In what seems to be a blink of an eye, 2018 will soon be over! As usual, a new year presents itself with a fresh opportunity to improve oneself. Naturally, personal finance is an area where we all would like to see an upward trajectory.
This is especially true for Malaysians with the alarming statistics that show 75 percent of us were unable to fork out even RM1,000 for emergencies. The report, which was made by Bank Negara Malaysia (BNM), also mentioned that many lacked the skills to manage their money and could not make wise spending decisions.
The start of 2019 is a great time to take a good look at your financial habits and make the necessary changes. After all, you can’t achieve your financial goals if you can’t identify what’s dragging you down.
We’ve listed down a few money management mistakes that Malaysians commonly make. If you’re guilty of performing any of them, make 2019 as the year you break free and leave them behind.
Here are 5 common money management habits that need to change in 2019:
1. You live beyond your means
Too many Malaysians live a lifestyle well beyond their income. Our country’s household debt at present is ranked as one of the highest in Asia. Therefore, making adjustments to our spending is the best way to get our budget under control.
“Write down every cent you spend, and then put your spending into categories,” the National Foundation for Credit Counselling (NFCC) suggested in its guidelines on mid-year financial planning. “At this point, you can make conscious decisions regarding how you want to spend moving forward”.
Remember, if you are unable to save what you need to secure your future consistently, it is very likely that you are living beyond your means.
2. “Budget? What’s that?”
The sad reality facing Malaysians is that many just spend their monthly salary without any proper budget and only save if there is anything left. There any many ways to create a budget, but one of the simplest to follow is the 50/30/20 method.
According to this rule:
- 50% of your monthly income should go towards paying the necessities like housing rent or mortgage premium, groceries, fuel, regular bills like telephone, internet, electricity, etc.
- 30% of your income should be spent on your wants, like entertainment, dining, new clothes, etc.
- 20% of your income should go towards your financial goals like debt repayment or savings
To make it easier to determine how much money you should allocate every month for your savings, needs and wants, use a budget calculator like this one.
3. You don’t have a savings and retirement fund
If you’re guilty of not having a proper budget, it’s highly likely that you don’t save money consistently enough. As the statistics from BNM earlier showed, 75 percent of Malaysians can’t even fork out RM1,000 for an emergency.
There are three major types of savings that you should allocate your money to – for emergencies, for retirement, and for your major personal spendings, such as holidays. The first two are the more important ones. If they have not met your target, you will need to increase your monthly savings.
If your income is tight, you’ll have to consider using a portion of the monthly amount you allocate towards personal spendings and use it for your emergency and retirements funds.
As a general rule, your emergency savings fund should be able to sustain you for three to six months. This is to safeguard your finances if anything unanticipated happens in the future. Read our blog post for a more detailed guide to build an emergency fund.
Also, saving for your retirement doesn’t mean you have to drastically change your lifestyle. Our blog post here provides 7 intelligent tips on how to achieve that.
4. You accumulate large credit card debt
A credit card can be extremely useful when it comes to managing unexpected expenses. Life is full of uncertainties and there may be times when you might need instant cash to meet your financial emergencies.
In such situations, credit cards can really help with providing relief. However, poor use and management of this service can lead to high accumulated debt.
Due to the high interest rates of credit cards, it could cost you thousands of ringgit if you aren’t careful. Plus it will reflect poorly on your credit score which in turn will work against your interests when you apply for a bigger loan like a home loan, car loan or personal loan.
To ensure you are a responsible credit card user, be sure you adopt these simple habits:
- Check your credit card bills regularly
- Pay the bills on time
- Don’t opt for too many cards
- Use your credit limit cautiously
- Choose a card whose benefits are best aligned with your lifestyle requirements and affordability
- Use them smartly to maximise the value of your spends with benefits like cashback. reward points and shopping promotions
5. You don’t invest
Renowned financial guru and author Robert Kiyosaki once said: “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for”.
Simply saving money is no longer enough to achieve financial freedom. You will need to make your money work for you by making wise investments.
Our blog post How Investment-Ready Are You? can be a good introduction if you are new to investing. Another good article is 5 Good Reasons Why Millennials Should Invest in Unit Trusts.
That said, you should always attempt to diversify your investment portfolio to offset combined risk.
You may also like some of our other investment-related blogs: