THE discipline of being able to save consistently and on target would make or break our financial freedom journey. There are three main reasons why is saving important.

- The more we save, the more we accumulate

The first reason is simple and obvious. The more we save, the more we can accumulate. Obviously, we would have more resources to invest to grow our assets.

- The more we save, the less we spend

When we force ourselves to save more, we would definitely have less to spend. As such, we are able to control the standard of living and live below the mean.
Throughout my practice, I have come across clients who are able to accumulate substantial amount of assets through prudent spending and disciplined saving.

When we do not have too high a standard of living, it makes our job of maintaining a living standard during our retirement easier to attain.

On one hand, I have seen people who do not make much but save a lot. On the other hand, I have also met people who earn high income but save very little.

Many years ago, when I had just started my profession, I met Eugene, a chief executive officer of an American multi-national corporation, who earned more than RM50,000 a month.

At that time, he was the highest income-earner person I had ever met.

In my heart, I was overjoyed as I believed that I would have a big case on which to do financial and investment planning.

However, after the fact-finding process, I discovered that Eugene had assets worth only about RM2 million.

And about RM1 million of this asset was his forced savings in the Employees' Provident Fund.

The balance was the worth of the house he was staying in.

I was very surprised to find out that he had so little assets despite his high income.

So, I asked him: "Eugene, how much do you save every month?"

Eugene said: "Well, I did want to save every month. However, at the end of the month, there is always not much left."

So, if you just want to wait till you have more income to save more, you might as well forget it.

It is never about how much you make. It is always about how much you save.

- How best can we solve this problem?

Yes, you are right. Before you start spending and paying bills every month, pay yourself first.

Determine how much is the right amount of saving for you and save that amount first. It is even better if you can have a regular and automatic saving scheme.

- The more we save, the less rate of investment return we need

In fact, the more we save, the less risk we need to take in financial freedom planning.

Let's take an example of RM5,000,000 accumulation goal.

Let's assume that you are 45 years old, and planning to retire at 60.

If you can save RM50,000 per annum, you need to achieve 23.9 per cent of rate of interest (ROI) for RM5,000,000 goal.

If you can save RM120,000 per annum,you need to achieve 13.4 per cent of ROI.

If you can save RM180,000 per annum, you need to achieve only 8.3 per cent of ROI.

Of course, RM5,000,000 is only the example.

The lesson to be learnt is that the more we save, the less ROI is required to achieve the same accumulation goal.

When we do not need to achieve a high ROI, we do not need to stomach too much risk and volatility.

The less risks we take, the more peaceful life will be.

- How much to save?

I believe most of us understand the importance of saving. In fact, almost every time I was interviewed by the media, I would always be asked, "How much of their income should Malaysians save?"

To some financial planner, it is not a very difficult question for them to answer. Some would say 20 per cent. Some would say 30 per cent. Some would even say 40 per cent.

However, this is quite a tough and tricky question for me to answer.

Based on my experience of developing many tailor-made financial plans for clients, I know that the right saving rate varies from one person to another.

For example, if you have a monthly income of RM3,000, the right savings rate for you may be 20 per cent.

This is because you need to spend majority of your income to sustain your standard of living.

However, if you have a monthly income of RM50,000, the right savings rate for you may be 50 per cent.

This is because you don't need to spend the majority of your income to sustain your standard of living.

Of course, this is just one of many examples, but it shows that there is no standard "right saving" rate for every one.

Therefore, each of us should have a tailor-made financial plan to determine the right savings rate for us.

Only then, would we know that we are saving enough to meet our future commitments.

- What if your saving is under target?

If the savings and contributions are less than target planned, you may fail to achieve your financial freedom.

If the gap continues, chances are that you may not be able to achieve your original financial goals set.

In the situation whereby the actual saving is less than planned, we must review our cash flow statement to identify the discrepancy and take necessary recovery measures.

If we have confirmed that the planned saving target is unrealistic, it is important that we readjust some of our financial goals and asset allocation strategies.

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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