Simple ways to save money
Why you should save money:
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For unexpected expenses such as job loss or medical emergency.
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For down payment on a major purchase such as house or car.
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For growing your wealth in preparation of retirement.
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For certain life goals, such as travelling, children’ education or starting a business.
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For the flexibility to take advantage of opportunities that may come up, such as a new job or an investment opportunity.
No matter the reason, saving money today is an investment in yourself, your wealth and your future.
Here are some tips that can help you start on your journey to saving.
1. Determine how much you can afford to save. Start by creating a budget that outlines your income and expenses to help you understand where your money is going and where you might be able to cut back.
2. Look for ways to reduce your expenses like cutting back on non-essential purchases, cancelling subscriptions you do not use. Be a smart shopper and shop around for better deals on things like insurance or bills.
3. Another way to save more money is to earn more. This could involve asking for a raise at work, taking on additional part-time or freelance work.
4. Make saving money a habit.
Once you know how much money you can save consistently, start reviewing the interest rate your bank is giving you on your savings account. Shop around to see which bank has the highest interest rate and explore other financial products that could grow your savings, such as fixed deposit accounts, which usually gives slightly better return but with conditions.
One potential drawback of keeping your money in the bank is that it may not provide a high enough return to keep pace with inflation. Inflation is the general increase in prices over time, and it can erode the purchasing power of your money. If the interest rate on your bank deposits is lower than the rate of inflation, your money will not be growing as fast as the cost of goods and services. This means that it may not be able to keep pace with the rising cost of living.
To increase or optimise your savings, it may be wise to diversify your savings into other investment instruments such as mutual funds investing in stocks, bonds, or real estate and also insurance products. Remember to do research to understand investment products before putting your money in them.
Here are a few steps you can take to evaluate risk and reward:
1. Identify the potential risks associated with an investment. The questions to ask is will I lose my principal and what are the reasons that can cause me to lose my principal?
2. What are the likelihood of these risks occurring? For example, if an investment carries a high market risk, you should consider how likely it is that the market could decline and how much of an impact this would have on your investment.
3. What are the potential returns over 3 years and 5 years investment period, and is that number high enough to compensate for the risk? This includes the potential returns you could earn, as well as any other benefits the investment may provide, such as dividend payments or the potential for capital appreciation.
4. How much liquidity or how fast can I convert my investment into cash if I need it? This is an important question to help you determine your investment horizon and investment instrument that fits your cash needs.
5. Once you have a good understanding of the risks, rewards and investment time horizon, the next step is then to choose the investments that best suit your needs, expectations, and most importantly your understanding.
Based on your analysis of the risks and rewards, you can then make an informed decision about whether to invest in the opportunity.
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