Three key elements in savings

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

Savings

In my last post, I mentioned that one should have a total of 6 to 12 months of living expenses in the bank. Recently I came across this news in The Star on 19^th Feb 2009.

According to the latest findings from Citi’s Financial Quotient (FIN-Q) 2008 survey, only two in five (39%) Malaysians actually save. Less than 28% make and stick to a monthly budget. From the finding, Malaysians are reported having 11 weeks of savings in reserve. This means that Malaysian can live up to 11 weeks using their saving without any income. There are 21% of people whose saving would last for only for weeks.

From the survey, it is reported that a majority of Malaysians saved up to 20% of their monthly income which exclude the 11% in the Employees’ Provident Fund (EPF). There are 12% of Malaysians who do not save anything at all.

This is actually quite risky as if one were terminated from his/her job, he/she has to find the source of income within one month. One can argue that given the time constraint, then the person will go full force to look for the income. However, reality is cruel. No matter how well u plan, the activities do not happen as u wish. So why dun we prepare early??

If save too much money in the bank, the interest rate is actually quite low and u might b suffering a loss. If save too little money in the bank and the rest of money is put in investment, the investors might be suffering a loss in the investment. According to financial expert, one should have at least 6 months of living expenses as the savings to prepare and protect urself from any unforeseen activities. So have u prepare enough savings to sustain urself for at least 6 months???