What are the best money management tips? Manage your savings by dividing them according to how they will be used.
Unlike households, which manage spending, savings are managed from the perspective of when to use the money you have saved.
Therefore, the way to manage them is to divide them according to usage. You don’t need to divide this usage into details, and it will be easier to manage if you roughly classify it by period, such as short term, medium term, and long term.
Here are some examples.
Short term
Manage the money you spend within 5 years or within 10 years. Because it is a small amount and short-term, it is a relatively large amount of money that goes in and out, such as “save and use”. We will manage these as money to prepare for expenses scheduled within a few years, such as vehicle inspection costs, overseas travel costs, and moving costs . Having a savings account and having cash ready to go when you need it can be handy in times of need.
Middle term
Money that will be used within 10 to 20 years. These are the money you need to save for your children’s education, the cost of buying a car, the down payment for buying a house, and so on. In addition to cash management, savings-type life insurance, educational endowment insurance, and depending on the company, property accumulation savings for home purchases may be used. .
In order to manage these, it will be easier to manage if you create an “asset book” and check the balance once every six months to a year.
It will be easier to keep track of your asset book if you divide it into three categories: cash, insurance, and investments.
Long term
Savings mainly for retirement. Currently, I think that more and more families are making preparations using investments such as individual-type defined contribution pensions and Mitate NISA. Let’s make it possible to collectively manage in the asset book as well as the medium term .
Advantages of preparing medium- and long-term money for investment
As I mentioned earlier, in addition to savings and insurance, there is also the option of “preparing through investment” for the money you need in the medium to long term. If your household finances are in the state of “income>expenditure” and your savings increase, consider starting to invest for the future.
Here, I will explain the benefits of preparing the money you need in the medium to long term through investment.
Potentially more money than savings and insurance
Currently, interest rates are falling, and it is difficult to increase money through savings and insurance. If you have money in the form of investments such as stocks and mutual funds, you may be able to get more profit than deposits and insurance through capital gains, dividends, and distributions.
In addition, by investing in the medium to long term, you can expect a “compound interest effect” in which the income obtained from investment is further invested and the amount of assets increases. The longer the investment period, the greater the compound interest effect , so investment can be used as a means of preparing medium- to long-term money.
Extensive tax exemption system
Profits from financial instruments such as stocks and mutual funds are usually taxed at around 20%. However, in order to support individual asset building, the government has introduced a tax exemption system for investment profits .
If you use the tax exemption system and work on investment in the medium to long term, you may be able to prepare more money for the amount that tax will not be charged. The main tax exemption systems that can be used to prepare for children’s education expenses and retirement funds are as follows.
Extend asset life
The asset life is the period until the assets that have been formed so far to run a life in retirement are exhausted. According to the simplified life table of the Ministry of Health, Labor and Welfare , the average life expectancy in 2019 is 81.41 years for men and 87.45 years for women . *1
With the aging of the population and the lengthening of the period of retirement, it is becoming a challenge to extend the life of assets. By continuing to invest even after retirement, it may be possible to extend the asset life beyond savings alone .
For example, let’s check the case where 20 million yen is withdrawn by 100,000 yen each month. If you withdraw without investing, the balance will be 0 yen in 16 years and 8 months. On the other hand, if you manage with a yield of 2% and withdraw it, you can extend the asset life to 19 years and 4 months, and if you have a yield of 5%, you can extend the asset life to 27 years and 6 months. *2
,While it may not always work this way, the investment increases the likelihood that your living expenses will last longer in retirement.
