24 July 2007

Fixing you Money Problems - 4

Part 4: (Motivation to Save)

The concept of long-term saving isn't very widespread in our country, and the region in general. Most people spend their entire salary every month on the regular day-to-day expenses, and anything remaining is usually spent on a new phone, TV, or perhaps saved for a few months and then blown on a holiday, or any of the other temptations life throws at us.

A problem is the general value of education and awareness around this issue; in some countries, Singapore for example, people are encouraged to save from a young age, with the benefits of good financial planning highlighted to them even while in school. Here, on the other hand, we lack awareness of the need to save and plan our finances. Add to that a fact about the region we live in; spending is actually encouraged, such as over-stocking of food (just think Ramadhan), buying the most expensive car we can afford to show that we are well off etc, and we start having a problem.

Instead of saving, people in our region are inclined to do the exact opposite; take out loans and credit cards. Need a car? Sure, just take out a loan. Holiday? Loan. Need extra cash for that new 42” LCD television? Ok, so we’ll get a credit card and pay that off.

The problem with loans and credit cards, however, is that they seem very attractive, considering you’re paying such a small amount per month for something that costs a lot more. When you think about the total, which most people don’t, the figures start to get scary; but again, that’s not what people think about. I’ll go into this in more detail in another post.

But back to saving; we just were not taught to save. But let me try and instill some common sense into you; take two situations. Person A doesn’t save, takes a loan and credit card to buy what he wants. Gets his salary full of deductions for bank payments, and ends up spending most of whatever's left before the end of the month. This is a regular monthly routine; a few years down the line, he’s still in debt and still living paycheck to paycheck. Now he wants to get married; he needs money for the wedding etc, but he hasn’t saved any up. He resorts to borrowing money, or getting another loan pushing him deeper into debt. Now he needs to get a place to live; obviously cannot since he has no money to buy a house, so he rents a place, meaning more of his salary is deducted. Sooner or later he has more expenses, children, education, buying a new car, a holiday, meaning he takes out more debt, and gets deeper and deeper into a hole he can’t come out of.

Person B starts working his life by saving money, instead of taking out loans. He collects enough money to put in a time deposit, which earns him interest, so his money is growing. The more it grows, the more he can purchase a small piece of land (which appreciates and he sells for a good profit). By the time he gets married, he has enough to pay for the wedding and honeymoon without taking any more debt, and still has a little left to spare. He keeps saving and as things go along, buys a small property (house, apartment, whatever), and invests some of it for more returns, and lives a pretty financially-stress-free life.

Now tell me, which situation seems more attractive to you? The only thing that it takes to get on the good side of this example, is a little bit of willingness.

Something you have to really be careful from is procrastination; the easiest thing in the world is to say 'I have too many expenses this month, so I’ll start saving next month'. If you fall into that hole, you’ll keep making excuses to yourself time after time, and you’ll never get around to it. Saving isn’t easy if you’re not used to doing it, but you should start as soon as possible (and by as soon as possible, I mean starting with your next salary, not the one after it, or the one after that…)

Next post i’ll talk about where you can save your money, and basic saving accounts/schemes you can have.


Anonymous said...

OK I must do this tomorrow!

Anonymous said...

Thats Right, we all have to start this concept in our lives

and forget about loans and credit cards