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Doesn’t “making it” mean not having to worry about what you spend? To some, it can mean that. But mindlessly spending means you aren’t controlling your money, and that your money is controlling you.
The way you spend your money comes down to your priorities. Your short-term priorities are likely different from your long-term ones. Even if the long-term ones feel too far away to be concerned with yet, the way you spend in the short term can make your long-term goals easier or harder to achieve.
Here are three examples of how consciously cutting back without greatly compromising the present can improve your future spending power. We also illustrate the difference, assuming you take us up on the suggestion to change some spending habits, between keeping the savings in a savings account versus investing the savings in a portfolio with 6% annual returns.
Think of all those impulse buys-- the coffee on the way to the office even though there is coffee for free at the office. Let's say you drink 2 kopis a day that cost RM4.50. If you drank one fewer kopi a day, and you did that for 30 years, you'd save RM66,633. Now, let's say you invest those savings each year. Your savings (let's call it your kopi fund) would be worth RM166,307 in 30 years. Whether it's kopi or extra sides for your meals, what matters is that the small, consistent savings here and there can really add up over time.
Home. The place you should feel most comfortable. When you’re looking at renting an apartment, you think about the location, the amenities (if there are any), the feeling of the place, the lease terms, and of course, your budget. Sure, the more you spend, the nicer a place you get. But what if you spend RM500 less per month less on rent? Could you still find something that works for you? It might take a little extra time, but you can do it. Especially when you think about what it means for future-you’s financial future: If you saved RM500 on rent for 20 years, you’d have RM120,000 in 20 years. Then, invest those savings each year with 6% returns, and you’d have RM227,335 in 20 years. A ten-minute longer commute might be worth it, after all.
It goes without saying that buying a car in Malaysia is a huge investment. If you are set on buying a car, consider this: If you spend RM25,000 less every time you buy a new car (let’s assume that’s about every 7 years for this example), you’d have an additional RM100,000 in spending power over 28 years. Invest those savings each year, and you’d have RM340,534 in 28 years. You can buy quite a few cars with that money.
Another way to look at it is to make sure you’re spending on what matters most to you, and cutting back on places that don’t matter as much. Whether you’re cutting back on coffee or buying less expensive cars, this can make the difference in being able to contribute towards (or even fully cover), say, your child’s university tuition, a charitable donation, or a new home.
Budgeting isn't only to give you more than having some extra spending money; it’s about creating opportunities in the future for yourself and your loved ones. Where can you cut back to get ahead?