Today, I am going to tell you a success story about a frugal family. If everyone learn to manage cash flow like they do, there will be no financial problem in Malaysia.

You will learn about the story from our emails. Name has been altered for confidentiality.

This is the conversation via email from Ann. My reply is in italic.

Hi KC,

My husband and I will be 39 and 40 years old respectively this year. We would like an outsider to view our financial situation as time is running out till our retirement. Both of us are working in the private sector and earning in the medium range. We have 3 kids, 9, 7 & 1.5 years old. We live in a house that is paid for in full and we only have a car loan (RM1100) that we have to service monthly. Our health and life insurance coverage comes up to about RM1100 monthly.

Your debt level is very manageable. No mortgage, only car loan. I guess if you don’t think of switching to another better car, you will be ok and be able to save more after the car loan is done.

Since insurance is for protection and minimum saving, I would say you need a policy audit. Probably you can get your agent to give you a summary and show you the thorough protection you are getting. You can also scan the important policy pages (that contains the coverage, types etc) and hopefully I can give you some more opinion on the protection part.

However, try to keep your insurance premium at about 10% of your household income. This exclude the premium paid for saving – such as education policy.

Our savings are as follows :

– Combine EPF about RM250,000

– ASB about RM340,000

– Fixed Deposit about RM75,000

– Savings acct. about RM10,000

– Children’s ASD, about RM25,000

SSPN, about RM6,000

– Unit trust, about RM8,000. (One is a monthly payment of RM250)

– All 3 kids have insurance + education (combine) coverage. Abt RM15,000 /child upon reaching ~ 20 yrs old.

You are doing well in saving. Unit trust and ASB is a good choice for passive investor. Do you calculate how much is the average return of your investment? You can use an excel spreadsheet to calculate how much your total investment (plus FD), and how much is the total return. You should be able to estimate roughly the return p.a. for your entire portfolio. Try to get above 10% p.a.

Our goals are :

1. Early retirement for wife ASAP (to stay with the kids after school)

This is a very big challenge. How much is your household income?

Husband earning …./month?

Wife earning …/month?

In order to get the wife to retire early, there are a few choices:
1. The husband have to earn extra
2. Save enough that the passive investment income can replace the wife’s.
3. The wife can work from home – earn money online, such as ebay, blogging etc. or some freelance project.

2. Accumulate money for retirement but also for funding the kids tertiary education

From my general calculation, if a family can save 30% of household income every month, it is very likely that you will retire in 10 years time. Kids education fund will be very subjective. It can be very flexible. It might range from RM50k to over a million ringgit, depending on what (course), where (oversea? local?) and how your kid will carry out the tertiary study.

Our worries are :

1. Not enough money for retirement

2. Not enough money for children education

3. We are not good in investing. We have tried Stocks (Malaysia), US stock options and also a small business (tuition center) and all failed terribly and we loss a lot of money.

4. We have tried to discuss about property investment but we are too busy with work and family and one bad decision will not improve our financial situation.

We have a simple lifestyle and we try to save ~RM2000 every month if there are no big bills to pay. We keep a budget, seldom eat out and we do not travel. Our major bills are the car, health insurance, maid, tuition and school expenses, food of course, electricity and phone bills. Petrol price is driving food prices up so much now.

We hope you can view our situation above as a qualified financial advisor. If we need a wake up call before it is too late then we want it now as we are getting older. Time is running out for us. We would greatly appreciate any advice you can give us.

I guess you need to give me more info on your cash flow to enable further discussion and study.

Thank you for taking the time. I have completed the cashflow spreadsheet. We just finished paying the house mortgage end of last year and now we can save about 30% of our pay. I have omitted the following from the spreadsheet :

1. Interests earned from the various savings like ASB, FD, unit trusts, etc. which roughly comes out to be RM3700/mth.

2. I have excluded the children’s insurance/education premium which comes up to RM315/mth.

3. For the cash monthly inflow, I used our take home pay after EPF deduction, etc.

4. I could not differentiate the insurance policies and so I combined all of them in the spreadsheet.

I have also attached a summary of our entire insurance coverage done by a friend but some info are missing. While I was reading through your comments and all, I do realize that we do not have passive income except from the interest of the savings. I have been reading about eBay and making money online but so far no practicing yet.

We look forward to your analysis results.

Thank you in advance.

Here is the cash flow spreadsheet:

Hi Ann,

You guys are really a frugal couple. My comments are:

1. You have healthy cash flow. Saving 30% of your income every month is better off than 90% of the world’s population. See the picture below about the estimation of your retirement fund. You can save about 2.3 million, plus your EPF probably around 1 million ringgit. That’s a total of RM3.3 million – for 8% return you will RM240k a year passive income after age 55. I don’t see any worry about retirement here!

2. Your protection is well planned too. You and your husband is adequately insured. One thing to consider is your critical illness coverage. Yours is about RM70k (maybe more). Your husband is about 80k. It is advisable to have about 3 years income protected. That’s about RM150k per person. However, that might result in higher insurance premium needed. Try to keep the premium about 10-15% of your monthly income. Yours is about RM880-RM1320/month (solely for protection purposes). There are still some portion you can work on but make sure you get the right policy to have a thorough coverage.

3. It is advisable to increase your return rate of your portfolio. 10% is highly achievable for long term. You need a balanced portfolio. 50% in fixed income (FD, bond fund, ASB etc), and 50% in higher risk equity. However, since 8% already meet your retirement need, you might as well keep to the current performance (if you got 8%).

4. One more comprehensive arrangement is to setup an incentive trust for your children. I wrote about it here.
It involves will planning and trust planning. It will cost about RM2k-3k one-off charges.

Hi KC,

Thank you for your comments. I am not so sure whether my family is considered frugal or not. As you can see, we do have to spend a few thousand on living expenses and it is not cheap with kids around. Also, we manage to save ~30% only after we paid off the mortgage end of last year.

The rate of return on our savings does not really reach 8%. You suggested to invest 50% on higher risk equity, what kind of investment do you recommend to get the target of 10% annual return or more?

Unit trust equity fund – choose the one with great pass performance for at least 5 years. Now the economy is going down tend.
You can buy into those funds in stages. When it goes down, buy some more .. and stick to your portfolio allocation.

I had my will done early this year (fee ~RM800) while my husband is waiting to get his will done later. I am not so sure about setting up a children living-trust as it seems quite new here.

Regarding our financial standings, well we wish we are in a better position. I suppose nobody is 100% satisfied when it comes to money. Like I mentioned before, we tried our hands in the stock market (M’sia), options trading (US stocks), commodities trading, and even started a small business but we failed to make money.

Never give up .. internet is a good way to produce more income for you .. blogging is good choice for part timer.

This is about the end of our email communication. I would say this is a very good example to show you how a medium family can achieve their financial goals with plan.

Some points that we all can learn from Ann’s family are:

  • never spend more than you earn. We all need a positive cash flow to start with managing our finance.
  • they paid off their mortgage pretty soon and never thought of upgrading their house.
  • they are able to save about 30% of their household income
  • their petrol usage and car maintenance is about RM200/month. That’s very low. They probably have some good strategies to keep it that low, such as car pooling, stay near to work place etc.
  • overall, they live a frugal live.
  • they are a very responsible couple – they pay allowance to parents, protect their family with adequate insurance, they even have the will written already.

I guess the most important point is being frugal.


Personal finance author and trainer

    16 replies to "How a medium family can retire comfortably (Real Life Case Study)"

    • ANG AH HIN

      I am 60y/o now & have only RM250,000 no loan to service & 1 house fully paid can I retired without any problem.

    • SJ Chan

      Hi KC

      Seek your opinion. I am a recent retiree aged 55. Sole bread winner.Staying in KL

      Asset: Property (Stay), Investment property (Rental income RM900)
      EPF: RM 1.5 Million. Other Bank Deposits RM 350,000 (kept in Singapore at low interest rate of 1.25%).Shares about RM 100,000 (average dividend 4%)

      Wife: House wife. Work initially, EPF at hand about RM 250,000

      Intend to stay financially solvent till 80. Children just started working. Assume no contribution as they will be quite tied up financially.

      How much is my monthly expenses to budget?


      • KCLau

        If you only manage to get 5% a year, that is roughly RM8k plus a month already.
        But to cater for inflation say 4%, you only have 1% to spend – about RM1700/month if don’t touch the capital.

        Imagine if you know how to invest safely and profitably (stocks can do that if you know how to evaluate businesses), and increase your return to 10% a year. To make it inflation proof (4%), you can spend 6% of the 2 million nest egg – around RM10k a month, which is not bad.

        I guess I’ve provided you the short answer – that’s to learn how to invest properly, safely and profitably and you don’t have to worry about using up your nest egg.

    • Suba

      Dear KC Lau,

      I am RFP student. Need to submit my project paper but hardly can find time. Can you help me?


      • KCLau

        So sorry that I have no time to help you.

    • chan

      I am 50 years old. I have a house, fully paid. I have a shop house, 1.2million fully paid. My EPF account has 1.5 million. Malaysian stock 0.7miilion. ASM 0.8million. 0.23mllion in fix deposit. Personal insurance pay 2500/yr and daughter 1700/yr.

      Will the above enough keep me going say till 88yrs old.

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    • KCLau

      that is net (after EPF and tax)

    • lousai

      KC, the Total Inflow is referring to Net or Gross Income..? As the two has huge different after tax deductiona dn EPF contribution (Avg 20%).

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