In 2017, Malaysian economist Jomo KS revealed that most Malaysians cannot afford to retire. With rising life expectancy and costs of living, the ageing Malaysian population would not be able to retire and live comfortably.
The same report also mentioned that more than two-thirds (68%) of EPF members aged 54 had less than RM50,000 in EPF savings. While RM50,000 may seem a lot, it will only last 4½ years. Meanwhile, the bottom fifth of EPF members have average savings of only RM6,909.
According to EPF, 70% of members who withdraw their funds at age 55 use up their savings less than a decade after retiring. Most EPF savings are therefore not enough to stay out of poverty after retirement.
Besides the rising life expectancy and costs of living, we also believe that one of the factors that lead to this issue is the fact that many of us have made budgeting mistakes that could cost us dearly in the long run.
Let’s see if you’ve made any of these five biggest budgeting mistakes that could cost you:
- You don’t have a budget
A budget is the foundation to your finances. Without it, everything will easily collapse. You may find yourself able to get by day to day, but living paycheck to paycheck isn’t very ideal if you want to retire and live comfortably in the future.
No matter how much you earn, you should also always make it a priority to save every month, even if it’s only RM20. In fact, there’s a Malaysian mom who managed to save RM12,600 for her son within a year with RM20!
There are many ways to create a budget, but the most popular and recommended one is the 50/30/20 budget rule. Here’s the basics of it:
- 50% of your income goes to your needs: Including groceries, housing, utilities, insurance, car payment, etc.
- 30% for wants: Shopping, travelling, dining out, hobbies.
- 20% for savings: Retirement and emergency.
- Mistaking wants as needs
Travelling, shopping, dining out and pursuing a hobby like collecting figurines are not needs. Being able to afford your basic human needs like a proper place to live, a decent transportation, and enough food to put on the table matter most.
While food is a need, dining out is considered a want, as it’s somewhat of a luxury some people can’t afford to do consistently. Cooking your own meals at home is a lot cheaper. - Not working on a budget with your spouse
Working as a team is a must for every married couple. Working on a budget together and being aware of each other’s finances would help ensure that no one is committing financial infidelity (the act of spending money, possessing credit and credit cards, holding secret accounts or stashes of money, borrowing money, or otherwise incurring debt without the knowledge of one’s spouse). - You’re too rigid, financially speaking
While controlling your spending is highly recommended, you’re also encouraged to be flexible in managing your finances.
We’re still human after all, and we need a little fun in our life. If you restrict yourself on entertainment or other fun things too much, you’re more likely to overspend and blow your budget once you’ve cracked.
Try to plan for your wants. If you’re a moviegoer, make it a point to go to the cinema once every two months, and set a budget for each outing.
- Not bothered saving
You barely made any effort to save for your retirement or for emergency. Start as soon as possible.
Most financial advisors can’t stress enough the importance of creating a budget and sticking to it and monitoring it consistently. Without a proper budget, you’d easily overspend, which in turn leaves you with little money to save.
It’s never too late to start budgeting, even if you’ve done so in the past. Budgeting is a process that constantly needs care and improvement, so never give up on it.