To us, an investment is more than something you make in the latest condo or a brokerage account. An investment is anything that affects the quality of your life. Once the basics are covered — food, shelter, office-appropriate attire — every dollar equals opportunity. And every day presents new opportunities to make your money work harder for you, whether for long-term gain (retirement savings – the MPF just isn’t enough these days), short-term safety (emergency fund), or immediate pleasure (a meal at an expensive Michelin restaurant — hey, we’re not here to judge).

After a while, “treat every dollar as an investment” becomes second nature. It seeps into your subconscious like a catchy song you just can’t shake. Soon you’ll be looking for “investment” opportunities in every nook and cranny.

But before you dive in, make sure you’re not overlooking a few essential first investments.

Investment No. 1: Dump your debts.

These days, being in debt is almost considered normal. But there is good debt (the mortgage on the home you are living in is generally considered good; so is a student loan, which can increase your human capital and earnings potential), and bad debt (credit card debt gets a big thumbs down). While the miracle of compound returns can be a fantastic thing when you’re saving, it works in reverse when you’re borrowing, which explains why debts often spiral out of control.

Credit cards are a major culprit here. While they’re useful for borrowing money, if your card has a high interest rate and you can’t afford to pay off much each month, then the credit card company is getting the benefit of compound returns – and who wants that? Even small, seemingly harmless debts can quickly grow out of control. Take a credit card debt of $1,500. If you’re charged 1.5% a month and only ever pay the minimum monthly requirement of 2% of your outstanding balance, this bill will take an astounding 37 years to clear, and at the cost of thousands of dollars of interest!

If you are unfortunately in debt, prioritize to kill the one with highest interest rate first.

Investment No. 2: Amass a cash cushion.

Things happen – things that require money to fix, such as a job loss, leaking toilet, or a really bad hair-colouring job just before Christmas or Chinese New Year. If you don’t have the money on hand, you’ll have to make a crash financial landing, which could mean patching over the problem with a credit card.

Your emergency fund needs to be readily accessible in a simple savings account. Don’t expect to make a killing on this investment. The interest you can get on most savings accounts won’t even keep up with inflation.

How big should this essential investment be? Here are some basic guidelines:

If you … Then your emergency fund should cover living expenses for …
Have no dependents relying on your income 3 to 6 months
Are the sole breadwinner or work in an unstable  industry 6 to 12 months
Are retired and living on a fixed income 5 years

Investment No. 3 Learn the rules of the money game

Banks and other financial companies are often portrayed as big, ugly beasts that have no interest other than ripping people off. This may be partially true, but don’t forget that in comparison, you are small and nimble. All you need is a little insight into the nature of the beast. Learn what to look for and what to watch out for to ensure your money is in safe hands.

Fair and friendly financial behaviour

  • Flexibility
    Avoid any loan products that impinge on your financial freedom by tying you in for any amount of time with early repayment charges. The only exceptions to the flexibility rule are products like bonds, which offer you a higher-than-usual rate of return in exchange for locking your money in for a set time.
  • Low-cost
    With financial products, less money for the bank means more money in your pocket. A product with a higher rate may end up costing you more if it includes high charges and, oftentimes, commissions. Always check for any hidden costs.

Keep an eye out

  • Best buys
    The cable TV providers often give free gifts and steep discounts for new customers (all you have to do is visit any IT fair to see the sales people dangle flyers touting the latest promotion in your face), but if you are an existing customer, all you get is to view all the channels for free over a holiday weekend. Similarly, banks often reserve their best deals for new customers, so the deal that got you in the door may fade over time. However, unlike cable TV, where you have to live with free-to-air channels if you give up your set-top box, there aren’t always penalties when you move your money around from one bank to another. So shop around for the best deal.

Stop, turn, and run as fast as you can in the opposite direction

  • Complexities
    If you don’t understand how a financial product works, don’t touch it.
  • Bundles
    If a company tries to sell you a combination of products in one go, chances are that most of the add-ons are overpriced, unnecessary, and only serve to make them money (we’re not talking about the value meal at McDonald’s here). Don’t bother.
  • Cross-sells
    Many companies grab you with a winning product and then try to sell you a bunch of other products. Few banks excel across the board; if you need a new product, be prepared to shop around.
  • Commission
    Salespeople often recommend a product because they earn more commission on it. Whenever someone tries to sell you a particular financial product, ask what’s in it for them.
  • Scams
    From dubious emails asking for your bank detail, to endowments (someone in Africa willing to give you money for nothing, really?!), to pyramid schemes, the cliché stands: If it sounds too be good to be true, it probably is.