Smart Investor Malaysia


5 Easy Steps to Achieving Financial Merdeka


On a Facebook livestream held on 31 August 2022 by SmartFinance ( in an effort to promote financial literacy on World Financial Planning Day 2022 (WFPD2022), Linnet Lee, the CEO of the Financial Planning Association of Malaysia (FPAM) shares the five steps anyone can take to achieve financial freedom or financial merdeka.

Here are the five steps in a nutshell:

Step 1 – 2:30

For the first two years you start working, set aside 20-30% of your income to invest in yourself (to buy clothes, gadgets, things you need for work etc.) From the third year onwards, start saving 30% of your gross income for retirement. EPF contributions (employer 12% and employee 11%) already make up 23%, leaving 7% left for you to start investing into retirement in other avenues (stocks, private retirement schemes etc).

Now let’s move on to the second step to achieving financial merdeka.

Step 2 – Rule of 72


Dividing 72 by the interest or dividend will give you a rather accurate estimation of how many years your money will either double up or shrink by half. Use the rule to help when managing your finances and keep an eye on inflation rate as well.

For example:

72/6% (interest/dividend) = 12 years (duration for your money to double up)

72/5% (inflation)=14 years (duration for your money to shrink by half)

Step 3 – Rule of 78

Not all loans are created equal, and this rule is a tip to keep in mind when handling your debts. Financing methods that allocate pre-calculated interest charges are meant to favor the lender over the borrower on short-term loans. The borrower would pay a greater portion of the interest rate in earlier part of the loan cycle than regular loans.

A car loan, for instance, is calculated using the Rule of 78 (the number comes from the sum of monthly term on a one-year loan, by adding the numbers 1 to 12). What that means is the lender has calculated the interest and put most of interest in first and second year of your loan. Hence, there’s no benefit to paying the loan off early because the interest has already been calculated and you have paid most of it already.

So, if you have a car loan, don’t be in a hurry to pay it off. It is better to pay on time to avoid the penalty.

This is different with a housing loan. As you pay off your housing loan, the interest will be calculated based on the outstanding amount for the beginning of that year. It therefore makes sense pay it off quickly because you will be paying less interest.

Before you do though, check with your bank if there is any penalty rate for paying off earlier.

Step 4 – Six Months Emergency Money

Have up to 6 months’ worth of monthly expenses saved up. This will buy you time you need to get back on your feet. When you tap into your emergency fund, be sure to top it up again as soon as you can.

That said, a credit card should not be treated as emergency money.

Are you ready for the final step to achieving financial merdeka?

Step 5 – RM1 Million In Retirement Fund

If you add RM500 per month to an initial sum of RM1,000, starting from the age of 25 to 61, with an interest or dividend of 7% and an inflation of 3%, you will have RM1 million in 36 years. Assuming you stay in good health, you will be able to fund 20 years in retirement. Of course, this is just a simple calculation. Over the years, you can always add to your retirement fund as you earn more.

And now we are at the end of the 5 easy steps to achieving financial merdeka.

Congrats, You Are On The Road To Financial Merdeka

If you need help working through the numbers, do not wait too long to seek the help of a licensed financial planner. To brush up on your financial literacy and connect with a financial planner, go to Wish you all the best in your pursuit for financial merdeka. 

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