5 Highly Effective Ways To Grow And Bulletproof Your Wealth (Part 2)
Welcome back to the Part II of this article. In Part I of this article, we examined how ‘Having an End Goal In Mind’, ‘Paying Yourself First’ and ‘Understanding Your Spending Thoroughly’ is essential to growing and bullet-proofing our wealth. Before moving on, we highly recommend that you read part 1 of this article, if you haven’t done so.
Next we will share with you the remaining strategies that will help you achieve your financial goals more effectively.
4. Growing Your Savings – Making Your Money Work Hard For You
If you recall the strategy on “paying yourself first”, we mentioned about setting aside a certain amount of money to save every month before spending the remainder of your income. So what do we do with our savings? Should we simply leave the savings in the bank or are there ways to snow-ball these savings into a sizable amount?
Ideally, at the bare minimum, we would want to ensure that rate of return on our savings is at least equal or higher than the rate of inflation. This is crucial because inflation generally causes the prices of most things to rise over time.
To give you a clear idea of how inflation affects us, consider this scenario: 20 years ago, a movie ticket in Singapore costs less than 5 dollars. However, a movie ticket now costs approximately $9 (and this is higher on weekends).
So what does this mean? Suppose you decided that having $2000 per month will provide you with a comfortable standard of living now and when you retire 20 years later, you plan to carry on living this lifestyle by using your savings.
Though $2000 per month is enough for now, the same amount of money is highly unlikely to get you the same standard of living 20 years later because inflation generally will increase the prices of goods and services. Hence, in order to enjoy the same standard of living 20 years later, you would require more than $2000 per month, and this amount depends on the rate of inflation.
Therefore, even though it is a good habit to save up, we must also ensure the value of our savings do not erode due to the effects of inflation. And the way to achieve is to ensure our savings ‘work’ for us.
So how can we achieve this? We can invest a portion of our savings on instruments that generate interests or instruments that appreciate in value over time.
Common instruments that generate interests over time include bonds such as the Singapore Savings Bonds whereas assets such as property and stocks can potentially generate regular returns (through rental income and dividend payment respectively) and capital returns (when the price of property or stocks increase).
For a more complete treatment on investing, do check out the following articles:
5. Bullet-proofing Your Hard-Earned Wealth
Imagine you have diligently spent the last 10 years building up your wealth to about $200,000. Out of the blue, you discovered that you have contracted cancer. To make matters worse, you realised that cost of treatment will potentially cost you more than $200,000. What this entails is that if you choose to take up the treatment, all your wealth that you have built up thus far would have gone into paying for the medical expenses.
Of course, it is not our intention to suggest that the above scenario might happen but life in generally is unpredictable and you would never know whether unfortunate events like this would happen.
Rather than praying that life-threatening events like these don’t happen, a better strategy that would give you a peace of mind would be to insure yourself against these adverse events. And you can do that by buying insurance that will give you adequate coverage. This also ensures that your dependents will have some form of financial relief, if the worst case scenario were to happen.
Assuming that you are already doing investing on your own, you may want to consider getting term insurances to insure yourself in these few key areas: Hospitalisation, Critical Illness, Total Permanent Disability and Death.
If you have just started taking constructive action to achieve your financial goals, you may find that these implementing 5 strategies at the same time may seem overwhelming. If you do feel that way, we suggest taking baby steps and focusing on steps 1 to 3 first, before moving on to step 4 and 5.
However, if you are already well on your way in managing your finances and are looking for ways to invest profitably with your spare cash, do check out our upcoming 3-hour investment class today.
All the best!