Did you know that small financial mistakes today could cost you over RM1 million in losses over a period of 30 years?
One small mistake today could lead to a huge financial disaster in the future. Imagine if you made three financial mistakes!
Some people might be aware of these mistakes but choose to ignore them because they seem like a small matter.
The ones who will be financially successful are those who understand the HUGE impact of these SMALL mistakes. Avoiding these financial mistakes will save you from a lot of headache in the future.
Here are the top 3 financial mistakes that most people make:
Mistake No. 1: Paying too much for insurance premiums
Many Malaysians are not aware that they pay too much insurance premiums to insure themselves.
For example, a person at the age of 35 wants to buy a RM500, 000 coverage. He can choose a “term insurance” for RM 1,500 per annum or a “whole life policy” for RM 6,500 per annum*.
Remember, the purpose of buying insurance is to protect our loved ones from financial hardship when we’re gone.
Hence, we should go for the lowest possible premium and invest the difference between the two premiums to optimize the return of our money. Which means, we have saved RM5,000 per year by choosing term insurance instead of whole life policy. We should include this RM5,000 into our investments.
I’m just referring to life insurance here. Please take note of medical health insurance and critical illness insurance too.
(*Amounts may vary for different types of plan and different insurers)
Mistake No. 2: Upgrading lifestyle when income increases
Are you the type to upgrade your lifestyle when your salary increases?
Do you shop for cars, handbags, gadgets, clothes, or book yourself an expensive vacation the moment you receive your bonus?
It would be best to save and invest the increment or bonus instead of spending it all on a shopping spree. I’m not asking you to live the life of a monk. I’m saying that the way to optimize your extra bonus is to maintain the current lifestyle and increase your savings.
Let’s put this into perspective, if we save RM1,000 per month and invest the amount, we would get RM 589,020 at the rate of return of 8% after 20 years.
You can set aside 20% of your bonus for “fun time” and put the rest into investments.
Mistake No. 3: Not optimizing the returns on savings
People who don’t understand investments tend to put too much of their money into savings accounts. These people are known as “savers”.
Savers worry they would make losses from their investment due to not enough knowledge or not enough time. Therefore, they tend to avoid investments.
Assume that you put RM2000 each month into a fixed deposit account. At a rate of 3.5% per annum, you will get RM693,739 at the end of 20 years.
On the other hand, if we invest RM2,000 at the average 8% return per annum, we will get RM 1,178,041 at the end of 20 years.
At the end of the day, savers have lost RM484,302 compared to investors.
If you like consistent great returns, and you’re afraid of investing on your own due to whatever reason, the money tree might help.
