5 Things To Do For A “Greener” Financial Future01 Apr 2022
We’ve all heard the conventional wisdom, “If you fail to plan, you are planning to fail”. In finance, your effort in planning will outweigh the problems that arise when failing to plan. Let’s take a look at 5 things you can do (even right now!) for a “greener” future.
Invest now because compound interest is the financial snowball that will make your life easier in the future. It is the interest on a deposit calculated based on both the initial principal and the accumulated interest from previous periods. Relatively safe and trusted investments include Employees Provident Fund (EPF), fixed deposit, and high-yield savings account.
In the end, what you invest in depends on your risk tolerance. The higher the risk, the higher usually the potential returns and potential losses. The table below illustrates investment risk and some examples of popular investments associated with them.
|Risk||Examples of Investments|
|Low||Government bonds, bank accounts, money market, Employees Provident Fund (EPF), fixed deposit, high-yield savings account.|
|Medium||Real estate, equity mutual funds, large-cap/small-cap stocks.|
|High||Options, futures, foreign exchange, cryptocurrencies.|
You can also get investment returns from insurance through an investment-linked insurance plan such as GoProtect. This plan gives protection and also has fund options you can invest in depending on your risk appetite.
Managing expenses comes down to planning. Most people don’t enjoy budgeting. But the value gained from doing it outweighs the time spent planning.
Try the 50/30/20 rule as a simple budgeting framework:
- Allow up to 50% of your income for needs.
- Leave 30% of your income for wants.
- Commit 20% of your income to savings and debt repayment.
When budgeting your insurance, a good rule of thumb is utilising up to 10% of your monthly income. It can be categorised under the 50% allowed of your income for needs.
Check out a simple annual personal budget spreadsheet here. Use the free app, Wallet: Budget Planner Tracker if you’d like a highly customisable budget planner for your phone.
Track and update your budget a minimum of once a month. Budgeting empowers you in gaining control over your money.
3) Track your ability to retire comfortably
In a worrying update in October 2021, EPF stated that only 3% of their contributors could afford retirement. Covid-19-related withdrawals had a big impact. This further highlights the importance for Malaysians to be in control of their retirement planning.
The minimum retirement age of an employee in Malaysia is at the age of 60. Of course, most people would like to retire young. While that does not always happen, planning ahead is required to be able to retire as early as possible
In 2017, EPF raised the minimum savings target to RM228,000 by the age of 55. This means a monthly retirement income of only RM950 per month (assuming a life expectancy of 75 years old). In this same scenario, an RM10,000 per month income would require a savings target of RM2,400,000 by the age of 55. The most common rule of thumb is that the average person will need approximately 80% of their pre-retirement income to sustain the same lifestyle after they retire.
A comfortable retirement entails relaxation and having the time to do what you want such as following a passion. But what is considered “comfortable” can vary from person to person. Take yours into consideration and run the numbers.
Make your best guess of your retirement expenses and likely income sources. If the result isn’t what you hoped for, calculate the additional amount needed to reach your savings target that will give you your comfortable monthly income. Review what can be done, including the suggestions in this article. To learn more about retirement planning and how to get started, check out our article.
4) Emergency fund
According to RinggitPlus’ Financial Literacy Survey 2021, 50% of respondents cannot survive more than 3 months with their savings if they lose their job. An emergency fund can help cover life’s unexpected financial blows such as losing a job, medical costs, and loss of property. It helps avoid having to fall into debt and pay interest on them to cover those blows.
People who experience unexpected expenses will tell one of two things: how thankful they are that they saved for an emergency fund or the difficulties they went through to find the money needed. Boost your income and cut your expenses, funnel extra money into savings, and have a savings goal. Some financial experts recommend an emergency fund of 3-6 months’ worth of living expenses.
Unforeseen events such as illness, injury or permanent disability, and even death can leave a tremendous financial shock that could take years for you or your loved ones to recover. Insurance can financially protect you when these events occur. Malaysia’s medical inflation was projected at 12% in 2022. In comparison the September 2022 inflation rate was about 4 times lower at 3.3%.
Follow these 5 pointers and you're almost certain of a greener future or possibly achieving your retirement dreams. Want to know what else can help with that? Go LiveWell, a retirement plan that provides guaranteed lump sum or semi-annual cash payments at Retirement Age. Pay only 5 or 10 years premium and get covered up to 95 years old. Furthermore, if your total premium is less than RM1mil with no attachable rider, Go LiveWell guarantees your coverage. Learn more here.