In my previous post, I have actually discussed on Saving. However, I read this article and I think this post can be considered as an updated version of my previous post. :)
According to licensed financial adviser Jeremy Tan of Standard Financial Planner, everyone should set aside 20% to 30% of one's net income every month for savings. This is only a rough guide and it actually depends on each individual.
According to him, there are three elements in savings which each individual should have so that you will not face any problem in a rainy day. The three elements are emergency fund, life-risk fund and investment fund.
Emergency fund is set aside in case if you lose your source of income unexpectedly. For example, when the economic crisis hits the country, everyone has the possibility of losing the job. Therefore, it is always suggested that you have at least six months of your living expenses. So in case if you lose your job, the emergency fund will keep you going until you find another job.
Life-risk fund is the fund to be used when a person loses the ability to earn an income. For example, become paralyzed or ill. This can only be carried out by an insurance policy. Therefore, one should have insurance at least to reduce your financial crisis for a certain period if anything happens to you. According to Tan, one should ensure that the funds are equivalent to at least five years' annual income. For example, if you are earning RM 3000 per month, therefore, you should buy a RM 180,000 policy.
The third fund is investment fund. For investment fund, you should invest in the area which you familiar with instead of following what your friends say. Do some research before you invest because it is your hard-earned money. Invest in the investment that suits your risk preference. If you are a conservative investor, you should consider involving in conservative investment rather than aggressive investment.
Reference:
Three key elements in savings
http://biz.thestar.com.my/news/story.asp?file=/2009/7/25/business/4381424&sec=business
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