If we work for 30 years and we save money without fail every month for 30 years, how much do you think we could save? Well, if we could save RM336 per month for 30 years, we would have RM121,000 at the end of the 30 years. Perhaps by then, the value of RM121,000 is much lower than today. However, we still have RM121,000 on top of whatever we have in our EPF.
What happens if we bought a property instead? Say a RM350,000 property and instead of the typical property price increment, we lower this to just 1% per year for 30 years? Image below shows the calculation. We would have the same amount of RM121,000 in property price increase. We will reveal one surprise at the end of the article. For now, we know that we could either save RM336 per month or we would buy a property and rely on the 1% property price increase per year as well.
Let’s just say we are more ambitious. We could save a lot more money every month. RM788 per month for the next 30 years. That would give us a total of RM283,000. This amount is around the number recommended by EPF for all its members when they retire. So, are we safe? Well, we are safer. RM283,000 plus all the EPF contribution means we are definitely comfortable. Take a look at the image below.
This savings of RM788 per month is also equivalent to a 2% increase in property price every year for the next 30 years. We are using the same property price.
What if we are aggressive savers and we save RM1,386 per month then? If we do that for the next 30 years, then we will have around RM500,000 when we retire from working full time after 30 years. Whoa, not a bad number at all even if this RM500,000 at that time would be of lower value than today.
If we bought a property and use 3% as property price increase every year, then the property price will also be up by around RM500,000. Calculation as below.
I know, some would like to say that all those savings into the bank, surely they will earn interest! Yeah, I agree. If we look at advanced economies, the interest rates are already lower than our current 2% for the Fixed Deposit. I hope everyone understands that low interest rate regime may be here to stay judging from what’s happening in the world today. We assume that some of us would insist on just staying focused on savings alone and nothing else, then yeah, on top of the savings, the interest rate may just be an extra 2% up every year.
Remember yeah, this 2% Fixed Deposit rate is based on what we saved. The property price increase is meanwhile based on the property price and not on how much we invested. Now we reveal the surprise. Yeah, besides that increase in property price, by the end of 30 years, that property is already ours. In other words, every amount above needs to add an extra RM350,000 to it. (original property price). THIS IS NOT AN ADVICE to take ANY ACTION. No one knows the future, you decide and take appropriate action yeah.
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