SG Budget Babe
Asked on 08 Dec 2019
We all know investing is an essential part for growing your wealth, but how do you help your loved ones see this?
It's not easy if your loved ones have a pre-conceived notion that investing is risky, this normally happens with those who have lost massive amounts on the markets.
However, if you can produce positive results from your end, then that is the strongest factor that will convince them that investments need not be that scary. If they are still wary, then unfortunately you can't do too much for them. They won't be convinced no matter what.
Show them the profits!
Okay jokes aside. I used the rule of 72 to show people the magic of compounding. Put your money in the bank to rot or buy into assets. Your money your choice :)
There are 2 ideas that help me make sense of why we invest.
2) How much your income actually has to last.
So the first one is pretty standard. Inflation is at or about 2% in Singapore. If you're not earning a blended 2% on your total assets, you're losing money every year. So if they're not investing and all the money is in the bank or FDs, it's not beating inflation.
The second one is kind of interesting. Imagine you're 30 years old. Have you ever wondered how long your income earned is supposed to last for?
If you're working to 60 and dying at 90, you are working for another 30 years, but living for 60. So by right, for the math to make sense, you have to save 50% of whatever you earn. Correct?
But who does that? Not many do or can.
That's why financial planning and investing is important. Because we can't save 50% of our income to make it last twice as long, we need to invest it.
Everyone stops work one day. It's either voluntarily, or involuntarily. Please make sure you choose when to stop work, and not be forced to work even when your body can't take no more. Every day you invest, it buys you another day you can choose to stop work.
I don't think it is easy! But the better way of conviction is by showing them your results and how you have changed!
Results is most persuasive!
Ask him/her what is her preference.
To work for money or money work for him/her?
I always say that risk can be diluted with time and large variety.
If stock is risky, then hold ETF over long time, you cannot go wrong.
Let them ask the question and be the curious ones :)
To be persuasive, you need them to be the one asking. If they don't ask, wait for another opportunity.
Share articles - how someone on FIRE moment retired at age 25.
etc etc. arouse their curiousity.
There's a chance that they are very low risk and conservative with their money so they are not open towards investing. You can consider starting them with something very low risk first for them to have a feel of what it's like.
You can consider Singapore Savings Bonds or structured deposits at the banks.
Teach them the time value of investing and Compounding.
After which prove to them by showing how much you have made through investing and being patient.
The real results will always convince people
To be fair, understanding the value of money and how to become its master is more important than investing itself. Once we understood its real value and is determined to not become its slave, we will be more driven to maximise its value during our short life span.
Personally, I will suggest to go back to the basics by understanding our cashflow. Through this process, we will understand our earning ability and spending habit. Here is a guide to help you: https://www.blog.pzl.sg/understanding-your-personal-cash-flow/
Thereafter, understand what is going to happen in the future and set tangible goals, e.g. wedding in 5 years' time, starting a family in 7 years' time, children's education in 27 years' time, and retirement in 30 years' time. Additionally, goals can be as simple as not having to worry about money for holidays every year.
To help us acknowledge the urgency of each event, calculate the exact amount that we need for each event. Then work backwards to find out how much we need today.
From here, it should be obvious that such goal is impossible without compounding our money. The power of Compound Interest: https://www.blog.pzl.sg/what-is-compound-interest/
Now, learn about the various tools available to help us achieve our goals, e.g. bonds, equity, balanced portfolio. So long as we are serious about our goals, then we will know the importance to use the right tools to achieve it.
Without a tangible goal, it is often tough to understand why we should grow our money.
Here is everything about me and what I do best.
Tell your loved ones that if they do not invest, 1) the value if their savings will be eroded by inflation 2) they may possibly be missing out on gains that can multiply your spare cash. There are so many products on the market now catering to people with different risk appetites
Start from your interactions with them:
share good deals (e.g high interest savings accounts, Shopback etc)
send them personal finance/investing articles (you can introduce them to budget babe's blog it's a good place to start!)
Actions and results are real!
E.g. some folks don't believe in the CPF system and keeps berating it, just like how AK (ASSI blog) showed he amassed his 800k CPF with his CPF slip, yet people berate him for showing off.
Essentially, it's human mindset and just like the effects of compounding - those who believe it, earn it. Those who don't, lose it.
For me i will use an example of someone who works for money and another person who let money works for them. The person who has more money usually is the one who does invseting properly.
Otherwise just use yourself as an example of having more wealth due to you doing investing.