January, February, March, Movement Control Order... and here we are in January again. The year flew by in the blink of an eye. What was envisioned to be a year with flying cars turned out to be a year of staying home and sanitising hands.
But if there’s at least one thing 2020 taught and reminded us, it’s the importance of taking charge of our financial life. We’ve often said that the best time to start saving, investing and building wealth is now. But how else could we make small tweaks to the way we live, so that it makes a big impact on our financial wellbeing in 2021?
Petrol, parking, maintenance costs, road tax, insurance, monthly instalments… Cars are very expensive to own. But ride-sharing services and public transportation could stretch your transportation dollar further while giving you some sense of financial freedom.
Let’s say you’ve earmarked RM50,000 to buy a car next year. If your monthly transportation needs will cost less than your estimated monthly costs for the new car, it seems like a good idea to set aside those excess funds towards your savings and investments.
From riding the LRT and ride-sharing to cycling or freeloading a lift , there are plenty of options these days for you to get from point A to point B.
Although cooking is a very important life skill that everyone should learn, you don’t have to become a Michelin-starred chef. Just by learning how to cook meals you enjoy preparing and eating, you’ll save so much money, eat healthier, and spend more time with your loved ones if you cook together.
If you’re frying up some rice for the first time ever in January, don’t lose heart if it tastes crappy the first time around. Just like investing, good things take time. With plenty of practice and mastery of the fundamentals, you’ll soon be experimenting with recipes, figuring out ways to save even more time and money, and maybe even enjoying the entire experience.
Do you have any hobbies that you’re confident you are really good at? Monetise it. There’s no better time than these challenging times to try freelancing. It could be any side gig, really: writing, photography, transcribing... there are even companies out there paying you to take videos of your pets!
Taking on a side gig or two will not only give you additional income but also the potential for building a network of interesting and highly-qualified people. Most of all, it makes you push the envelope on rethinking your life goals, which goes towards enhancing your regular day job and ultimately resulting in the virtuous cycle of higher income.
According to the Khazanah Research Institute, house prices are now rated as “severely unaffordable” at 4.4 times average annual household incomes. This is why many have chosen to rent — at least, until they can afford to buy — because they can’t fathom the idea of having a long-term commitment like a 30-year mortgage for such an extremely expensive asset. This feeling is totally normal.
Renting where you live could also help you get around affordability issues while also allowing you to accumulate the financial assets to secure your future. It also gives you the flexibility to move if work or life circumstances change, or if you just really like another neighborhood. So, as the years roll along while you’re renting, you could invest your savings in a portfolio to match or outpace property returns and potentially use it to help fund ownership or other financial goals.
Did you know that healthcare costs, medical costs and thus insurance premiums all have their own inflation rates? In fact, Malaysia projected double-digit medical inflation in 2018 and 2019, which is way more than average inflation rates. Now, more than ever, it’s a smart move to buy basic and important insurance policies at the best possible rates.
Buying insurance policies directly online is not only easy these days, it’ll also save you tons in agency commissions. The plain-vanilla policies offered online also help you to focus on getting decent coverage (e.g. half or even one million ringgit), all at a friendly price point. On the other hand, insurance policies bought via traditional channels usually come with a savings plan, which could dilute the coverage focus and budget.
Compounding cuts both ways. The good news is that compounding interest will help you reach your goals in the long run; but the bad news is that compounding interest costs from all your debt — credit cards, anyone? — could destroy all of your plans.
So why not begin a project to clear off as much of your debt as quickly as possible in 2021? The interest rate on credit card debt, for example, ranges between 15% and 20% per annum. But that interest rate is calculated daily — in other words, that’s a daily compounding rate! That could add up to more than the face value of your debt, which almost makes it like a legalised Ah Long. So if this is sounding painfully real, start taking the small but significant steps to paying off all your expensive debts.
Here’s a radical idea: once in a while, when you feel the urge to buy something that you really don’t need, put that money instead in cryptocurrencies. Yes, we know cryptos are extremely volatile, but it feels like they’re here to stay given that too many people have invested in mining it and actually owning it. Also, the development of blockchain and involvement of big corporations such as Paypal and Square further cements cryptos’ position. It’s like the new gold.
Here in Malaysia, the Securities Commission-regulated Luno is an easy way to start trading cryptocurrencies. Recent reports say Luno has processed more than RM827 million worth of transactions since it relaunched in 2019. That’s a lot of money. So, yes, it’s a very volatile investment (more so than the stock market), but it might not hurt to spend some silly money on it. Investing a very small amount in cryptos might make some sense because if it goes off the charts (as many are forecasting), you’ll earn meaningful returns. But if it crashes and burns (which many others also say will happen), your losses won’t put you out on the streets.
The best way to “pay yourself first” is setting-up a monthly automatic deduction to your investment account. When you “set it and forget it”, automated savings — like your monthly EPF contributions — help you to get over behavioral barriers, impulsive purchases, or whatever that keeps you from investing.
We’ve already covered the EPF separately, but if you’re fortunate enough that neither your salary nor your livelihood has been affected recently, consider investing the funds you’re allowed to withdraw from your EPF. There are plenty of options available — whether it’s through EPF’s own i-Invest or other EPF-approved instruments — for you to potentially get on a growth risk profile versus EPF’s balanced profile. Many of these instruments could be automated too.
But no matter where or how you decide to save, 2021 is the perfect time to start. Even if it’s a “small amount”, let those consistent savings get boosted by the power of compounding. This is the biggest factor in generating long-term returns. And if you’re looking for the right portfolio with the right risk profile to match your needs and goals, Akru can help.