Tuesday, 28 July 2020

Savers are Losers?

The investment guru, Robert Kiyosaki, thinks so. When bank savings rate is equal to the inflation rate or below then Kiyosaki is correct – savers are losers!
Image: https://www.hustlermoneyblog.com

The latest savings rate by a major bank in Malaysia is as follows:

Savings Account
(Balance RM)

Interest Rate
(% p.a.)
Up to 50,000
Up to 100,000
Up to 150,000
Up to 200,000

For Maybank it is flat 0.25% p.a. for all banks. Fixed deposit rates range from 1.5%
(1 month) to 2.10% (60 months). Then banks lend above 5% p.a. to make a 3% margin (or more) for covering costs and other incidentals (including profit!). So are consumers “sacrificing” for banks to make money? And should we save?

There are five reasons why savings with a plan in mind is still a good strategy:

i)        Rainy day
          When you are retrenched in October, you need savings to survive for at least three months. Otherwise, you may lose your car, home and whatever else.

ii)        Property investment
          Savings as a way of accumulating wealth is not a great strategy (Robert Kiyosaki). But savings to buy a property that has a yield that covers the loan instalment is a brilliant step.

iii)       Get out of debt
          Debt incurred in looking “cool” with your friends is a killer. But repayment of your house purchase is not a lifestyle debt. It is paying for your own house, otherwise you are paying rent (or the loan repayment) to your landlord/owner.

iv)       Saving for a new car
          Saving up for your next car and paying partly in cash could be necessary for your work or other reasons. Some jobs require a car and it could be useful to borrow from your parents. Regular instalments to your parents will help both parties.

v)       Saving for a holiday
          Instead of taking credit or deferred plan for your next holiday, it may be better to save up and then go for that holiday. But with quarantine it is only local ones that you could plan!

Savers are not losers if it is purpose-driven and, on the corollary, a compounding interest strategy alone may not be that great to accumulate wealth.

Robert Kiyosaki: Savers are loses – or are they? Neil Vorster (https://organicgrowth.co.za)

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