By Kar Yong Ang

Let me be clear: storing wealth in cash has never been a good idea, and modern times affirm this truism. The ringgit is approaching historic lows. while core inflation remains high – at 3.8 per cent. Managing cash savings has never been more challenging and vital at the same time.

If you prefer living without worrying about the stock market’s direction or burying all your money in the housing market, here is a guide to help you save your money intelligently.

1. Create a budget spreadsheet – now!

The web is full of budget spreadsheet templates you can use to manage your finances better. Create your own and start tracking your expenses.

2. Set a future goal and outline all related expenses.

The best starting point for consistent saving is setting a goal. Don’t just dream about a large apartment at Damansara Heights. Your financial goals should be specific and measurable, depending on your age and personal preferences.

For instance, if you’re saving for retirement, paint a picture of your retirement. What activities and essentials will be part of your everyday life? This could include food, clothing, housing, travel, transportation, insurance, helping relatives, and more. Then estimate how much you will need for each necessity in the projected time, given an annual inflation rate of, say, three per cent. The total number will guide your savings strategy.

3. Start saving more.

Essentially, there are two ways to save more: earn more or spend less. I suggest doing both. As for earning more, I won’t advise you to become a software engineer. Instead, try to negotiate an annual pay raise that aligns with the inflation rate.

Spending less is more challenging. It depends on your age, personal goals, and family circumstances. If you’re in your twenties and struggling to pay a PTPTN loan, consider reducing your cost of living. If you are based in Kuala Lumpur, this could include relocating to Wangsa Maju, using a bike or MyRapid for transportation, and cooking at home instead of eating at food courts or expensive restaurants. For wealthier individuals, the advice is to prevent lifestyle inflation. You could consider renting a car instead of buying one and avoid indulging in luxury shopping at Pavilion, even if all your friends boast about their new Balenciaga sneakers.

All in all, you should ensure that your annual savings keep pace with the inflation rate of about three per cent.

4. Tap into fixed-rate deposits.

Let’s state this once and for all: fixed-rate deposits don’t protect cash savings from inflation. If they did, banks wouldn’t offer them. At most, fixed-rate deposits can reduce the negative impact of inflation. Track the best deposit offers using services like RinggitPlus. The longer you lend your money, the higher the interest rate you get. But remember that leaving money for too long exposes you to threats like bank busts and unpredictable extreme devaluation rates. Consider the fact that in 1997, the value of your Ringgit savings would have essentially halved if you had left them in the bank.

5. Consider passive investment options like ASB and ASM.

Unless you’ve been living under a rock, you’ve heard about the ASB and ASM investment schemes by Permodalan Nasional Berhad. ASB is designed specifically for Bumiputeras, while ASM is for non-Bumiputeras. You buy units, each denominated at RM1.00, and then receive a yearly return. Last year, they provided five per cent and 4.5 per cent interest, respectively.

The main drawback of ASB and ASM is that the units are sometimes hard to buy. There are notorious stories of individuals approaching bank clerks daily, seeking information about available units. Also, remember that Permodalan Nasional Berhad is essentially an investment fund. Like many others, it invests your money into risky assets. This is why their interest rates fluctuate. The interest rate drops when the general market landscape is unfavourable or the fund performs poorly.

6. Be an active investor: invest in foreign currencies, gold, and crypto.

Leaving your money in a deposit or deposit-like schemes is akin to burying it in the ground to rot. Over time, your cash savings devalue, and unburying them takes time and effort. In the event of a market crash or a bank run, you might not get your money back soon or at all (consider recent events in the U.S. banks).

Investing in foreign currencies, crypto, or gold mitigates the above risks. These are liquid assets that can be invested in seconds through mobile services like OctaFX. Say, you anticipate or notice your cash savings devaluating due to an ongoing recession, you can quickly invest them in different assets (gold, U.S. dollar) on the foreign exchange market to weather the storm.

The foreign exchange market deals with short-term contracts for assets, eliminating the possibility of being stuck in a depreciating asset. A more prudent approach is to utilise short trades on declining assets and long trades on assets expected to rise. Ultimately, investing in foreign currencies enables you to be an active investor riding the market wave rather than being beaten by it.

Disclaimer: The above text is provided for informational purposes only and does not constitute financial advice.

-- BERNAMA

Kar Yong Ang is a Financial Markets Analyst at OctaFX, a global currency market broker operating in over 150 countries.