Buying a house, getting married and starting a family, these changes in life stage could make it easy for us to overlook our need for financial planning. With many big-ticket items to pay off in our 30s, we may inevitably find ourselves stretching our finances thin. This could lead to a lack of savings, falling into debt and being unprepared for rainy days.
Therefore, before entering your 40s, it is important to start thinking about your savings and finances. This is to ensure that you are financially prepared for your future and can avoid making decisions that would lead to future regrets. Moreover, with the increased financial obligations in your 40s, it is important that you have measures in place to ensure that you avoid making financial mistakes and are prepared for the unexpected.
#1 Not having savings
Entering the corporate world in our 20s, we may indulge in luxury purchases with our new found financial independence. This could cause us to spend excessively and not accumulate any savings. Spending frivolously may also lead to us cultivating an unhealthy spending habit that would be detrimental for our finances.
Without savings, we lack an emergency fund that could tide us through difficult times or emergencies. This would render us helpless and could put us in debt when faced with an unexpected problem. Therefore, it is risky if you do not have any savings and this a mistake that should be avoided.
To start planning your monthly budgets, try following the 50/20/30 rule and set aside your income accordingly. This means setting aside 50 per cent for your fixed expenses, 20 per cent for your savings and financial goals and using the last 30 per cent for miscellaneous items such as travel and entertainment.1 Following this rule would ensure that you do not overspend and have a sum set aside for your financial goals.
#2 Living beyond your means
Our desire for fancy items may result in us splurging on luxury bags, watches or the latest car. However, by spending beyond our means, this lack of financial prudence would quickly put us deep in debt. Statistics have shown that there are about 38% of young Malaysians have to shoulder their personal loans while 47% have excessive amounts of unsettled credit card arrears.2
With material items such as a luxury watch, bag or car being a depreciating asset, their value drastically drops the moment the purchase is made. Therefore, such purchases should only be made when you can comfortably afford them.
#3 Not protecting yourself
One common financial mistake is to wait until you are unhealthy before thinking of getting protected.
With health and medical conditions becoming more common as you grow older, your premiums would also become more expensive should you puchase insurance at an older age. Moreover, your pre-existing health conditions may result in the insurer's rejection and could prevent you from obtaining coverage. Therefore, it is important for you to consider coverage when you are younger and before you have any illnesses or injuries.
Additionally, if you have dependents reliant on your income, consider getting yourself protected in the event that anything unfortunate happens to you. Having protection would also give you peace of mind, knowing that your family's financial obligations would be taken care of should anything happen to you.
#4 Being ill-prepared for retirement
The HSBC study found that the average age at which people in Malaysia begin saving for retirement is 273 while millennials expect to retire at the age of 574 . Therefore, if you are in your 40s and have yet to prepare for your retirement, you would have less than 17 years to save for your retirement. Everyone wants to live comfortably after retirement but the harsh reality is that, based on an EPF survey, 50% of retirees exhaust their funds within five years of retirement5 . This is a reality check to all of us that we need to be realistic about our retirement plan and can consider into looking at different sources of funding like unit trust and bonds to maximise returns.
Because, without adequate retirement planning, you may find yourself struggling financially in your retirement years.
How Fundsupermart can help you get on track
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