Insight - Five mistakes Malaysians make with their money


Yap Ming Hui says people can be earning more and still have little. There are also those who are earning less, but are more comfortable and secure. Why is this so? The answer is simple. Financial freedom and stability are not just about earning a decent wage. It is about navigating every single financial decision.

MANY people, especially those in their later years, wonder why they don’t have as much money as they’d like.

They can be earning a more than decent income, and still have little to no seed money to fund their bigger financial goals such as retirement, education and business.

There are also those who are earning seemingly less, but are more comfortable and secure in their financial situation in their later years. Why is this so?

The answer is simple. Financial freedom and stability are not just about earning a decent wage. It is about navigating every single financial decision.

Today, I would like to share with you five critical mistakes that you should avoid at all costs.

Mistake one: Neglecting to review your saving strategies and habits.Many people tend to start out in their first jobs with a spend-then-save strategy, meaning you save what’s left of your salary only after spending.

In your early 20s, you may still afford to make this mistake without it affecting the future of your financial strategy.

However, the longer you keep to this practice, the harder it will be to turn it around to a save-then-spend strategy, which is the more effective strategy to grow your wealth.

To do so, always put aside a portion of your income preferably into a dedicated bank account meant for savings. The rule of thumb is 30% of your gross salary if you are an Employees Provident Fund (EPF) contributor, and 35% if you’re not an EPF contributor.

However, a more effective way to ascertain the target amount you should be saving every month, is to draw up a holistic financial plan with your desired financial goals for example buying a house, funding your kids’ tertiary education, retirement, etc.

That way, you will know for certain, that every penny saved is going towards fulfilling your financial goals.

Even without a holistic financial plan, you can still continue to put aside your savings.

But the risk of going at it based on guesswork alone, can lead to two outcomes: the first, saving too little for your financial goals and finding out too late that this is the case, or the second, saving too much – of which the cost is you and your family’s unhappiness and stress.

Saving alone isn’t enough. You need to invest the savings if you want to see your wealth grow.

Therefore, my advice is to channel your savings directly into a savings plan of a good investment scheme.

Mistake two: Neglecting to review and improve your investment strategies.When it comes to investing, many people tend to invest and forget. Some may even approach investing in an ad hoc manner, choosing to invest in investments that seem to offer the highest return. Doing so would be akin to going for the bullseye with your blindfold on.

A holistic plan can help to determine the optimum return on investment (ROI) to aim for.

Without one, you may end up putting your money in risky investments that result in the lost of your capital instead.

Prior to becoming a client of mine, Tim had previously aimed for 15% ROI, and invested in high risk investments such as gold, foreign exchange (forex), peer-to-peer (P2P) lending and cryptocurrencies.

Over the years, he made money on some investments and lost money on others. In the end, his capital hardly grew. Why?

Tim’s holistic financial plan revealed that he took on unnecessary risks by going for 15% ROI.

Having had a holistic financial plan done after becoming our client, Tim discovered that his optimum target return should be 8% instead. By making some adjustments to his portfolio, we were able to help Tim refocus his investments.

Last I checked, his investments have been growing consistently between 7% and 9% compounded returns per year.

On the other hand, choosing not to invest, or investing in investment which offers too low an ROI means that your money is growing rather slowly.

As a result, you may have difficulty achieving your targetted financial goals in time.

Therefore, always have a target return in sight. You can easily find out what your optimum target return is by accessing free tools such as the iWealth mobile app.

Finally, make sure most of your investments are placed in asset classes that rises in the long run. Avoid investments that do not offer certainty such as as forex, unregulated investment schemes and cryptocurrencies.

Mistake three: Neglecting to review your insurance premiums.A lot of Malaysians think that buying insurance is a one-off decision. Ask yourself, if you remember what type and amount of insurance coverage you have? When was the last time you reviewed it?

Getting sufficient coverage on hospitalisation, surgery, critical illness, total permanent disability and death is a must to protect the wealth that you have accumulated for yourself and your family.

Without an adequate insurance plan, medical and hospitalisation bills could set you years back on your journey to financial freedom.

Similarly, without adequate life insurance coverage, you risk leaving your family without enough finances to tie them over when you are no longer able to provide for them.

There is also such thing as being overinsured.

These are people who purchase too much insurance coverage out of fear, thinking that it is better to be safe than sorry.

This type of thinking is flawed. If you are spending too much money on your insurance premiums every month, you are in actual fact denying yourself the opportunity to grow your assets. Instead of paying in excess (in premiums), why don’t you channel the savings into investments that could give you good compounded returns over the long run?

As a rule of thumb, you shouldn’t spend more than 15% of your gross income on life insurance coverage.

Mistake four: Neglecting to review your children’s tertiary education fund.Providing quality tertiary education to children is one of the top priorities and concerns of Malaysian parents. However, with the value of our ringgit and many Malaysian’s preference for overseas education, the costs for good quality education is sky high.

Therefore without careful planning and reviewing of your funds, you may fall short of providing your children with the tertiary education they deserve. Worst yet you may end up overspending on your child’s tertiary education and affecting your other financial goals.

The fund planning can get tricky If you have multiple children. There is limited time for you to financially recover before sending your next child off to their tertiary education.

Fortunately there’s iWealth, a free mobile app that can be downloaded and used to determine the optimal amount to provide tertiary education for your children.

Mistake five: Not reviewing your retirement planning.As it is, planning for retirement isn’t a straightforward task. There are many elements that can derail your journey, such as inflation, the investment environment, income uncertainty, health condition, and other factors that you rely on to fund your retirement.

To give yourself sufficient time to accumulate enough funds, it is advisable to start planning and funding for your retirement at least 20 years earlier.

The last thing you’d want is to run out of funds mid-retirement, and be forced to pick up a full-time job when you should be enjoying your golden years.

Remember to factor in inflation rates when planning for retirement. RM100,000 today won’t give you the same value as RM100,000 in 20 years time.

For example, you possess a RM3mil nest egg and are planning to put it in a fixed deposit (FD) that will yield 4% annual interest.

This means that you can expect to have RM120,000 annually to spend during retirement, correct?

Not so. Firstly, assuming you can even get a 4% interest rate, your RM120,000, at a 6% inflation rate, would have shrunk.

In 12 years, the actual purchasing value will become half (RM60,000 per year).

In another 12 years, the actual purchasing value will become a quarter i.e. RM30,000.

This is why reviewing and adjusting your retirement financial planning is critical and should be done every year.

To highlight a case in mind, someone I knew retired with RM28mil of wealth comprising of land, houses and condos, with RM150,000 rental per annum.

Unfortunately, his retirement lifestyle and property maintenance requires him to spend RM800,000 per year to fund it.

As a result, he was forced to sell off his real estate assets at a discounted price in order to raise the cash.

Therefore, if you are within five years to retirement, start planning where you would be deriving your retirement income sources.

If you need RM100,000 per year, where will the money come from? Will it be from your EPF, FD interest, property rental, share dividends or other sources of income?

As the saying goes, if you fail to plan, you plan to fail. If you are serious about growing your hard-earned money and achieving your financial goals, start by getting a holistic financial plan for yourself. Free holistic financial planning tools such as iWealth can give you an indication of where you stand in relation to the financial goals that you have set for yourself. If you want a more detailed plan, engage with an independent licensed financial adviser to help strengthen the strategies you will need to achieve the plan.

Once you have a clear plan in mind, you will be able to avoid the pitfalls better and start taking action to achieve your goals. Best of luck to you.

Yap Ming Hui is a licensed financial planner. The views expressed here are the writer’s own.

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