INTRODUCTION

Do you have any big plan within the next 5 to 10 years? Whether you plan to travel to your dream destination, saving the down payment for your first home, or preparing to splash on your wedding day, most of us have life plans that will require us to prepare some lump some cash.

In this article, you will be guided on the most practical way for you to achieve your financial goals to support your life plans.

MAIN REQUIREMENTS

1) Save consistently every month

Money does not grow on trees. You have to save a portion of your monthly salary consistently to achieve your financial goals. The amount saved every month can be little, as low as 5% of your monthly income. As long as you are disciplined, your financial goals will be achievable.

2) Invest your savings in return-bearing platforms

Money does not grow on trees, but they do grow when you invest. Investment platforms such as ASB, Wahed, or others can offer some returns on your savings and help you reach your goals faster.

CASE STUDY

To help you understand the numbers better, we will illustrate examples using four hypothetical individuals:

Mr Average

In this case study, Mr Average is our ‘control’ case, who will serve as a baseline.

As shown in the illustration above, saving RM300 monthly and invest it in a platform that gives 5% returns on average allows him to reach RM50,000 within 11 years.

Mr Lucky High Risk (Mr LHR)

Mr LHR saves the same amount as Mr Average, RM300 monthly. Due to his high tolerance for risk, he invests in a higher risk investment, and luckily his decision pays off as the investment gives him 10% average returns, double the returns of Mr Average’s investment.

Due to higher compounding effect, Mr LHR achieved to get RM50k within 9 years, 2 years earlier than Mr Average. The higher returns does help Mr LHR to achieve the goal faster, however still far off from his 5 years target.

Mr High Savings (Mr HS)

In contrary, Mr HS decides to invest in the same investment as Mr Average that gives 5% average returns. However, instead of saving RM300 monthly, he decided to double the amount to RM600.

Mr HS’s strategy shows a better result as he manages to achieve RM50k within only 6 years, which is 3 years earlier than Mr LHR, despite having only 5% returns!

Due to shorter time horizon, the compounding effect of returns is not enough to generate enough returns for the RM50k goals. Therefore, saving more money is a more practical way to achieve the goal without taking a bigger risk.

Mr Unlucky High Risk High Savings (Mr UHRHS)

Mr UHRHS’s strategy is to double the monthly savings as Mr Average at RM600 monthly, while investing a in higher risk investment.

However, his decision backfires as the investment does not perform well, giving him average return of 1%.

Despite a failed bet investing in high risk investment and getting only 1% returns, Mr UHRHS manages to achieve RM50k target within 7 years, 2 years earlier than lucky Mr LHR who has 10% return with RM300 saved monthly.

SUMMARY

CONCLUSION

• In achieving our financial goal, we shall have consistent saving plan and invest the savings in suitable return-bearing investment.

• Especially in the short-term, saving more money is more effective than seeking higher return in achieving your saving goals.

• Investing in higher risk investment may result in better returns, however you may risk losing your money in bad times.

• By analyzing the amount needed to be saved, as well as return and risk of our investment, you can make the best decision to achieve your goals.

DO IT YOURSELF (DIY)

Do you have a specific goal in mind? Try out our Monthly Savings Projection Dashboard below to see if your current plan meets your investment goal.

Choose the number of years from reaching your financial goal, the monthly amount you plan to save, and the estimated rate of returns for the investment that you choose. You can play around with the numbers to get the most practical way for you to achieve your goals.

Happy planning and see you on the next post!