Hey, you. You want to achieve financial freedom in Malaysia, but don’t know how. You may not even know what that entails. Financial freedom is like one of those meaningless phrases, like ‘paradigm shift’.

Let me help you unpack that phrase and lay it out, in this step-by-step guide format.

What are the 7 Steps to Financial Freedom

Earlier in my personal finance journey, I came across Dave Ramsey’s 7 Baby Steps to Financial Freedom, and the information helped me make sense of it all. It gave me clarity, it gave me focus, it made the process of achieving financial freedom look less daunting.

financial freedom in malaysia
financial freedom in malaysia

In this article, I’d like to give you my own version of 7 Baby Steps. Call it Suraya’s 7 Baby Steps to Financial Freedom in Malaysia. The original version is already good (see above pic), but what I’m doing here is tweaking it so that (1) it’s more relevant for Malaysians, and (2) it suits more life aspirations.

Use these steps to guide your personal finance journey. Some of you may be at Step 1, some of you at Step 5. Some of you may find that you’re doing Step 4 when you should really do Step 2 first.

Obviously, do whatever is best in your situation, but if you feel overwhelmed, it’s not a bad idea to follow these 7 steps to help you decide on your immediate next actions.

Let’s go.

Step 1 – Have RM1000 in emergency fund

Estimated time: A few weeks to a few months

In this step, your priority is to have some sort of financial buffer against life’s unexpected expenses. If you’re starting your journey here, it’s okay to suffer for a little bit, while you build up your emergency fund.

Some examples include:

  • Eat instant noodles to save money
  • Take the cheapest possible option to go to work
  • Reduce your rent by sharing living spaces with housemate(s)/roommate(s)
  • Take up low-paying jobs and work without rest

Yes, those situations are not ideal, but having no emergency savings whatsover makes you extremely vulnerable, and those sacrifices is still the lesser of two evils.

Whatever you choose to do to have at least RM1000 in emergency fund (more if you can, but that’s the minimum I feel), know that it’s temporary.

Once you hit that amount, you don’t have to be too strict on yourself. Don’t sacrifice your physical and mental health for too long, that’s not what I’m advocating here and that’s not worth it at all.

Step 2 – Pay off debt

Estimated time: a few months to a few years

Now that you have at least RM1k, you can breathe a bit. No matter what, don’t touch that money. That’s your super super in-case money.

Now, it is time to focus on paying off debt, specifically bad debt. In Malaysian context, two of the most common bad debt would be personal loans and credit card debts.

A lot of people focus on (1) cutting back on expenses and (2) increasing income in order to get out of bad debt faster. They also avoid, by hook or by crook, accumulating more debt, including avoiding Buy Now, Pay Later installments.

Some of the things you can do:

  • List out all your debt commitments. The first thing to do is to confront it
  • Contact your bank for help. They may be able to restructure your payments or suggest a financial product to consolidate your loans into a single payment
  • Contact AKPK for help
  • Sell your non-essential valuables, if any
  • Do money challenges (Related: 9 Money Challenges to Try)
  • Explore and experiment with different ways to save money in Malaysia
  • Implement debt payment strategies

Remember: you’re not alone in this. Lots of Malaysians are on the debt-free journey. Lots of people post their updates and progress on instagram under the hashtag #debtfreemalaysia

financial freedom in malaysia 3

Unfortunately, it is not uncommon for some people to start Step 1 all over again. Financial emergencies happen. It depends on luck and chance.

The only thing I can say here is… Doing is hard, but not doing is harder. Dust yourself off and do it again.

Step 3 – Build up 3-6 months of emergency savings

Estimated time: A few months to a few years

Now that you’ve got your high-interest debt paid off, your focus is to grow your savings. That’s 3-6 months of monthly expenses, not 3-6 months of monthly income. That needs to be said as some people spend more than what they bring in.

This step, you can do at your own pace, you’re no longer racing the clock. Fast is good, but slow is fine too. Slow progress is better than no progress.

In fact, I’d argue that it’s better to be slow and focus on (1) having insurance and (2) improving skills and increasing income than to complete this step as fast as possible. As we can see in this pandemic, if both also don’t have, then 12-24 months’ worth of expenses may not even be enough…

There are two main ways to earn more:

  1. Through day job – https://ringgitohringgit.com/earning-money/high-salary-in-malaysia/
  2. Through side income – https://ringgitohringgit.com/earning-money/side-income-malaysia/

The money, in my humble opinion, should be kept at places that are easy enough, yet hard enough to access. Here are some good options to put your emergency money – 5 Best Places to Save Money in Malaysia, Ranked

Step 4 – Invest your money

Estimated time: lifelong

Now, finally, we have arrived at the investment part. If you’re efficient, you’re already investing at Step 3, by doubling your savings-earmarked accounts as low-risk investments. But if not, use this article as a guide – What to Invest with RM1000: 15 Options You Should Know

Important: Whatever you do, do NOT skip Steps 1-3!

Now, there’s this… misconception… that investing can make you rich. Well yes, but don’t get too obsessed with it until you forget about earning. Getting ‘just’ 5% ROI on RM10000 (RM500) is better than getting 50% ROI on RM100 (RM50).

So, at this stage, aim to earn more so you can funnel more into your investment accounts (Go back to Step 3 for earning tips). Start with 20% of your income*, then grow your income so you can contribute more.

*This follows the 50/30/20 budgeting guideline

The 50/30/20 Budget: What It Is & Why You Need To Start Using It ASAP  (+Downloadable Template)
Credit: The Financial Diet https://thefinancialdiet.com/the-50-30-20-budget-what-it-is-why-you-need-to-start-using-it-asap/

Step 5 – Save for children’s college / another big life goal, &

Step 6 – Pay off house / another big life goal

Estimated time: lifelong, up until you hit your goals

Okay! Here’s where my tweak comes in. In Dave Ramsey’s original Baby Steps, he clearly placed saving money for children’s education and paying off your house mortgage as necessary steps. And it is, for some of us.

But here’s the thing –

  • Malaysia’s education system is WAY LESS PREDATORY than the US’s education system. That’s not a blanket statement, but generally true
  • Not everyone can afford to buy a house in Malaysia, given how the property market is (over)priced and our salaries are not increasing and all

Therefore, in Steps 5 and 6, you can choose your own life goals. Make it early retirement, saving up for your children’s education, make it buy a house, or make it anything you want, any life goals that are meaningful to you.

Some of you may have ‘have enough money to start own business’ as a life goal, that’s cool. Others may decide on affording a once-in-a-lifetime adventure. That’s cool too.

Don’t know your life goals yet? That’s okay. You don’t have to have it all figured out yet, and even so it’s okay to change your mind later.

(And lol you can even make your life goal, ‘save enough money to take 1 year off to travel around the world to figure out your life goal’. What’s stopping you from doing that? No one!)

Bonus section: How much money do you need for financial freedom in Malaysia

Ok, I’m going to dedicate a section to calculate the amount of money you need for financial freedom in Malaysia because it’s a question I get VERY often. But first,

What is the difference between financial freedom and financial independence?

The definitions vary, but I like how this article on financial freedom vs financial independence illustrated it:
Financial Freedom vs. Financial Independence: How They're Different, And  How You Can Get There
So essentially, what financial freedom means is working is optional.

How you feel about this totally depends on whether you like your job or not. For some people, the motivation to reach financial freedom comes from hating their job, so they work REALLY hard to earn more AND live as frugally as possible.

Personally, I don’t totally hate my job (it’s great 80% of the time, which is more than I hope for), and I love spending money on experiences. It will take longer for me to reach financial freedom, but it’s OK. (This is also why I’m not super into the financial independence, retire early (FI/RE) camp, with emphasis on early retirement.)

Financial freedom calculators in Malaysia

Many websites offer financial freedom calculators – or should I say retirement calculators. This one by Multiply is really good.

financial freedom calculator malaysia multiply

You can see my attempt at calculating the cost of my retirement here: Calculating the Amount I Need to FI/RE in Malaysia

P/s – It will be a big number. Bigger than you’d want. I *was* intimidated by it, but now I’ve accepted it. I’ve made my plans so all I have to do is follow them and enjoy the ride.

Step 7 – Give back

Estimated time: lifelong, up until your time to go

Step 7 is giving back. THIS DOESN’T MEAN YOU SHOULD AVOID MAKING DONATIONS UNTIL YOU REACH THIS STEP!! Maybe don’t do it while you’re still at Step 1, but go on ahead from Step 2 onwards. I want you to be happy throughout all this and the act of giving increases happiness – read How to Buy Happiness: 5 Science-Backed Principles to Know TODAY for more info.

As I understand it, giving back in Step 7 means not hoarding wealth and contributing to wealth inequality.

You may choose to expand your business and hire more people, paying them comfortable salaries. That’s a way to give back.

You may make regular contributions to a women’s shelter, or a pet adoption society. That’s a way to give back.

You can be an angel investor and fund businesses. That’s a way to give back.

Use your money and wealth to enable others. As the saying goes, you can’t take it with you when you go.

Achieving Financial Freedom in Malaysia

I’m going to be hella realistic. Not everyone can achieve financial freedom in Malaysia. Some of you may get stuck at different steps. Some of you may have exceptionally bad luck in life and have to restart the journey over and over again.

Still, with this information you at least have a fighting chance, and that’s all we can hope for at this point, right?

Let me know if you have questions about the 7 baby steps to financial freedom above. Does it help you to focus on your next immediate action(s)? Which step are you at now? Let me know in the comments section!




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