Contrary to what the traditional media has fed you, it’s not about how much you’re making, rather, it’s about how you manage it. And how you manage your money eventually turns into a habit. In simple words, if you find yourself with no savings and spending more than you earn, it is more than likely that you’ve adopted some bad financial habits.
Good news, habits can be broken; bad news, breaking them and starting new good habits take time. Breaking bad habits is one of the first steps to take to become financially independent. Not having a solid plan/budget and having bad spending habits can leave you vulnerable to unexpected emergencies and make it tougher during your retirement.
The bottom line is that bad habits need to be broken. But are you aware of what your bad money habits are?
1. Not saving for retirement
Retirement might seem like a lifetime away, especially for those who are in their 20s. But the longer anybody wait to start preparing for retirement, the more they’ll miss out on the compounded interests. The sooner you start saving, the more money you’re going to have when you finally retire.
The worst-case scenario, if you don’t start saving, is that you’ll have to work a few more years because you simply can’t afford to retire yet. Well, that’s no fun.
Related: To Malaysians, From Malaysians: Do Better For Your Retirement
2. Dipping into your savings
Taking from savings jar
Once you’ve set up your retirement savings account or that you have a plan for it, hands-off. You never want to find yourself snooping around the money you have saved and promising to ‘put it back later.’ If you cannot control this habit of yours, take it out of your hands or look for an accountability buddy.
This rule is exactly the same for an emergency fund: Never touch it unless you’re facing a true disaster. That’s because if you keep dipping into this account, you’ll then build the habit of thinking this is an extra fund instead of it being a retirement account. So put as many barriers as you can to prevent yourself from doing so.
3. Spending as much as you earn
Consistently spending more than you earn is an easy highway to getting into debt. And debt is the worst enemy of building a retirement fund.
The opposite, which is living below your means is powerful. That means for each and every month that you do that, your ability to invest or save becomes bigger and will lead to having a quicker exponential compounded growth.
Living a frugal lifestyle may seem challenging, but you’d be surprised to see how the little details that you cut back on can add up. And you won’t even notice that they’re gone. Don’t underestimate how quickly those RM2 or RM3 candies you bought from the petrol station can amount to.
Related: Money Management: 3 Ways to Control Your Finances
4. Waiting until you have more to invest
Time is your best friend when it comes to long-term investing, that’s owed to the power of compound interest. And contrary to what the boomers on TV are telling you, you don’t need to be a financial expert or have a massive paycheck to get started. You can even do it entirely on your own.
There are a number of online brokers today that you can open an account with as long as you’re able to submit the required documents. On top of that, there are also apps like Raiz that automatically grabs a chunk of your paycheck and invests them for you.
The takeaway is not to wait. If you really are worried about making the wrong investment, start ramping up your financial literacy. The reality is that you won’t be making that much in the first few years anyway so it really doesn’t matter if you’re starting with just a few thousand ringgit.
Related: How Millennials Can Start Investing From As Low As RM100
5. Putting too much money towards a house or a car
Brand new car
Unless these items are generating income for you, they are a liability to you. That doesn’t mean you shouldn’t buy a house or a car, because you still need shelter and a means of transport. Rather, it’s that you shouldn’t buy a house or a car that is way over your budget and left with having to pay hefty amounts of instalments every month.
If that’s the case, then having this huge commitment every month will mean that you need to cut back on some other areas. One of which you’ll likely sweep into this category is your savings for retirement. Thus, even though you might be able to fully pay off this loan by the time you retire, you still might not have enough retirement savings.