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Budgeting 101

5 Money Mistakes Malaysians Make That Will Cause Them to Spend More in The Future

The first step towards a prosperous life is by not doing these fundamental money mistakes.


Managing finance is done across all types of entities: from nations to businesses to individuals. This is because in its most simplistic sense, resources (money) are inherently limited.

That’s why for any entities to be sustainable, effective financial management is crucial.

The lack of it however, is gravely detrimental.

Hence, in order for Malaysians to not fall in a snowball of financial problems, here are 5 instances where we may take the wrong decisions in managing our finances that will lead to costing more Ringgits later in our life.


#1 – Not having a proper budget

Doing a budget is more than a writing exercise, just like how losing weight is more than buying exercise books.

Generally, Malaysians are aware that a budget begins by listing cash inflows (salaries, rental incomes, etc.) and deducting expenses (utility bills, mortgage, car loans, etc.) to arrive at a positive or negative balancing figure.

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Fundamentally, a budget means understanding the principle of ‘accountability’ (i.e.: your actions today will have consequences tomorrow.)

By realising that your financial habits today will shape your financial stability tomorrow, doing a budget is the prime tool to help you plan your financials now to avoid financial problems in the future.


#2 – Not having an emergency fund

Firstly, one should always plan for the worst-case scenario; not being able to do something when you desperately need to.

This is especially crucial for millennials who are just starting their adult lives, as a Bank Negara Malaysia survey revealed that 3 out of 4 Malaysians find it difficult to raise even RM1000 in an emergency situation.

To avoid being trapped in that unfortunate financial abyss, you may start by budgeting a portion of your monthly income towards an ‘emergency fund’ catered for such unfortunate events (job loss, serious injuries, vehicle accidents, etc.)

According to the 5 times New York Times bestseller and the author of The Total Money Makeover Dave Ramsey, one should have at least three to six months’ worth of emergency funds secured.

Let’s take the least number of months for simplicity. If your month living expenses is RM2000, then your minimal emergency fund is therefore RM6000.

You can start by putting aside RM50 a week for 12 months, which totals up to RM2400. For the second year, you could double it to RM100 a week. After 9 months, you’ll saved RM3600 which then combined with previous years’ to make up RM6000.

Just by substituting your daily Starbucks for a more cost-saving option, you are now able to secure an emergency fund for you to fall on if the time comes.


#3 – Not allocating for health insurance

Once you have allocated for your short-term security, you can now look further into the medium to long term period.

One of the biggest costs most Malaysians have to bear are expensive healthcare costs. If one doesn’t create provisions for these sudden, unexpected medical expenses, they can seriously catch a person’s financials short-breathed.

Instead, you should be looking to capitalise the many medical insurance plans out there. By allocating as little as RM90 a month, you are now allowing yourself to have that peace of mind knowing you and your loved ones are financially covered in medical catastrophes.

Read Also: Your Complete Guide to Buying Insurance in Malaysia


#4 – Not allocating for retirement

Once you have secured your medium term financial security, it’s time to plan for your long term.

Retirement at 60 might seem like a lifetime away at 20. But actually, you’re actually 1/3 there. If you don’t start managing your finances in the next 2/3 of your pre-retirement life, you will have a tougher time living your retirement days comfortably.

There are good news and bad news about retirement savings though;

The good news is, Employees Provident Fund (EPF) contributions are mandatory. The bad news is, it’s not enough.

EPF reported that there are more than two-thirds (or 68,000) active EPF members aged 54 who are retiring in a years’ time (former retirement age is 55) possessing savings of just under RM50,000.

To put that in perspective, if the average living expenses of soon-to-be retired Malaysian is RM3,000/month, then RM50,000 would only last them a little more than just one and a half year.

That’s scary.

Thus, it’s imperative for Malaysians to up their retirement game. Generally there are two approaches one may choose:

1. One may decide to adjust their lifestyle to accommodate their EPF balance, whatever the amount is.
2. One may allocate a portion of their current salary to a long term, fixed investment portfolio as an additional source for their EPF.

In reality, the choice isn’t mutually exclusive. Most of us will find that we will do a combination of both, and that is definitely better than having no gameplan at all.

The Private Retirement Scheme (PRS) is currently the best avenue for option 2. One has the opportunity to invest in a long-term retirement investment portfolio as well as capitalising the personal tax relief of up to RM3000 yearly (learn more about PRS here)

Read also: How Much Do You Need To Retire Comfortably In Malaysia


#5 – Not allocating for major life events

Once you have planned for your short to long term financial security, you can now begin to plan for instances where you need to use money unexpectedly but lesser in priority.

In a typical Malaysian’s life, there are a number of events which require substantial payments. These may include marriage(s), car/property deposits, going to Hajj/umrah for Muslims, etc.

These are the events that don’t necessarily adversely impact your life for missing out. But one that may enhance your life experiences and satisfactions as a human when participated.

But, what you should never, ever do, is to take out a loan to facilitate these events.

The bitter truth is that it’s okay to opt for a more modest, simpler wedding than to apply for an expensive personal loan to finance a lavish wedding. It’s okay to go for a lower-end car for a fresh graduate than maxing out the loan years and repayments to finance your dream car you can barely afford.

What Malaysians should understand is that it is okay to miss out on these ‘life luxuries’ when you financially can’t afford to do so.


Conclusion? Managing finance is managing life.

At the end of the day, how and why you use your money is personal to you.

What is universal is to uphold the principle of accountability in your decision-makings. The consequences of your actions might not be felt immediately, but don’t fall prey like those that’re living unhappy lives because of their past financial mistakes.

Take this opportunity of the new year to turn over a new leaf and take charge of your life by taking charge of your finances today.


DollarsAndSense Malaysia is a website that aims to help people make better financial decisions, one interesting, bite-sized article at a time. Like us on Facebook to stay in touch with our latest articles.