As long as you are not spending more than you earn, you will have money left as savings. Habit of saving money is the fundamental of a sound financial plan. But it just shows you half of the story.

Saving money is not equal to accumulating wealth

How much you save does not tell me how wealthy you will be. It is what you do with your savings that counts. Saving money does not mean you are accumulating wealth. Saving money is only the first step of accumulating wealth. You must understand that your mother’s advice of putting coins in piggy bank just prevent you from getting poor. It won’t get you rich.

What do you buy with your savings?

Now, here is what makes the difference.

saving chart
What do you buy with your money saved?

You can actually do all sorts of things with your savings. You can spend it on a vacation. You buy yourself a new car. You can invest it for more income. Getting rich or not, it is how you spend money that counts.

The purpose of purchase

We spend money to have something valuable in return.

Purpose of purchase
The purposes of a purchase

In order to get rich, the purposes of your purchases shall align with your goals of accumulating wealth. The purchase purposes can be prioritized as below:

  • Getting more income
  • Increasing knowledge
  • Increasing productivity
  • To remain healthy

Then all the other purposes become secondary, such as spending money for fun, for more comfort, or keeping up with the Joneses etc.

Two things to buy

There are two major categories of things you can buy – assets and liabilities.

When you buy a dividend stock, which gives you yearly dividend distribution, it generates income. When you buy a growth stock, and sell it for a profit months later, it gives you capital gain. These stocks are assets.

buy assets
Buy income-generating assets

When you buy your own house, it triggers more expenses such as quit rent, more furniture purchase and also renovation cost. Therefore, your house is a liability. We call this expense-triggering possession.

buy liabilities
Buy expense-triggering liabilities

When you buy an iPad, it may increase your productivity. But its value immediately dropped, incurring capital lost. Is it a liability or asset?

When you spend thousand of ringgits on an oversea trip, you gain experience although there is a capital lost. The experience may rejuvenate your tired mind and make you more productive. The experience may also widen your view and inspire your next money-making idea. Who knows?

Over time, you will develop your senses to differentiate which purchase is an asset, and which one is a liability.

Now, think back of your last three major purchases. Are they liabilities or assets?


Personal finance author and trainer

    8 replies to "What do you buy with your savings?"

    • Jean Chai

      While we are young and on our way in accumulating our wealth, I suppose we need to channel our saving more towards assets related purchases. When we have our fair share of wealth/saving/passive income, I do think that we should be more relax and not to be too worry about where we spend our saving to, be in to assets related or liabilities related expenses. Afterall, the whole reason of making money is to enjoy our life the way we want to enjoy them. Ya, buying an expensive car, or buying an expensive house for self stay might be a liability..but what the hack if you can afford it! :)

    • Brandon Fu

      I would like to know what is the depreciation rate for cars in M’sia anyway? Hope you can comment more details on this matter. Thank you.

    • Amy Low

      Pertaining to your tips on Supreme Care: WL Non-Par, I beg to differ. The best plan for funding buy-sell agreement/ liability cancellation plan is actually what you term as GPI-Greatlife Portfolio Insurance. I say this because of the logic that consumer only uses minimal premium to choose the flexibility of the amount of protection one needed.

    • Brandon Fu

      As a college student, I find this is very useful for me. Unfortunately, I’m quite sad with the education system in M’sia which does not taught us about the importance of financial education. The education system always detest on the issue of money. Money is the root of all evil was the most popular quotation during the school days but it doesn’t make any sense for me nowadays. How can money be evil if it has no life? Money itself is not bad, it is just a tool, is only how the person use the money to do good or bad things. Anyway, I still love my school life very much. Your personal finance book & this website has helped me to changed the perception of money & wealth. Thank you.

    • Nasrul Hanis

      You got great points there – we cannot get rich just by save some money!

      I’ll go for real estate investment because it has high possibility in giving back the profits and most of the time it got great support from the market.

    • farulg

      This is a topic that can be discussed forever :-)

      I like your prioritization that includes health in there, something that most people tend to ignore. I personally put safety as well so buying a car with better safety features and spending time and money at an advanced drivers’ training is part of my long term planning.

    • OS1

      You’re generalizing real estate as a liability? what about the cases where the house is purchased due to it having the potential of giving a positive net cash flow? Add that to the capital appreciation that the house itself would attain, would it not be counted as an asset? If you mean an own-stay house, I’ve met people who are able to cover the whole expenses of the house (mortgage, maintenance etc) with just the rent from the unused rooms and come back with a profit.

      Now if you want an example of a expense triggering possession, the best example would be a car. maintenance, fuel, insurance and the value depreciates.

      Just my two cents though. Do tell me if I misunderstood your stance :)

      • KCLau

        Of course what I mean is the house for own stay. You had clarified the general statement. Thanks

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