Growing up in a typical Asian household, we’re taught to save. And then some of us are taught to invest. Be it in a fixed deposit, high yield savings account, unit trusts, stock market, etc.
But one thing that a lot of us (me included) shun, is financial protection, aka insurance. Think of a time when your friend who’s an insurance agent drops you a message or gives you a call, how did you react?
Ok let’s not get carried away. On to financial planning!
Step 1: Focus on increasing your income
Someone once said this to me, “Even if you’re able to generate the same returns as Warren Buffett, 20% of RM 1,000 is only RM 200 per year. If you could invest the RM 1,000 in building relationships like buying the CEO of a public listed company a meal or learning a new skill to increase your earning capability, you’re likely going to see a greater return than RM 200 per year.”
Scenario 1:
- Salary: John Doe makes RM 3,000 per month as a fresh graduate and he’s able to invest 20% of his take home pay every month (RM 500)
- Salary growth: His salary remains the same after 5 years
- Investment return: 20%
- Total: After 5 years, he’s able to save up a whopping RM 45,000
Scenario 2:
- Salary: Jane Foster makes RM 3,000 per month as a fresh graduate and instead of investing the 20%, she uses the RM 500 per month to learn a new skill or take the CEO of Sothy’s out for a meal
- Salary growth: After 5 years, because of the skills that she has acquired and her connection with the CEO of Sothy’s, she got a job as the youngest Head of Marketing and is now making RM 20,000 a month
- Investment return: Jane didn’t invest in the stock market, so… RM 0
- Total: Let’s say Jane didn’t save any money, but she’s making RM 17,000 more every month compared to John
Year 6:
Let’s say Jane starts investing her money now – 20% of her take home pay (RM 2,867) and John got an increment of 20%, allowing John to increase his investment to RM 600 per month
By Year 10: assuming a return rate of 20% for John, and 10% for Jane
- John’s investment will grow to almost RM 100,000
- Jane’s investment will grow to about RM 210,000
NOTE: We’re not telling you to not invest, we’re saying to focus on increasing your earning potential first
Step 2: Save
YES! SAVE!
If we’re filling up a leaking bucket, it’s going to go nowhere
The basic rule of 50/30/20 is a good start. Bucket your take home pay into blocks of 50% for your needs, 30% for your wants, and 20% for your savings
Try to get to a point where your emergency fund is 6x your monthly expenses, ie. if you spend RM 5,000 per month, you should have RM 30,000 for emergency saved up
Step 3: Invest
Once you’ve gotten 6x your monthly expenses saved up, it’s time for you to start putting your money to work. The best place to start learning about investing is going to be YouTube. There are a lot of resources, and I’d suggest starting with videos talking about ETFs
Step 0: Protect Your Income
Now, imagine this. You’re a high flyer. You managed to amass a total of RM 1,000,000 by the age of 40. Your kids are now in primary school, your wife is a stay at home mum so she can focus on the development of your children.
And then… an unfortunate event happens.
All of a sudden, you’re no longer able to provide for the family. Your RM 1,000,000 is likely going to be used for treatment, or for your family to continue feeding themselves while they try to find a source of income for when the fund dries up.
All of this could have been avoided, if only you made the decision to go ahead with the life insurance policy that was presented to you.
For a life insurance coverage of RM 1,000,000, depending on the age you start purchasing, you’re likely only looking at a premium of RM 300 per month.