“I Want to Save More Money.”
This Week at a Glance…
i) The disturbing reality of Malaysia’s wealth gap.
T20s have 200 times more EPF savings compared to B40s. Bumiputeras below the age of 55 have a median savings of only RM4,937 in their retirement accounts.
ii) Do you have enough savings?
EPF set a basic savings target of RM240,000 in 2019 for those who are close to retirement. If you feel that you have insufficient savings, you may want to learn how to build healthy money habits.
iii) SGDMYR surges to a new all-time high of RM3.5380.
The Singapore dollar is up 1.33% versus the ringgit since the start of the year. In fact, in the past two years, SGD has outperformed the returns of 87% of unit trusts in Malaysia.
Scroll down the read the details.
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A Retirement Bomb is Coming.
In March, EPF published a grim breakdown of our retirement savings.
The people who are hit hardest with poverty (B40s) only have a median savings of RM785 in their accounts, while T20s have 200 times more, at RM159,430.
Sure, this doesn’t take into account members who used their EPF savings to finance their houses, but the sheer difference between B40s and T20s should give you an idea on just how wide our wealth gap is.
T20s occupy 83.1% of the total savings in EPF compared to M40s (16.1%) and B40s (0.78%).
This breakdown also doesn’t really take into account the ultra-rich (ie. those having >RM1 mil in EPF).
Bumiputeras have the most worrying level of savings.
With a median savings of merely RM4,437, this means that 1 in 2 Bumis have less than this amount in their EPF accounts.
Why is our wealth gap so wide?
i) Low wages.
With the minimum wage set at RM1,500, employers tend to use it as an anchor to pay employees.
This is why the starting pay of engineers, doctors, and lawyers (with professional degrees) can be much lower compared to a TikToker.
ii) An education system that does not teach life skills.
Sure, learning about our nation’s history, geography, and moral is important.
But these subjects have little relevance in modern society.
It’s better to prioritize the essentials: filing taxes, how to save, compound interest, managing debts, etc.
iii) “Emergency” withdrawals approved by the government.
The four EPF withdrawals during the height of Covid pandemic saw a grand total of RM145 billion siphoned from the retirement fund.
Yes, the withdrawals were crucial for citizens to survive, but many ended up splurging on unnecessary items.
If nothing is done to resolve this crisis, we may be hit with a retirement bomb in the near future.
It will fall to the government to subsidize and support the elder generation with taxpayers’ money. This, in the long term, will definitely be detrimental to our country’s growth and prosperity.
What is the minimum savings that you must have right now?
In 2019, EPF increased the basic savings target from RM228,000 to RM240,000 for members reaching 55.
When distributed annually, it provides retirees with RM1,000 per month to support their expenses for the next 20 years.
The retirement fund also published a detailed breakdown on the minimum savings that you should have, based on your age:
Of course, RM1,000/mo is definitely not enough to survive right now (I don’t understand why EPF thinks it’s adequate).
But let’s put it another way: it’s better to have some savings stored somewhere rather than none at all, especially when you no longer have the capability to convert time into money.
Some tips if you’re struggling to save:
i) Set aside a part of your salary at the start of each month.
Store that money in a separate bank account or transfer it to places that help you grow your savings.
The purpose of this is to pay yourself first. You can spend whatever that’s left in your main account, knowing that you’ve already saved for your future.
ii) Don’t just save, invest as well.
If you invest 500/month in an asset that generates 5% pa, you’ll have RM34,080.41 after 5 years, versus RM30,000 if you save manually.
Click here for the best places to grow your savings.
iii) Break large goals down into smaller chunks.
You want to save RM10,000 but you feel that it’s too difficult.
In this case, break it down into smaller sums (ie. RM1,000 in 3 months) and gradually work your way upwards.
iv) Save whatever you can, no matter the amount.
Classify your needs and wants. Start by cutting back on your wants and convert them into savings.
Small earnings add up quickly and can go a long way to your financial freedom.
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I’ve got a lot to share in my upcoming blogs.
