How Malaysians can outrun inflation with income?

We’ve all noticed it. The cost of living in Malaysia is rising. From your weekly grocery run to a simple plate of nasi lemak, the prices are creeping up. But what about your salary? For many Malaysians, wages have remained stagnant, barely keeping up with the rising cost of goods. This growing gap between your income and daily expenses is largely due to inflation, which makes your hard-earned ringgit worth less every year.

The impact of inflation on your daily life

Bank Negara Malaysia forecasts inflation to range between 2% and 3.5% in 2024. While this prediction might create a misleading sense of ease, inflation surged to 4.7% in August 2022 during the pandemic.

To put this into context, let's assume a plate of nasi lemak cost RM5 in 2021. With an inflation rate of 4.7% in August 2022, the price would have increased to RM5.24. Inflation in 2023 was reported at 2.5% and rose to 3.5% in 2024, meaning your plate of nasi lemak now costs around RM5.55.

You might think that an increase of RM0.55 is just pocket change. However, in percentage terms, that’s an 11% increase in just three years! All the while you might ask, did you get a salary increment of 11% in the past 3 years just so that your nasi lemak remains decently priced (to you)?  — perhaps this time with all things being equal, you get less than what you pay for (with one less egg and a few fewer pieces of anchovies.)

Meanwhile, salaries have not increased at the same pace. According to Department of Statistics Malaysia (DOSM), the average mean household is growing at only 2.38% yearly. It's always playing catch up.

When the cost of everyday essentials rises faster than wages, Malaysians find themselves struggling to make ends meet, leaving little room for savings or future planning.

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Why Saving Alone Isn’t Enough

For many Malaysians, the go-to strategy has always been to save whatever is left after monthly expenses. However, with inflation eating into purchasing power, you may not be able save as much as before and savings alone may not be enough to combat the rising cost of living.

Let’s break it down: while saving is essential, the average interest rate for a Malaysian savings account hovers around 1.75%. However, it does beg a question are islamic banks really riba free and fully shariah-compliant? With inflation climbing above 3% to 4% in recent years, it simply eats up the 'returns' you get from fixed deposit (savings account at your bank).  Your hard earned savings may grow over time but it’s losing value.

Malaysia is not immune to the global economic pressures causing inflation. Rising fuel prices, disruptions in supply chains, and global economic instability have all contributed to a higher cost of living.

But this isn’t a hopeless situation.

Compounding Returns: The Key To Outrun Inflation

If saving isn’t enough, what’s the alternative? The answer lies in investing, which offers a better opportunity to grow your wealth and combat inflation. While saving helps you preserve wealth, investing allows you to grow it. The magic ingredient here is compounding — the process of earning returns on both your original investment and the returns that accumulate over time.

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Compounding is like planting a seed and letting it grow into a tree. At first, the growth may seem slow, but over time, your investment grows exponentially. For example, if you invest RM1,000 at a 8% annual return, your investment will grow to RM1,080 in the first year. In the second year, you’ll earn 7% not just on RM1,000 but on RM1,080 — giving you a return of RM1,166 and so on so forth. This snowball effect accelerates your wealth-building journey.

You’ll be amazed to learn on the extreme impact of compound returns on your investment when you have time on your side.  Try out the calculator we've build for you to see how much you need to save monthly to reach your financial goals and compare the difference between saving and investing. It's much easier than you think.

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Escaping the Rat Race: Why Investing Now is Better than Later

The good news is that you don’t need a lot of money to start investing. Many Malaysians hesitate because they think investing requires a large sum of money upfront. In reality, you can start small and let compounding do the heavy lifting. Whether it’s RM100 or RM1,000 a month, starting early gives you a significant advantage.

Take Wahed , for instance. It’s a robo-advisory platform that helps Malaysians invest in Shariah-compliant portfolios with low entry barriers. Even if you’re a beginner, you can start building wealth without having to actively manage your investments. This means you can focus on living your life while letting your investments grow behind the scenes.

If you’re ready to take control of your financial future, now is the time to start investing. Don’t let inflation keep you trapped in the cycle of rising costs and stagnant wages. The sooner you begin, the sooner you can break free from the rat race and work towards a future where your money works for you, not the other way around.

Ready to take the first step now with RM100?

Start your investment journey today with Wahed Invest and experience the power of compounded returns for yourself.

Take the first step now.

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