Start investing early
AS you go through the different stages of life, your financial needs will evolve. The good thing about starting to budget and invest early is that you will have time on your side and can take advantage of the power of compounding interest.
To ensure that you reach your financial goals, it is important to follow a realistic plan.
In your 20s and 30s
This is the perfect time to start saving. As there is still a relatively long way to go before retirement, you should develop good saving and spending habits so that you can achieve your financial goals.
Take advantage of the power of compounding interest so that you can accumulate a larger nest egg.
Always start by identifying and writing down long-term goals. Next, draft a budget that allows you to see how much of your income is taken up by necessary expenses such as monthly bills. Work out your saving options and aim to get at least three months’ income saved for emergencies.
At the same time, you may also want to work out a budget for short-term spending such as that for movie tickets or shopping, but make sure to ask yourself if you really need to spend on non-essential things.
It is unlikely that you can avoid debt all together, so try and avoid accruing too much debt such as taking out loans at high interest rates. If you are still paying off your college loan, clear it and any other debt as soon as possible so that you can start investing your money.
Be disciplined and try to put in around 10% of your monthly income towards your retirement fund. Some months, you can contribute more if you have the cash to spare.
Investors between the ages of 20 and 30 can also consider investing in Public Mutual’s Private Retirement Scheme (PRS) as you can benefit from the one-off PRS Youth Incentive.
Under this scheme, the government will deposit RM1,000 into the PRS accounts of eligible contributors who manage to accumulate RM1,000 within 2017-2018. This attractive one-off incentive ends in December this year, so grab this opportunity to benefit from the scheme.
Time still works in your favour when you are in your 30s, but to keep time as your ally, you need to put a savings plan into action sooner rather than later.
At this age, you still have a few decades before retirement and should take advantage of the power of compounding interest to make your money grow for your future retirement needs.
Ideally, you should prepare an emergency fund that is made up of at least three to six months’ expenses in case of unforeseen circumstances.
Do not discount the possibility of your savings plan derailing due to illness or an accident.
Hence, you may want to consider some insurance options. Make sure to draw up a will so that your assets are distributed appropriately should there be unforeseen circumstances.
Prepare, plan and fulfil
Within each life stage, you will face different priorities, financial challenges and goals. By starting to save and invest in your 20s and 30s, you put time on your side and can amass a large nest egg with relatively little effort, if you invest regularly.
Be committed to setting aside a certain percentage of your monthly income for long-term goals such as retirement and investments, and continue to address your changing financial goals as you move from one stage of your life to the next.
On the other hand, if you procrastinate and start in your 40s or 50s, it will give you less time to reach your financial goals and you will need to invest a bigger sum of money.
Therefore, always start investing as early as possible because the later you start, the steeper the climb will be.