What Dad Told Son

I was having a meal with my friend, Dr. Anand, an Indian National who is a Permanent Resident in Malaysia. He was been working in a local hospital for more than 20 years and loved Malaysia for its weather, diversity of food and culture.

We were talking about the state of youth and how they use money, when he shared with me what his father taught him. Now in his 60s, this advice has served him well and he has enough to retire to a simple lifestyle that he had planned for.

Whilst today’s clarion call for retirement planning is to start saving from the day you start work, this one had a different angle and the story is worth telling.

Dr. Anand’s father was a government accountant during the British rule in India. The position was a privileged one as he handled the country’s money. His father was also a very prudent, highly ethical and disciplined person.

When Dr. Anand started working and received his first pay check, his father sat him down and shared this tip with him.

Dr. Anand had studied very hard to get his degree in medicine and become a doctor. Working life is going to be a long journey before retirement, so for the first 2 years of his life, he should spend his salary on:

1.      Investing in good work clothes and accessories

2.      Plan an affordable holiday break

3.      Spend on things he likes which he can afford i.e., movies, books, gadgets, etc.

After 2 years, in year 3, he should put aside 30% of his monthly salary for retirement. “Put aside an amount you need to replace worn out clothes and accessories. Start building an emergency fund for rainy days. You may start saving for a car which you can afford to maintain without any parental aid,” his father added.

It was such a simple tip and easy to follow. Dr. Anand is rather a disciplined man himself and for that, he was rewarded with a life where he can afford the things that he planned for. He has enough to retire today, but continued to work because he loves what he do and the income that he is earning now gives him the little luxuries in life every now and then.

Don’t get me wrong, Dr. Anand is still a very prudent man. On an ordinary day, he will have simple meals and dresses in shirts from departmental stores. But he likes his creature comforts in terms of good working and casual shoes, a good bottle of whisky and a nice car to whisk himself around.

How can the young adults today extrapolate that to their lives today? Well, EPF already gives you a minimum of 23% savings. You have SOCSO which covers you for accidents and injuries going to, during and going back from work.

What you will need is to top up another 7% of your income in the form of savings which you can choose to invest. The Government has in place the Private Retirement Scheme (PRS) which invests in unit trusts. If you are in your 20s, the Government will give you a one-time incentive of an additional RM500 into your account if you start one with RM1,000.

Here is a quick scenario to help you:

A earns RM2,500 in her first job. Her take home pay is about RM1,750 after deducting EPF and SOCSO. She stays with her parents and travels to work on public transport.

If she can put aside RM125 per month for her retirement, then plan the balance of RM1,625 for her daily transport and meals as well as her monthly personal care items and entertainment, she will find that she can manage nicely on her starting pay.

This is a very simple illustration. If you need assistance, seek out the services of a Licensed Financial Planner who can help you plan your money management and avoid pitfalls. The fee you pay for this service is worth the pain of huge payments in debts and interests if wrong decisions are made.

My story for the following month will be a ‘Tale of Two Countries’. If you like such stories, stay tuned for the next installment.

This article is written by Linnet Lee, CFP CERT TM, IFP® and CEO of FPAM, our regular contributor who shares real life stories of financial planning professionals encountered in her own fascinating journey in the industry.