I lost out on higher interest rates because of that.
My advice is, if you know you’re not going to touch your savings anyway, just put it into fixed deposits.
Fixed deposit interest rates differ from bank to bank.
For example, here are some standard rates for 12 months maturity:
- Maybank: 2.8% p.a.
- Public Bank: 3.1 p.a.
- CIMB: 3.1% p.a.
Tip: Actively look out for fixed deposit promotions which may offer higher rates for a limited time only.
For example, let’s say CIMB currently has a promo for a 3.9% p.a. interest rate.
So, if you have RM10,000 in savings, here’s the difference in cash that you get back each year:
- Savings account with 1.85% – RM185 per year
- Fixed deposit with 3.9% – RM390 per year
That’s a RM205 difference! And this would get only exponentially bigger as you add more savings into your FD.
- Diversify through investments
Source: Freshbooks
Investments come with varying risk profiles, from conservative to moderate to aggressive. Based on your appetite for risk, you can try out different types of investments.
For example, when it comes to conservative investments, people like looking into bonds or unit trusts that ensure ‘principal protection’ – this means you will not lose the amount you invested.
High-risk investments involve forex, stock purchases, and riskier unit trusts which project higher returns. But of course, with the expectation of high returns comes the possibility of losing a lot of money as well.
So choose what you’re comfortable with. At the end of the day, the idea is: Diversifying into investments with higher returns than your standard fixed deposit rates will help you hedge against yearly inflation.
- Invest into a stable currency
Source: AdmiralMarkets
Unfortunately, Malaysian currency isn’t as stable as some others. So, if you have additional savings, you can buy some USD, SGD, or EUR to keep.
These currencies are considered ‘stable’ and are projected to only continue to increase in value over a long period of time, from observing their track record of the past 20 years.
So, as these currencies grow over the years, you’re less likely to lose out on value due to currency exchange or due to a weakening Ringgit.
- Spend less and save up because money makes more money
Source: Moreirateam
While this is a simple rule, many often forget it. When we’re adulting, we would think buying a car or house is the next mandatory step. But it’s not.
In fact, it’s a trap. A big debt trap.
Compare the price of housing you’re buying v.s. to rent. If renting is cheaper, don’t tie yourself down to mortgage payments yet until you’re financially stable.
Here’s a potentially obvious illustration:
When buying a RM500,000 house, the repayment
- with the current 4.25% interest rate
- for 35 years
= RM2,290 monthly.
This is the average rate you will likely get in Klang Valley and parts of Johor and Penang when it comes to purchasing a landed property or serviced condominium.
So overall, for the whole 35 years, you’d actually be paying a total of
- RM 961,580
- With a whopping RM461,580 of it being interest
- That’s a crazy 48% of payback on interest alone!
The same applies to cars. If transport is necessary, just go for a cheaper option and not get sucked into debt for a ‘fancier’ brand.
Instead of taking out a mortgage, why not save and grow your money from interest generated from investments instead?
Let’s compare the difference in value you would get between putting down money for a house versus putting it in an FD account with a guaranteed return of 3.9% p.a.
For a house:
RM50,000 downpayment + 12 months of RM2,290/month = RM50,000 + RM27,480 = RM77,480
In total, you’ll need to spend RM77,480 in the very first year alone just to own a house!
Now, imagine putting this amount into an FD account instead:
RM77,480 multiplied by a 3.9% interest rate = RM3,020 in interest.
This means, at the end of the fiscal year, you will receive RM3,020, just for money that’s passively existing in the bank!
Instead of buying a house, you’ll accumulate RM77,480 in that year alone in savings.
Couple with it being saved into FD, you’ll GAIN RM3,020 in 1 year.
Versus LOSING your money to repayments and interest rates.
The first few years of saving may be difficult, but it’ll save you a lifetime.
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