YourMoney:When you do it matters
By : Yap Ming Hui
2008/12/27
Malaysians have now become very knowledgeable in personal financial planning. However, having the knowledge and acting on it are two different things.
Unfortunately, most Malaysians procrastinate in their financial planning, despite their knowledge.
There are many challenges and obstacles to proper financial planning. biggest obstacle, as I can attest from having worked with my clients, is yourself.
Procrastination is the most common cause of financial management failure.
Two categories of procrastination
The first is the obvious: not even taking action to plan.
The second is the procrastination in taking action to implement what has been planned.
Reasons why people procrastinate
No Time: This is one of the most understandable reasons for not doing it now. After all, who has enough time?
With the current priorities and deadlines, you don't have time to work on something the effects of which will not be felt for another 20 years.
You may think it is okay because you are still young and have a lot of time to do it later.
But you would be wrong. Like tomorrow, someday never comes.
There is no date in the calendar called "Someday."
It is just a hazy, undefined concept in time -- always out there somewhere in the nebulous future, as far away as we can mentally push it so that we won't have to think about it.
No Money: This is yet another reason people use to justify procrastination.
They have identified the cause of their procrastination as insufficient income. The only solution now is to make more money.
To them, it is impossible to consider restructuring their financial priorities and disciplining themselves in spending and saving.
In a book entitled The Law and The Profits, author C. Northcote Parkinson introduced the famous time management Parkinson's Law: Work expands to fill the time available.
In the same book, Parkinson made a second statement: Expenditures rise to meet income.
He said that individual expenditure not only rises to meet income but tends to surpass it, and probably always will.
Therefore, "not enough income" is not the problem. The true problem is the reluctance to reexamine the current life style and reset financial priorities.
The truth is that it is not how much you make, but what you do with what you make.
No Need: For the majority of people, there is this little fantasy in the back of their minds: That when we grow older, the Employees' Provident Fund will take care of us.
According to EPF, the average saving of a member when he retires at 55 is RM77,000.
If the high income contributors are excluded, the average amounts of most retiring EPF members falls to RM33,000.
How long can this nest egg last if you depend totally on it?
A survey conducted by the EPF in 1995 found that 70 per cent of those who withdrew their EPF contributions upon reaching 55 finished their savings within three years.
As such, we cannot really expect that our EPF saving will be enough to take care of us in the older days. It is advisable not to rely solely on your EPF saving.
The EPF can be considered as an extra retirement fund but definitely not the only pillar.
The cost of procrastination
There is, in fact, a specific cost to procrastination in financial planning.
If you are 30 and want to raise RM1,000,000 by age 55, you need to invest only RM747 every month (assuming a 10 per cent annual return).
But if you are 50 years old, you would need to invest RM12,807 per month to obtain that same RM1,000,000. This is the cost of procrastination.
It is not money but time that makes people successful in financial planning So, starting young has its advantages.
Some of you will concede the fact that starting young has its advantages. But then comes the thought: Why not start next year. After all, what difference can one year make?
A big difference
If you are 30, and save RM1,000 a month, earning 10 per cent per year, you would have a total of RM1,337,890 by the age 55.
But if you begin saving at 31, you would have a total of RM1,199,605 by the age 55.
Thus, the cost of procrastination for just one year is RM138,284. Can you really afford to blow away RM138,000?
If there is one thing that you need to take on faith, it is this: there is never an ideal time for planning.
You have to do it now.
Procrastination will cause you financial ruin more completely than the worst advice an incompetent financial planner could ever give you.
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Yap Ming Hui is the managing director of Whitman Independent Advisors Sdn Bhd, the first multi-client family office in Malaysia
http://www.nst.com.my/Current_News/NST/Sunday/Focus/2436769/Article/indexpull_html
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