IN the years following the Covid-19 pandemic, Malaysians have become more aware of life’s uncertainties. Many have taken steps to strengthen their safety nets – they start reviewing insurance policies, building emergency funds or seeking professional financial advice.
This growing interest in risk management is a positive trend. However, it also brings a hidden challenge: in the quest to protect our future, some may unknowingly overspend on insurance, stretching their budgets too thin and compromising other important financial goals.
Insurance in itself is valuable; it acts as a vital safeguard against life’s uncertainties. As the saying goes, “Fortune knocks but once but misfortune has much more patience”. Appropriate coverage can indeed shield a family. That said, insurance must align with an individual’s financial capacity, family responsibilities and risk exposure. The needs of a young adult earning RM 3,000 monthly differ vastly from those of a mid-career professional who is supporting his/her children and ageing parents.
Admittedly, professional financial planning services come at a cost and may not be everyone’s first choice. For the broader public, a simple rule of thumb can safeguard financial health to avoid overspending: by following the “70-20-10 rule”.
The “70-20-10 saving rule” is a simple budgeting framework that helps individuals manage their income effectively by dividing it into three categories:
• 70% of income for essentials (housing, food, utilities);
• 20% for savings and future goals (emergency fund, education, retirement);
• 10% for risk protection (insurance).
That 10% allocation for insurance is your protective boundary. If you are encouraged to commit far more than this, especially at the expense of your savings or daily needs, it is a sign to pause and reconsider. Risk protection is vital but it should never come at the cost of your financial stability.
The benefits of the “70-20-10 rule” are its simplicity and flexibility. It encourages a healthy balance between meeting present needs, preparing for the future, and enjoying life today. Over time, following this rule helps people avoid overspending, reduce financial stress and steadily build wealth.
Just like maintaining good physical health, safeguarding our financial health requires balance, discipline and regular check-ups. Financial health is not just about having insurance; it is about ensuring that all aspects of your money life are in harmony: manageable debt, adequate savings, protection against risks and the capacity to invest for the future.
Neglecting this balance can create long-term strain, even if your intentions are good.
When your financial health is strong, you gain more than just peace of mind. You are better equipped to weather economic downturns, handle unexpected expenses without panic and make life decisions, like starting a family, switching careers or retiring without being trapped by financial stress. Most importantly, you can protect your loved ones without sacrificing your own stability.
At its heart, sustainable safeguarding means protecting your future in a way that does not weaken your present. Insurance is just one tool in your financial toolkit.
By maintaining balance and following a structured approach like the “70-20-10 rule”, you can ensure that your financial health remains strong for the long run, no matter what uncertainties life brings.
Dr Lee Chee Loong is a member of the Active Ageing Impact Lab and a senior lecturer at Taylor’s University. Comments: letters@thesundaily.com