The great investor, Warren Buffet said, “Risk comes from not knowing what you’re doing.”

And this seems to be the number one reason why the many Malaysians are unable to climb up the social ladder.

Our research reveals that the average Malaysian lose about 1.5 million during their lifetime.

This staggering loss can be traced back to the bad money decisions and unnecessary mistakes made by the majority of Malaysians with their hard-earned money.

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These are some of the common reasons why your income just never seems to be enough:
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The truth is, the seeds of this financial disaster are planted years before their outcome.

People have the tendency to make unnecessary mistakes (either taking too much risk or doing nothing to grow their wealth) which derail them from their rightful financial destiny.

The mistakes often seem small and negligible, and may not even look like mistakes at the time.

Hence, many do not even realise that they’re making mistakes and would erroneously continue down this path.

Here are three of the most common mistakes being made by the average Malaysians:

Mistake #1: Not optimising the returns on savings

Malaysians love fixed deposits.

Most of us will use these as our de facto ‘investment’ tool but is it the right way to think?

Putting RM1,000 every month (RM240,000 total investment) in a fixed deposit (FD) account for 20 years, at an average of 3% interest per annum, will net you a total return of RM329,122.75.

However, if you had invested the same amount at an average rate of return of 8% (which is realistically obtainable through various investment options like unit trusts, share trading or even with ASB) per annum, you would get RM592,947.22.

In retrospect, keeping the money in FD would have caused you to lose RM263,824.47.The outcome is even worse for those who leave their money to languish in a savings account, which only sees a 1% to 2% per annum.

Mistake #2: Paying too much on insurance premiums

It’s undeniable, life insurance protection is important, especially when you have financial dependents.

Consider these two life insurance products for a 35-year-old: term insurance for RM500,000 will cost RM1,625 per annum, whereas a whole life policy will cost RM14,225 per annum. Which should he get?

If you buy term insurance instead of a whole life policy, you will be saving RM12,600 per annum, which can be used for other investments. At an 8% return on your investment over 20 years, you will gain RM576,600!

However, by spending that amount on a whole life policy, assuming you receive the entire premium paid (RM14,225 x 20 years), you will only get RM284,500 at the end of the day. That’s a whopping RM292,100 loss!

Mistake #3: Failing to increase savings when income rises

Good money management involves increasing one’s income over time. However, it will only improve your personal finances when your savings increases in tandem with your income.

However, the depressing truth is, when an employee gets a raise, he would spend the additional money on a better lifestyle (generally known as lifestyle inflation).

He or she may upgrade his/her car to a better one, get a designer handbag or the latest mobile phone or enjoy a luxurious holiday.

All these lifestyle upgrades cost money up front and to maintain, and as a result, savings will be sacrificed.

Instead of saving, the average person will spend the extra income.

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In comparison, a person who knows how to optimise his wealth, would maintain his current lifestyle and even has increased savings instead.

Assuming that he invests RM1,000 per month at an average rate of return of 8% per annum and increase his saving by 5% every year over 20 years , he or she would be RM863,457 richer.

It is important to note that none of the ‘mistakes’ mentioned above are in itself disastrous.

Risk comes from not knowing what you’re doing
However, their combined and compounding effect has an irreversible damaging consequence to a person’s net worth or wealth, and eventually robbing him/her of achieving financial freedom, giving the illusion that he/she’ll never make enough money.

Every single mistake, whether big or small, will have an impact on your finances when we look at it over a lifespan.

So, do yourself a big favour and scrutinise every financial decision you’ve ever made and will make.

Not everyone can afford to lose about RM1.5 million in their lifetime, especially not you.

Yap Ming Hui ([email protected]) is a bestselling author, TV personality, columnist and coach on money optimisation. He heads Whitman Independent Advisors, a licensed independent financial advisory firm which has helped people to optimise their wealth and achieve financial freedom since 2000.

*This article appeared on iMoney.my, Malaysia's leading financial comparison website. To compare and apply for the best financial products, such as credit card, home loans and personal loans, visit www.iMoney.my