During my macroeconomic classes at university, we used to discuss the difference between expenditure or consumer driven economies and savings driven economies. In consumer driven economies, government policies are aimed at providing ways for people to spend money such as lower tax rates, easier access to funding, etc. It is believed that this money spent, will circulate in the economy and the economy will develop. On the other hand, savings driven economies provide incentives to save, to invest and to spend prudently. This is usually done though tax incentives, higher returns on investments etc. The rationale here is that money saved is money earned and that, through the financial system, will churn the economy.
Ironically, people deal with money just the same way i.e. they are usually expenditure or saving driven at a core level. However, what they forget is that they themselves need to put their own system and policies together so that they are afloat financially. There is no government backing or protecting their personal financial decisions. How could one do that? Let’s try and work it out. As always, do remember that the below suggestions are based on what I might consider and please do not see them as financial advice. For that, seek a professional who can assess your situation.
Know what you have and need
It is impossible to grow what you have, unless you know what you have and what you necessarily need. Without these two aspects you will have no point of reference. So, assess what you have and what you need to use, add to that what you earn monthly, keep aside regular expenses. Add to this a reasonable buffer for unforeseen urgent needs. The remainder is your bag of twigs, and your nest can slowly be built.
Banks are a safe place to start
Start with the simplest places and ways to invest like banking and financial markets. In Bahrain, savings bank account give a near zero return on your money. So, these accounts are where one can place the buffer and the expenses that we talked about. However, for any investable money, you need to find avenues with higher rates of returns. Locally, fixed deposits give slightly higher rates of return (around 5%) depending on the amount and duration for which one is investing. Within the financial markets, if your risk appetite is higher, you can invest in crowd funded projects. These are risky but can give you a reasonable rate of return. Be cautious though since the level of knowledge needed to invest in these is also high.
Gold can be a good growth option
Outside of the financial markets, you could also invest in products like gold or silver whose prices also fluctuate and can give you a high return. You read that right; your jewellery can be a part of your nest egg. It can appreciate, and it usually does. Same goes for goods like sneakers and high-end bags. They can double in price at times and globally have quite a robust preloved market.
What will you choose?
“Save for a rainy day” – this is a statement so many of us would have grown up hearing about. However, it can be an uncomfortable and confusing concept and each of us would have our own unique interpretation of it. Some will experience today but save for tomorrow, some will experience today and assume there will be no rain, and others may live to save for tomorrow. The path one chooses however, is based on their financial wellbeing, their unique relationship with money, their level of resilience and finally their ability to change course if things are not going right.
The question on all this is, would you be willing to sell your jewellery in a time of need? The same question can be asked of any investment – are you really thinking of it as something that you can dip into when times are difficult or, are you going to be stressed if you must touch it. Think about why you get stressed using something that you created to save yourself from future stress. Invest in your financial wellbeing to be able to build and grow your financial nest egg so that it gives you wings – not stress.
Originally written for Bahrain This Month and published here