So you want to be a millionaire

Many people plan for the future and save in different ways because they have different lifestyles.

But, still, many do not understand how to consume, invest and save money wisely and systematically for the rest of their lives.

SCB Asset Management vice president Kampol Adsavakulchai shares his opinions of how to save and spend wisely.

Why do we have to save money?

Young people should learn to save money as soon as possible so when they retire they will have money in reserve for the rest of their lives, Kampol says.

"Once you are 60 no one is going to give you a salary - not even one baht. So you have to spend the money you have saved.

"As for saving, your account earns interest year by year. The earlier you start saving the earlier you are rich," he says.

As well as saving some money in the bank you should think about life insurance, stocks and bonds to diversify your savings.

WAYS TO INVEST

Life Insurance

During work there might be accidents, injuries and sickness. You should have insurance so you can pay bills and be secure Kampol warns.

"You don't have to spend all your savings on insurance. It's unnecessary. But, you ought to buy as much as you can." About 20 per cent of savings is about right.

Insurance policies normally pay between 4percent and 6percent interest a year and returns the total premium paid at the end of the contract period.

"This is life insurance law but it is money saving, too," he says.

Stocks

Investing in the stock market is one way of being part of a big company and benefiting from its success, he says.

For example, it is impossible for you to own Siam Cement Group exclusively. But you can buy its stock and be a part owner of the company - even if it is one share only.

Sometimes, the company pays an annual or twice yearly dividend on those shares - or a percentage of its net profit divided by the number of shares in play.

Before buying shares it is a good idea to understand what the companies you are investing in do," he warns.

Your own business

Business is risky. No one can know what the future holds. It is impossible to reduce business risk to zero, he says.

"Risk is what no one can predict and is not what one expects to gain in the future. Normally, a new business will succeed one time in 10," he explains.

Risk comes with either positive or negative results. For example, if you expect to gain 3 per cent but at the end of the year it is 10 per cent then this is positive.

Negative results are the opposite.

The less risky a business, the less profit you get.

If you believe there are big profits available with little risk then "you will definitely lose money," he emphasises.

Bonds

Many people believe bonds are not risky. They expect to receive interest plus their capital back, he says.

But there is risk. For example, "when you buy a five-year financial bond you own it for those five years; you cannot sell it back". This contains risk.

For example, you purchase five-year bonds at 4 per cent. If bank deposit interest rates rise to 10 per cent you are missing out on a potential 6 per cent in interest.

So when it comes to buying bonds it is a good idea to know a little about interest rate trends and how the economic performance of a country affects those rates.

By Trichai Narungsiya

Special to The Nation