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Why You Should Start Saving Money

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  July 13, 2020

The coronavirus may have stopped people from visiting shopping malls as often as the pre-pandemic era, but it has not prevented us from splurging on online shopping. For a few years, netizens were crazy over the Double 11—a Chinese online shopping holiday, then some websites came up with Double 12 as the sequel to the Singles’ Day. Now, there are sales going on every double day, like 7th July that just passed. 

 

 

While there is nothing wrong to purchase things that you need or you like, before you place your next order, you really should start reviewing your savings. Have you saved enough money? 

 

Is Your Savings Enough to Support You For Retirement? 

Although everyone has different goals to achieve in their life, one thing for sure, everyone wishes to have a comfortable living after retiring. Being a Malaysian, we’re lucky because the government makes it mandatory for every working adult to save a part of our salary into our EPF (Employees Provident Fund) account. However, is the money in your EPF account enough for your retirement? 

 

Let’s keep in mind that the minimum target EPF basic savings we should have upon reaching Age 55—RM240,000—is only sufficient to support our basic needs for 20 years upon retirement, with RM1000 per month. That said if you rely fully on your EPF, and you barely meet the benchmarked target, your savings can only support you until the age of 75. Needless to say, you will have to keep a very simple life to limit your monthly expenses under RM1000. Don’t forget about inflation! 

 

Moreover, the calculation of this quantum is based on the current life expectancy in Malaysia. With all due respect, Tun M and Queen Elizabeth are still living healthily at their 90s, it’s only fair to expect the global life expectancy will keep increasing in future. 

 

Do You Have An Emergency Fund? 

Well, even if you don’t expect yourself to live forever, there are good reasons to save money too. A sudden pandemic has taken away many people’s jobs, many big firms vanished and famous brands collapsed. Don’t you think it’s important to start building your emergency fund to handle an unexpected financial emergency? 

 

In the event of an emergency such as job loss, or a major illness or injury, an emergency fund can be a safety net for you. You should aim for at least 3 to 6 months of living expenses, including all bills, debt payments, and everyday spendings, such as grocery bills, childcare costs, and transportation costs. 

 

For those who are feeding a single-income family, have a serious medical condition, are paying a mortgage, are self-employed, or are trying to stay out of debt, an emergency fund becomes an even more pivotal piece of your financial plan. 

 

Start Saving Now

Now, let’s decide how much you’d like to have in your emergency fund and retirement savings. You can start by keeping an emergency fund that covers your three months’ living expenses, and continue to work toward your goal over time. 

Figure out how much money you’d like to have in your fund, then work backwards from there. Divide the amount you’ll need to adequately fund your account by how much you can afford to put aside each month. Then, you’ll be left with the number of months it will take you to reach your goal.

 

For example, let’s say your monthly expenses are about RM2000, and you want to set up a 3-month emergency fund. That means you’ll need to save around RM6000. If you set aside RM500/month, you’ll fully fund your emergency fund in about one year. While this may sound like a long time, don’t forget about unexpected windfalls like tax refunds, bonus, or even monetary inheritances. You can use some of this to pad your emergency fund and help cut down the time it takes to fully fund it. 

 

While saving for an unknown emergency may not seem like the most exciting way to allocate your hard-earned cash, in the face of a true financial emergency or an unexpected bill, you’ll be happy you did. 

 

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