Investing is one of the most effective ways to build wealth over the long term, and it’s something that I strongly advocate for.
I started investing ever since I first learned about it 4 years ago, putting in money whenever I could afford to.
But for the better half of 2022, I’ve stopped investing – and this will probably continue throughout the coming year or so.
As we approach the end of the first quarter of 2023, I thought it was an apt time to share why I’ve had a shift in financial focus.
At first, this might seem strange.
Why would I stop investing when I’m fully aware of the importance and benefit of investing?
Well, the answer is simple.
My not investing is more of an outcome determined by necessity rather than a choice I actively seeked to make.
See, my partner and I have plans to settle down sometime over the next 2 years.
This means that we are going to incur a lot of large expenses during this time, particularly for getting our own home.
We’ve decided that we’re probably going to look for a resale flat because we don’t want to put our life on hold while waiting for a BTO flat.
And as we all know, resale flat prices have significantly increased in recent years, but I only really discovered the extent of it when I looked into property prices for myself.
After realising how much it’s likely going to cost us to transition into the next phase of our lives together, I took a quick look at our finances.
While we might be able to afford it if we kept to the same savings rate, it’d definitely be more comfortable if we started saving more aggressively.
So, I looked at my other 2 uses of cash flow – expenses and investments.
I’ve already been keeping my expenses reasonably low, so there wasn’t much room to cut away from there.
This led me to the decision to stop investing and instead focus on saving during these 2 years.
While it’s not an ideal solution, I think it’s a prudent choice to make.
Firstly, I’m not liquidating any of my existing investments – my invested monies will remain invested in the market to grow.
The main change is that instead of depositing fresh funds into my investments every month, I channel them into my savings.
This way, I won’t completely miss out on any market activity, but I’m still able to shift my focus to saving.
Next, property prices can fluctuate, and it’s possible for them to continue increasing up until the time we are ready to make the purchase.
Having more than enough cash on hand will allow us to proceed with a purchase as intended rather than run into a blocking point due to insufficient cash.
It also gives us more flexibility in terms of which properties we will be able to afford.
Finally, I decided that extra cash is more beneficial than incrementally increasing my investments over this period.
As it stands, the amount I’m able to set aside for investing every month isn’t a huge sum.
I don’t think that forgoing investing during this short period of time will have a significant impact on my long-term wealth.
Sure, a small sum can compound into a large sum given enough time.
But for now, I think I value the security that having extra cash on hand brings me more than the future value of this same amount of cash.
With these points in mind, it seems like a no-brainer move to stop investing for the time being and start saving more aggressively.
My point is that we should always consider our own situation when deciding how to manage our personal finances – that’s why it’s personal finance.
Sure, there are general rules and guidelines that would work for most people.
But as I described in my own circumstance, making tweaks to them might work out better than following generic rules.
Just to be clear, my opinion on investing hasn’t changed – I still think it’s necessary and important, and if I felt like I could afford to continue investing while saving up, I would.
But the fact of the matter is that with all the expenses I expect to incur over the next 2 years, I’d rather leave myself with a larger cash cushion on hand.
Once I’ve settled into the next phase of my life, I’ll definitely continue investing again.