Why you need to start planning for financial independence in your 20s


This article is my realistic views on "Financially Independent, Retire Early" or FIRE, a movement to achieve financial freedom and early retirement earlier than traditional retirement plans.

The FIRE (Financially Independent, Retire Early) movement has been around for quite a while now and has been particularly popular amongst the millennials these days. More and more fellow young Malaysians are starting to embrace this movement and pursue it. 

What is it?

Essentially, it is to achieve financial freedom and early retirement earlier than traditional retirement plans which can be done through savings and investment. By having enough income, you can pay for reasonable living expenses and have the freedom to do what you want. 

Of course, there are different levels and intensity which one can use according to what ultimately fits their goals. 
If you’re a millennial like me, the youngest of us today is 25. Whilst we may have started working for a while now and earning money we didn’t have previously, starting retirement planning is no longer considered “early” in 2021.

So, why do Malaysians join the FIRE movement?

Simply put,

  1. Our Employees’ Provision Fund (EPF) is not enough to sustain our retirement.
  2. Effects of Inflation
1. Our Employees’ Provision Fund (EPF) is not enough to sustain our retirement

As working Malaysians, we would typically have our EPF when we start working and contribute to it monthly. Now, we all know that EPF interest rates are typically a lot higher than Fixed Deposit (FD) rates. But in 2020, the rate is the lowest it has been since 2008 where the EPF dividend rate was 5.2% for conventional savings and 4.9% for Syariah savings.

Whilst still higher than FD rates, would be relying solely on EPF alone be enough for our retirement? According to The Star, the answer is a no as Malaysians are unable to have a reasonable lifestyle with their current EPF savings.

Besides that, the life expectancy of Malaysians has risen to an average of 72.5 years for males and 77.4 years for females. Assuming you retire at 60, you’d need to earn more money for retirement to cover those extra years as well as account for emergencies.

2. Effects of inflation

How much do you think you’ll need to retire? Would RM 1,000,000 today be enough to retire?

The sad truth is no, not even a million ringgit today will not be enough because of inflation. In this iMoney article from 2015, they talk about how a 25-year-old in that year onwards would need RM3 million to sustain a similar lifestyle for when they retire. This is all based on an average inflation rate of 4%. Also, given the recent article from The Star, it is very likely that inflation will be accelerating due to a higher Consumer Price Index (CPI)

Imagine how much more we’d have to save today in 2021. Here’s a simple retirement calculator to see how much you’d need to save according to your desired retirement lifestyle. 

But, no matter what age you’re at, don’t worry, it’s not too late. We all have to start somewhere. 

In this next section, I’ll be sharing an overview on how to start from gurus all over the internet that made sense to me in my journey towards financial independence.

How to reach Financial Independence

Most followers of FIRE basically focus on three areas to gain financial independence quickly which are:

  1. Reducing expenses and eliminating debt
  2. Increasing income
  3. Investing

Person Holding Coin

1. Reducing expenses and eliminating debt

This comes along with saving and budgeting but the key thing is to minimise and reduce your lifestyle to a reasonable level. That would mean foregoing some nicer things in life like an expensive meal or massage. It doesn’t mean not enjoying life and not spending it occasionally but understanding that it is possible to be contented with less. Most people tend to upgrade their lifestyles when they start earning more. If we minimalistic lifestyle whilst our incomes increase, we can save and invest so much more.

I also think that eliminating debts come hand in hand with reducing expenses. This is of course hard because we all need to make necessary big purchases at some point in our lives. This NST article suggests that we should prioritise eliminating our debts together with saving and investing modest early on in our careers. This way, we can eradicate our debt and live a debt-free life.

Crop entrepreneur counting money in office

2. Increasing income

Nowadays, a lot of people are joining the hustle culture, holding a few jobs at one go, having multiple streams of income. No longer do people think that we should stick solely to our day job. Don’t be a wage slave that is complacent when we have a stable income. Today, we have the gig economy where there are more freelancers now than ever that work for themselves at their own pace and capacity. 

Though it is not for everyone as it can incur burnout but if you’d like to try, there are plenty of ways one can take to improve their financial situation according to what suits you best. Each of us can make that choice to prioritise and work harder while we’re young which could look like upskilling, improving your education, negotiating for a raise, creating a side business or freelancing.

3. Investing

Another way of increasing income is making your money work for you and that is through investments. Investing covers a whole wide range and that would take another blog to cover. There are quizzes out there that can measure your risk profile to see if you’re an aggressive, moderate or conservative investor. Through understanding what type of investor you are, you can then pursue portfolios that will suit you according to our current life goals, return expectation and liquidity. 

There are many major asset classes that you can look at like real estate, luxury, commodities, bonds, stocks and cash. Each asset will bring different returns every year. It is our responsibility to do our due diligence by educating ourselves first before going into it as each of them has its own risks.

Final Thought

Personally, for me, the idea of retiring early is very appealing. I myself have yet to plan properly but now I am more aware of generating higher income and hustling while I still have the time and freedom to do so in my twenties. But I constantly bear in mind to also take care of my self so that I prevent burnout which is the case of many people who are in this hustle culture. 

It’s also encouraging to see peers in the FIRE movement who are starting to educate themselves financially as we get into adulthood. Also, at this age, there are so many resources for us to find and consume. We just have to start somewhere. Good luck!


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