I believe that those who are ‘thrify‘ will grow wealthy, and those who are ‘spendthrifts‘ will become poor. During my school time, i already have a game of adhering to my budget in which saving 50 cents out of my pocket money. As i known, the discipline of being able to control our spending and save consistently would make us success in the later stage.
For those who are from top management level who earn more than RM10k per month does not necessary that they can live wealthy. Let’s take an example, the managing director of a multinational corporation, who was earning RM120k per year. Given his hefty income, we expected him to have great substancial amount of money over the years, right? However, sometimes we may found that quite a great number of them whose total assets actually is less than RM500k while the net worth is less than RM200k. Plus, more than 70% of his net worth was from EPF savings.
So, where all his income had gone? As i known, most of them will spend their income on maintaining their lifestyle every month. At the end of the month,there was nothing much left to save and invest. Every time he received a salary increment, he just increased his spending accordingly. So, we can see that this is a basic example of excessive spending.
When the expenditures rise along with incomes. As a result, you don’t save much. The same thing with salary RM20k, RM30k or more. The more we spend, the less we save, As a result, we have fewer resources for investing and growing our wealth.
The more we spend, the more we need to sustain during retirement. This is because the more we spend, the higher rate of return on ROI needed.
Let say you set a goal to accumulate RM100k. Assume you are 45 and plan to retire at 60. If you can save RM3,600 per year, you need to achieve a Return On Investment(ROI) of only 6.4%. If you save RM2,400 per year, you need to achieve a higher ROI of 10.5%. If you save RM10k per year, you need to achieve a ROI of 19.1%.
Therefore, the less you save, the higher the ROI required. Then, you need to take higher investment risk.