Where should I place the money I save?
Emergency Funds: As you may need these funds on short notice, you should place them in an account where you can quickly withdraw the money like short-term fixed deposits. You can have a variety of fixed deposits with different tenures, so that if you only need a portion of the money, you can uplift some of the accounts without giving up interest on the rest.
Be careful: Placing your emergency funds in stocks or unit trusts carries big risks. If you’re forced to sell your shares at a particular time when the market is down, you could end up losing a lot of money!
If you are thinking of placing the money in EPF, be sure to read up on when and how much you’re allowed to withdraw from your EPF account.
You should have a minimum of 6 months’ salary in your emergency funds, but you can always choose to save more and increase your financial stability.
Retirement Funds: Here, you might want to consider doing the opposite to the above. These are funds that you’ll only be needing in 20 to 40 years’ time, so it’s very important that you use that time to grow this pool of money.
The most important rule here is to make sure the value of your retirement funds do not get eaten away by inflation. Have you ever heard your parents talk about the days when they could purchase a mi goreng for 20 sen? And how now that same plate would cost you RM7? That’s inflation!
People feel safe holding cash, but increasing prices mean that your cash is able to buy less and less over time. Savings accounts, for example, are NOT inflation proof.
A good place to invest your retirement savings is in EPF, which guarantees a minimum return (before inflation) of 2.5%, is well diversified and lower risk than other investment products on the market.
Alternatively, you could invest in less risky investment products such as Amanah Saham Nasional.