For the past few years, I have been writing a lot on How To Achieve Financial Freedom & it is mostly related to the “right” path towards it. Some readers may find it relatable while some may feel otherwise depending on their spending habits & income. In my opinion, achieving financial freedom is attainable as long as you stick to your plan. However, have you ever wondered what can you do to achieve financial failure instead?
Financial failure happens when you fail to plan your finances. It can be from not having enough savings to not having any financial planning. When you don’t have any plan, you are bound to fail no matter how much income you have. Many people tend to upgrade their lifestyle when their income is higher. These “upgrades” are common & most of us are doing that as well. It is whether or not we control our spending or our expenses well when we are having an increment on our income.
So How Can You Achieve Financial Failure?
No SavingsWe learn a lot about this, especially with the recent pandemic. Many lost their jobs & some lost majority of their income. Having 6 months’ worth of monthly income savings is proven to be insufficient during this pandemic period. Imagine when you retire at 60 years old & you have to live for at least 20 years before your savings run out & your only source of saving is EPF? In one of the recent news that I stumbled upon, many EPF contributors have savings of less than RM250,000 when they are 60 years old. If you were to live with RM250,000 for 20 years, that is RM1041 per month, do you think it is enough?
No InsuranceI have never understood the importance of insurance until I was in my late 20s. If you don’t have any, you may consult any insurance agents out there. Why it is important? Imagine if you have any injuries or sickness where you are required to be hospitalized & need to undergo surgery? Usually, it will cost you more than RM10,000 & if you have no savings or insurance, then you have to rely on government hospitals.
No Financial PlanningThe right way is to save before you spend. The wrong way is to spend & hope you can save the balance money. I’m certain that such a plan never would work.
High Commitment & OverspendingYou have a high income with minimum savings due to high commitment & overspending. If you earn RM5,000 a month but you only save RM200. That is a plan to fail & no matter how much you earn; you will still be stuck in a similar situation. It is not about how high your salary will determine your savings amount but it is about how much you are willing to save based on your current salary. Another common issue is some people will maximize their credit card expenses & even when they have a high salary, they will use most of their income to pay for their lifestyle debt.
Upgrading Your Lifestyle When You Have Extra IncomeWhen you earn RM3,000, your basic car is Myvi. After you earn RM5,000, you change to Honda City & when you earn RM10,000, you change to Mazda 3. Similarly, the choice of food, the clothes you wear & the way you spend will change when you have a higher income. Upgrading your lifestyle & not having savings will lead you to financial failure.
Conclusion:
In your opinion, do you think that achieving financial freedom is easier or achieving financial failure is easier? If you relate financial freedom to savings & investing and you relate financial failure to enjoying life to the fullest, part of you has to allocate money for savings & investing & another part of you wants to spend money to buy the things you like or go to the holiday you like. Why can’t you have both? First of all, you need a plan. Set a simple plan based on your current salary. List down your fixed expenses & commitment. Look at your entertainment or lifestyle expenses. Usually, you are able to cut down some expenses from there to transfer them into your savings fund. Try to allocate at least 10-20% of your monthly salary towards your savings & investment. Another balance is meant for your fixed expenses. The balance amount that you have after deducting all those expenses can be used for your entertainment expenses.
OSS!
You can also check out my latest YouTube video on Why I Sold My Mutual Fund To Invest With StashAway Instead:
