Make Your Money Grow

Assuming that you have good spending and saving habits, you would by now, have a rather substantial sum of money handy to do with as you please. So, what do you plan to do with all that money? Spend it all on a luxury item that you have had your eye on for over a year? Go for a vacation? Or do you do the wise thing and save?
It'simportant to have a goal when you embark on a savings programme because the goal encourages you to save - rather like dangling a carrot in front of the donkey, although you are far from being a donkey if you are clever enough to give yourself a motivation to save.

So if you don't have a goal, think of one. You don't have to confine yourself to one goal - have several goals if they help you save more, as long as they are realistic and worthwhile objectives.
Meantime, while you save furiously towards your goal or goals, where do you keep your savings? Stashed away in your drawer? That's not a wise thing to do, because there is this terrible thing called Inflation which, figuratively speaking, is just waiting to gnaw at idle savings. It sees your money just lying there in your drawer and wham! it's got your money in its jaws!
Inflation & Purchasing PowerWhat is Inflation? No, it's not an insect or animal. It's abstract. Inflation is the economic term for rising prices, or rising cost of living. Inflation is when the prices of things you buy are rising. Let me give you an example. Let's say your family takes grandmother out to dinner at your favourite Nyonya restaurant. It's your grandmother's first visit to Kuala Lumpur or to a city for that matter - she lives in a small town and she hardly ever ventures beyond her garden gate.
Of course, you have to order your favourite dessert - ice kacang! You can't resist that pile of crushed ice rainbow-coloured by syrups and milk, sitting on top of various beans, corn, bits of jelly, longan and what-else-have-you, and topped with ice-cream. When your father fishes out RM4.50 to pay for your ice kacang - watch out for grandma! She might fall off her chair in shock! Why? Because during the time she was a kid, ice kacang probably only cost 10 sen. TEN SEN??!! Now it is your turn to fall off the chair!
That's what we mean by inflation. Rising prices. Sixty years ago, an ice kacang cost 10 sen. Today it costs RM4.50 at a proper restaurant and RM1.50 from a hawker stall. Its price has shot skyward. Put in another way, inflation has reduced the purchasing power of money through time. Your granny's 10 sen cannot buy a bowl of ice kacang today, maybe only that bit of crushed ice. The 10 sen has lost a lot of its buying power; it buys less than what it did 60 years ago. In fact, today's hawker price of ice kacang won't stay RM1.50 forever. It will go up and you don't have to wait till you are a grandmother/grandfather to see this. By the time you are a mother/father, we'll bet an ice kacang would probably cost nearer to RM2 at the stalls.
That's inflation for you. And the sad news is that inflation does not only attack foods. It is pervasive, sinking its claws in all things and services that are part of living - clothes, furniture, bicycle, house, cinema tickets, taxi fares, park rides etc. etc. That's why it is called the rising cost of living.
So what does this mean for your savings? Simply that if you just stash away your savings - let's assume that you have saved RM100 - in a drawer, your RM100 just remains RM100 until you want to use it. Meanwhile inflation is nibbling away at the value of your RM100 so that when you actually use it much, much later, your RM100 is not going to be able to buy you as much as when you started to save it. This is because - depending on how long you keep your money - prices of things would have risen in the meantime. Of course, if you immediately use your savings, inflation probably won't have a chance to work yet. But then, we are talking about a savings programme here, and that means a long enough time frame for your savings to grow - and for inflation to kick in.
So what must you do? To fight inflation, you must make your savings grow in value, faster than the inflation rate. If you just let the RM100 (we are sure you have more!) of your savings stay the same, you know that through time the purchasing power of your RM100 will not be RM100, but less - because the prices of things are continuously rising. However, if your RM100 savings could grow to, say, RM150; then in future you can not only buy the same things that your RM100 could at the start of your savings, you can also buy more things.
Investing is the way to goTo make your money grow, you certainly do not leave your cash in your drawer or stuff it under the mattress or anywhere else where it just stays put, and forget about it until you want to use it. To make your money grow, you must do a second smart thing - your first smart move was to save - you must invest it.
Investing is defined as using your money (in this case, your savings) to make more money. Adults, the wise ones, do that. They invest to make money with their money and when this has grown, they re-invest the bigger sum and in the process of re-investing again and again, their money is doubled, tripled or multiplied many times more. That's how people get rich - not through winning the lottery (you have one chance in 7 million or something like that) but through saving and investing. You can do the same with your small sum of savings and watch it grow.
There are different ways to invest your money so as to earn a return. A return is the amount of earnings or income that you get from your investment. The easiest and most common way is to put your savings into a bank savings account or fixed deposit (and we are sure all of you know this!). Your savings will grow because the bank pays you a certain sum of money (your return) called interest, as long as your money stays with the bank. This way your savings grows until you want to use it and when you withdraw it from your bank account, the amount of money that you have now will be your original savings plus the interest it has accumulated. It is no longer just your RM100 but a bigger sum.
So bank accounts are one type of simple investment. Another is investing in the stock market by buying shares of companies. Many adults do this. People typically invest in shares, hoping to earn a return in two ways. One is from receiving dividends, which is simply the monetary reward that companies pay out to shareholders when the companies perform well. The second is from realising a profit when they sell off their shares. Profit is the gain in money between what you paid for the shares and what you get when you sell the shares. Simple Maths will explain profit. For instance, if you had a savings of RM600 and bought 200 shares for RM3 a share, and three months later, you sold your 200 shares at RM4 a share, you would make a profit of RM200.
Here's how:Cost of buying 200 shares at RM3 a share = 200 x RM3= RM600.
Amount of money received from selling 200 shares at RM4 a share = 200 x RM4 = RM800.
Profit = Sale minus Purchase = RM800 - RM600 = RM200.
The profit has made your savings swell from RM600 to RM800.
There are other ways of investing your money.

You could even buy a house, if you have loads and loads of money (say, through inheriting a fortune from your favourite aunt who passed away). If you rent out your house, your return will be the amount of rental income you receive from your tenant. Which investment method you choose depends on factors like how much savings you have and how much returns you want to make. Each investment has its pros and cons.
For instance, investing in shares can earn you more returns than bank accounts, but it is riskier. If you put your savings into a bank account, your money is safeguarded. You can't lose it like you can lose your money in shares if you pick the wrong share to buy. Even if the bank gets robbed, or burnt down or goes bankrupt, the law of the country provides that you will get your money back. Not so with shares investing. However the return from the bank interest is rather small.
Investing in property like a house could earn you massive returns, but it is a long-term investment. It would be years and years before the prices of houses rise for you to sell your house and make a profit. (Remember? Profit equals Sale minus Purchase.) Getting your return from investing in shares is much, much faster but like we said before, you must be smart (and lucky enough) to select the right share to buy or else you could lose your money invested.
In fact with all types of investment (except perhaps for bank accounts), there is always a possibility of losing your savings, much less about getting a return. If you invest unwisely, you could lose both your original sum of savings and get no returns at all.
However, there's no mistake about this: investing is the way to build your wealth. You just have to invest wisely!