The RM270 temptation

Minimum wage rise will give people a chance to save

WHILE there is still a lot of debate over the timing of the implementation of the minimum wage rise on May 1, it should bring cheer to some at the end of this month.

The take home salary will be RM270 more than the previous month.

The minimum wage rise is from RM1,200 to RM1,500 and this represents a 25% rise.

After the necessary monthly deductions (for Employees Provident Fund, Sosco and even the Employee Insurance Scheme), the take-home pay works out to RM1,354.85 from RM1,083.95 when the salary was RM1,200. So the difference is RM270 a month and RM3,240 over a year.

For some employers, the timing may not be so ideal given the recovery period amid the endemic. But for the employees, it is a much needed boost amid rising cost of things.

Of course experts point to rising inflation with the rise in prices for goods and services, but the minimum wage hike is also expected to generate economic activity for the country with additional money in the pockets of people.

“This increased income will give more spending power as you are taking home RM270 more a month and there will be a temptation or peer and family pressure to increase spending.

“But it can also give people a chance to save and set aside money for their future (retirement),’’ said IPPFA Sdn Bhd licensed financial planner Kimberly Law.

She believes the 25% rise should ideally be going towards one’s future savings.

“Self care is important and taking care of yourself means to prepare for a better future, not pampering yourself with increased spending (for now),’’ she added.

The first thing to do is to maintain one’s current expenses even though it may be very tempting to upgrade to a more comfortable lifestyle. But saving has its benefits too and the compounding interest element.

“This increased income will give more spending power as you are taking home RM270 more a month and there will be a temptation or peer and family pressure to increase spending. But it can also give people a chance to save and set aside money for their future (retirement).” Kimberly Law

One could also use the money to settle any outstanding loans. It is best to clear it as soon as possible. Do not accumulate any outstanding amount because it costs more to owe the bank.

Law said one should avoid taking personal loans and do not fall into installment plans.

“This will only push you towards spending more and it also encourages you to spend beyond your means.”

One should also prioritise on savings for emergencies and capital growth (grow for future – to have retirement funds or investment portfolio) while managing risks by optimising and not over or under-buying insurance policies, she added.

“Everyone, no matter at what income level, should save for their retirement by starting with their first salary or as early as possible.

“Create the habit early. Start today. Don’t do it later or when you get an increment or bonus.

“The longer you wait and the older you get, the harder it will be to pick up good financial habits because you might already have more commitments and are used to having a certain lifestyle,’’ Law added.

Similarly, downgrading a lifestyle can be painful. If one starts early, one have a chance of achieving the desired retirement goal.

“But if you start late, then you might not achieve your desired retirement goal and may end up retiring later or have less to spend.”

One of the best ways to create a good financial habit is to have two separate accounts, one each for expenses and for savings.

By doing so, one will have a clear split every month and it is an easier way to stick to a budget by allocating a certain amount for bills and essentials and one-off items. Fix an amount every month in the account for expenses.

“Always pay (deposit into your savings account) yourself first when you get your salary and manage your expenses with the rest of the money that you have and not the other way around.

“Remember not to use the monies in the savings account for your monthly expenditure. It is only meant for your retirement but you can dig into it during emergencies or channel it for investments,” she added.