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Published: Saturday July 6, 2013 MYT 12:00:00 AM Updated: Saturday July 6, 2013 MYT 7:49:44 AM

Losing big on small mistakes
MONEY AND YOU: BY YAP MING HUI

Compounded errors can add up to quite a bit
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THERE’S a famous proverb which goes like this, sikit-sikit, lama-lama jadi bukit. When it comes to the middle class and financial freedom, the only thing keeping them away from becoming financially free is a laundry list of seemingly small financial mistakes. From my observation, the average middle-class Malaysian, those who make between RM10,000 and RM30,000 household income a month, makes mistakes that cost them between RM1.5mil to RM2.5mil over a period of 20 years. Can you afford such a loss? The seeds of this financial disaster are planted years before their outcome. Further, the mistakes are often small and do not even look like mistakes at the time. So, many do not even realise that they are making them. Even if they do understand the error of their ways, they are neither aware of its real impact on their overall financial position nor that it is eroding their chances of financial success. Worse, some take the mistakes lightly and are not vigilant when making these life-defining decisions. When all these factors are combined, the result is simply a bombshell. If you fall prey to them, you are not going to achieve financial freedom, and you can certainly forget about becoming wealthy. Thankfully, you can avoid falling into a financial black hole if you know what these simple mistakes are, the cost of making them and how to sidestep these pitfalls.

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you will gain RM576.225 x 20 years). However. For example. whereas a whole life policy will cost RM14. that would be RM589.Business News | The Star Online Mistake No. the average person will spend the extra income.625 per annum. who is famous for the socalled Parkinson’s Law that “work expands to fill the time available for its completion”. at an average rate of return of 8% per annum on his investment over 20 years.500. Mistake No. Say you put RM2. 2: Failing to increase savings when income rises The writer C. The loss is about RM292. QE fuelling IPO appetite in Malaysia 3. We should go for the lowest possible premium and invest the difference between the two premiums to optimise our money. Instead of saving. that expenditures rise to meet income.225 per annum. Malaysian AE hit by KLIA2 delay 4. Remember that the idea is to buy insurance cover to protect our loved ones from financial hardship in case of an untoward event. this is due to fear of making losses or being too busy earning an income or attending to various needs.7/6/13 Losing big on small mistakes . and probably always will. get a better handbag or mobile phone or enjoy a better holiday. Shadow banking: It's a problem 2. you will have RM284. assuming you receive the entire premium paid (RM14. Assuming that he saves RM1. Small mistake. you will have a saving of RM12. Another small mistake that results in big losses. also said in his book. he decides that he can now afford a better lifestyle.my/Business/Business-News/2013/07/06/Losing-big-on-small-mistakes.600.com. a person who knows how to optimise his wealth would maintain his current lifestyle and increase his savings. big losses. He or she may drive a better car. with a whole life policy.aspx 2/5 .000 will cost RM1.000 per month and invests that amount. On the other hand.000 per month in a fixed May exports lower than expected Topics Egypt coup 13th Parliament Lock-up Deaths Dear Thelma Fertility Kuala Besut byelection Haze Diabetes Mind Our English Pregnancy Most Viewed Most Shared 1.thestar. When an employee gets a raise. consider two insurance products for a person at age 35: term insurance for RM500.100.020. If you buy term insurance instead of a whole life policy.” This is typical human behaviour. Northcote Parkinson.600 per annum to invest. The Law and the Profits. Quek increases stake in Bank of East Asia 5. 3: Not optimising the returns on savings One other common error is to keep too much money in savings instead of investing it. Malaysian firm wants to build India highway Show More ADVERTISEMENT www. At an 8% return on your investment over 20 years. He added that “individual expenditure not only rises to meet income. Mistake No. but tends to surpass it. Usually. 1: Paying too much in insurance premiums Many people either over-insure themselves or pay an excessive premium for insurance because they do not know how to optimise their money.

Mistake No. Again. TV personality.com.1% p. They could be in the form of an abandoned property. In total. You lose RM521. Compare this with 6. At the very least. A final word: it does not matter whether the mistake you make is big or small. This is why many middle-class people cannot reach their goal of becoming financially free. Currently.5mil less wealth when he is 55. a licensed independent financial advisory firm which www. He heads Whitman Independent Advisors. and unit trust or share market investment losses. However. Some house buyers who are not mindful of the current rate may be paying a mortgage interest rate of BLR + 0% or 6. you would get RM1.672 over 20 years.757 per month.040.766 instead. you pay RM901. you will end up paying an extra of RM136. Once again.thestar.000. review and plug all possible leakages.603. on your investment. where you pay RM3. None of the four mistakes discussed here are in themselves disastrous. he would have accumulated at least RM1.com) is a bestselling author.a. 4: Failing to revise the interest rate on your mortgage Remember that the interest rate on mortgages fluctuates.5% below the Base Lending Rate (BLR) or 4. it is about 2.aspx 3/5 . For a loan of RM500.6% p. YAP MING HUI (yap@yapminghui.5mil to RM2.a. their combined and compounding effect rob the middle class of their financial freedom.Business News | The Star Online deposit account for 20 years. a small mistake that costs you dearly.094. In total. if you invest the amount. you pay RM765.651.1% you pay RM3.. the total losses is a whopping RM1. If you seriously want to set yourself free from all your financial obligations. you can avoid making the mistakes mentioned above at all costs. frozen gold bullion investment. at 4. At 3% interest p.a. which gets only 1% to 2% p.538.437.my/Business/Business-News/2013/07/06/Losing-big-on-small-mistakes.a.6%. This does not include the investment losses made during the 20-year journey. If your current mortgage interest rate is BLR+0 and you do not ask the bank to revise your loan to BLR-2. However. The outcome is even worse for those who put their money into a saving account.178. a small mistake that leads to big losses.a. depending on the kind of mistakes he made.190 per month. If you take into account all four errors.7/6/13 Losing big on small mistakes . Think about it: when a middle income earner makes unnecessary money mistakes.5%. at an average rate of return of 8% p. columnist and coach on money optimisation. FD will give you RM656. Every single mistake will impact on your goal of financial freedom.

Business News | The Star Online has helped people to optimise their money holistically and achieve financial freedom since 2000.com Star Motoring starproperty.com.my Daily Chilli R. In This Article Follow List C.. C.thestar.7/6/13 Losing big on small mistakes .aspx 4/5 .AGE mStar Gooroo Red Tomato Leaderonomics SEARCH THE STAR ONLINE Search SUBSCRIBE TO OUR NEWSLETTER Enter email Subscribe CONNECT WITH US Pow ered by Content Partner Our Radio Stations www. NORTHCOTE PARKINSON Newsflash 06 Jul Losing big on small mistakes WHITMAN INDEPENDENT ADVISORS Email Share 0 Facebook 21 Tw eet 0 ADVERTISEMENT SITE MAP Home New s Business Sport Tech Lifestyle Travel Opinion SUBSCRIPTIONS The Star new spaper Other Publications RSS Feeds OTHER EDITIONS ePaper Mobile SMS Services MAGAZINES Kuntum Galaxie Flavours COMPANY INFO About Us Contact Us Job Opportunities Investor Relations FAQs ADVERTISING View Our Rate Card POLICIES Privacy Statement Terms of Use OUR SITES myStarjob..my/Business/Business-News/2013/07/06/Losing-big-on-small-mistakes. NORTHCOTE .

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