It's safe to say almost all of us have made mistakes when it comes to money. After all, we never learned financial literacy skills in school. From overspending on entertainment, to not saving more for retirement, many wish they had handled their money differently. While we can't undo past financial mistakes, there are always ways to fix missteps and improve your finances for the future.
Just a quick ask-around here in Kuala Lumpur, and we heard these common financial regrets mentioned:
- not saving any or enough money, for family or retirement
- taking on get-rich-quick schemes
- regretting shopping, eating out or entertainment purchases
- not investing at all or not investing wisely
- regret taking on additional debt from elaborate weddings or lavish holidays
"Most adults regret spending too much and saving too little.â€
Funnily enough, we found that men's biggest money regret is not investing, while women's biggest financial regret is not saving. A larger group of people said their no.1 money mistake of the past year was not having an emergency fund. Without savings on which to fall back, you could be in trouble if there's an unexpected circumstance. We certainly recommend that everyone have an emergency fund. Ideally, you should have between three to six months' worth of income to cover any costly surprises like home damages, medical expenses and if you happen to lose your job. Once you've got an amount as your goal, automate part of your salary to go into a separate account every month. Over time, you can build up your emergency fund for a greater sense of financial security.
Saving for retirement is another priority. The risk of "pensioner povertyâ€ is frighteningly real, so you'll be much better off the sooner you start. And while us Malaysians are a fairly lucky bunch to have a government mandated retirement savings scheme, that is the Employees Provident Fund (EPF), they did say only 18% of their members have a minimum savings target of RM228,000.00 to have a decent life after retirement. However, the minimum figure now quoted by financial planners when they advise clients looking at retirement, is that at age 60 they must have at least RM1 million in savings. If they do not have that amount, be prepared to live very frugally. We strongly suggest getting your retirement portfolio in order before you regret even more.
Young working adults might find it especially difficult to limit their spending. If you are in your 20s, you're typically considered "in the prime of your lifeâ€, filled with temptations that can lead to spending too much on non-essentials. This certainly hinders your retirement savings and also the ability to save for large purchases, such as a down payment on a home. To protect your wallet, we recommend following the "50/20/30 ruleâ€ of budgeting. The rule states you should spend only up to 50% of your income on essentials, such as housing and food; 20% on financial commitments, such as debt repayments and savings; and 30% on lifestyle choices, such as vacations. Social pressures also influence your spending. From the latest phones, to the latest fashion trends, the next time you're considering a pricey purchase, take a moment to think if it's something you really need.
One big tip we can advise you, when it comes to overspending, Make a "monthly regretsâ€ budget. A monthly regrets budget is essentially a check-and-balance system that allows you to track your overspending and compensate appropriately. For example, if you splurged at dinner and spend RM100 on the meal when you only meant to spend RM40, you're now RM60 in the red, and you'll need to save this RM60 from other expenditures. You could make your own lunch and bring it to work or not buy the latest trendy fashion that everyone is wearing now. The monthly regrets budget will give you room to make mistakes and overspend each month by giving you a system to compensate for these oversights.
An important distinction you need to know is the difference between good debt and bad debt. Borrowing to buy a home or go to college can pay off in the long run, but borrowing to buy stuff you don't even need, like vacations or jewelry, never does. If you already have debt from credit cards and personal loans, work to pay off those debts as fast as you can. And whatever it is you do, make sure you ALWAYS pay more than the minimum amount on your credit card bill!
Ultimately, you need to LEARN from your mistakes. Figure out WHY you made that decision â€“ determine what kind of emotion were behind it, and why you didn't make a different choice. Then next time you will do better. And don't let fear of making mistakes keep you from making decisions with your money. You will never have every piece of information needed to make a truly "perfectâ€ decision but PROGRESS can be made from every single decision you make â€“ no matter what the consequences are.
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