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THE 3 MYTHS THAT STOP YOU FROM INVESTING

by Kevin K.M. Neoh

MYTH #1: I DON’T EARN ENOUGH TO SAVE MONEY

If you think you don’t earn enough to put aside some savings for a rainy day, these are probably a portion of the thoughts going through your head:

  • “My paycheck is small and I don’t have extra money to set aside for savings.”
  • “I will start managing my personal finances when I get a bigger paycheck.”
  • “My savings is too small to make a difference, so why bother saving now.”

 

Why The Above Is a Myth:

If you give some observation to this “phenomenon”, many people are living paycheck to paycheck not because they don’t earn enough money. Instead, the underlying cause is more like they don’t pay themselves first. Why pay your hard earned money to other people first instead of yourself? Spend whatever that is left, not save whatever that is left. This is a “secret” savings mechanism that many tend to ignore.

A Ringgit saved is a Ringgit earned. If it is not saved, then it belongs to someone else like the gadget re-seller who will receive it from you when you purchase something from them. Budgeting and savings are crucial if you want to hit your financial goals.

 

MYTH #2: ONLY THE RICH CAN INVEST

Only people like Warren Buffet or those who belong to the league of Crazy Rich Asians are the privileged ones who can invest. For people like me who are struggling to get by every month, investments should be the last thing on my checklist.

 

Why The Above Is A Myth:

Anyone can invest – even if they have nothing left in their bank account. You can set aside some money regularly to invest in a unit trust fund or purchase a small quantity of stocks – say 100 units of certain stocks where understand the business well.

The most important thing to do is to start now because the earlier you start, the more returns you will be able to get in the long run – thanks to the magic of compounding interest.

When you are running out of time, you will wish that you actually started putting your money to work for you earlier.

We have covered the benefits of utilising compound interest to build and grow your wealth earlier. Simply put – this can be translated to denote interest earning interest, and how this method alone can grow your wealth in an exponential way.

 

MYTH #3: MY MONEY IS SAFEST KEPT IN A BANK

Many may think that depositing money in a bank would keep their money secure from theft and the risk of loss as in the case of placing it in investments. Unfortunately, this is not true. Your money really isn’t the safest – kept in the bank!

 

Why The Above Is A Myth:

Technically speaking – yes it’s true. Your money is safer being kept in the bank than keeping it under your pillow. However, if you are saving for the long run, the safest place to put your money is not necessarily in a bank account that produces interest that is negligible.

Over the years, if inflation rises by about 3% to 4% per annum while your money is earning just 2% to 3% per annum in your bank account – then, you are actually getting a negative interest rate and your purchasing power is actually shrinking. Therefore, you can actually be losing money if your savings account provides you with little to no interest. This is because you are not keeping up with inflation, and you have got to pay more to buy the same product or services and are in fact – most likely to get lesser value for your money.

WHAT CAN YOU DO?

Investment instruments like Real Estate Investment Trusts (REITS) is one of the good options for ensuring consistent dividends is gotten as REITS is mandated to distribute up to 90% of its income to its holders. In fact, its yield is normally higher than what could be expected from Fixed Deposit (FD) placements. However, as REITS are listed on the stock exchange, this brings along with them price fluctuation risks as well.

Real assets such as property is also a good option as a hedge against inflation. Of course, these assets have their limitations as the entry barrier is relatively higher than other paper-based assets. What’s more – they are less liquid in nature also.

Of course, another option available to you is that you can also think about venturing into business should you have the required skills, time, passion and desire to do so.

It is important for you to assess your risk profile and risk tolerance level before executing your plan. You must make sure your foundation is stable. By this, you must have an adequate emergency fund to weather any challenge life throws at you. Proper planning tends to increase the odds of achieving your life’s goals.

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