Almost half of Malaysians have zero savings. A survey by the Federation of Malaysian Consumer Associations (FOMCA) revealed that 30 to 40 percent of Malaysians do not have sufficient savings for emergency situations as well as retirement.
“Most Malaysians, regardless of income group and age, have insufficient savings due to several interrelated factors”, according to FOMCA’s CEO Dato’ Paul Selvaraj in a news report. They include the “rising cost of living” and “low wages”. He also mentioned financial literacy as the key to solving the issue.
Meanwhile, about 41 Malaysians are declared bankrupt every day, with the majority of them being under the age of 44, according to the Malaysia Department of Insolvency. The main reasons cited are the inability to pay off car loans, poor control of credit card usage, and failure to pay off personal loans.
That brings us to a pertinent question — how good are you at managing your finances using your salary?
Here’s a list of 4 wise things to do with your salary the moment you receive it.
Also, there’s no reason to worry if you’re unable to meet your financial targets. We’ve prepared a step-by-step guide at the bottom of the blog to get your finances in order.
Let’s start with the salary tips.
1. Pay yourself first
Always pay yourself first before spending your hard-earned money.
We couldn’t stress enough the importance of saving up — be it for emergencies, your financial goals (e.g. retirement), or even your personal goals (e.g. travelling).
Allocate at least 10 percent of your income to savings. You can set the savings bar as high as your finances permit. As a rule, your emergency savings fund (click here to know how to build one) should be enough to sustain you for three to six months, in case anything unanticipated happens.
Pro tip: Consider setting up a separate high-interest fetching savings account to build your emergency/savings fund and aim to deposit money in it every month without fail. By doing so you will be in a better position to control wasteful expenses (you’ll likely be more reckless with your spends if all your savings are parked in a single account), plus your savings fund remains accessible all the time if you need it to tackle some emergency situation.
2. Prioritise urgent payments
Always prioritise payments with high-interest rates or late payment charges to avoid accumulating debt, for example, your credit card bill and personal loans.
Avoid breaking the terms of your agreement to maintain a good credit score (click here for credit report FAQ). Pay your bills in full amount as per the agreement and make sure you pay on time.
Other urgent payments include mortgage or rent, tax, fines, and child support.
Pro tip: You may want to give standing instructions to your bank for automated payments if carelessness is an issue.
3. Invest your hard-earned money
When you’ve allocated enough money for savings and monthly expenses, it’s time to invest some of your money for your own benefit.
If you haven’t started on your retirement contributions yet, now is the best time to do so (click here for useful tips on retirement savings). Consider setting up the SP1M account if you’re self-employed. You should also seriously consider investing in private retirement scheme, which can provide a good cushion to your EPF funds.
Before making any investment, ensure you’ve put in ample research to fully understand the risks involved, growth history, fees and charges, etc. of your chosen investment instrument.
Pro tip: Give precedence to tax-saving investment instruments.
4. Get the right insurance plan
There are various kinds of insurance plans on the market, and you need to opt for the ones that best suit your lifestyle and personal needs.
Don’t hesitate on getting yourself covered, as you can claim for tax relief on insurances. That said, while protection is important for you and your loved ones, avoid over-insuring.
These are the most common types of insurance in Malaysia to consider: medical and health insurance, general insurance (e.g. travel, personal accident, motor insurance), and life insurance. Choose your plan carefully. Keep in mind that you get income tax relief of up to RM6,000 for combined contributions to EPF and life insurance.
Pro tip: Despite the growing popularity of investment-linked insurance plans, it’s better if you keep investment and insurance separate — because linking your investments to your insurance protection add risk to your insurance component. Buy insurance for what it is, insuring yourself. To grow your money through investments, read investment books and articles, and park aside a sum of money that is dedicated to investing.
How to take control of your finances?
Well, it’s a fact that many among us fail to meet our financial targets — like setting aside adequate savings, having an emergency fund in place, regularly re-paying all loans to avoid accumulation of debt, having enough left in the account to invest, etc.
Careless spending, the absence of a budget and not setting short-term, medium-term and long-term financial goals are some of the common reasons behind financial mismanagement which may even lead to financial distress. But we’re here to help.
Here’s a step-by-step guide to get your finances in order by going on a financial diet.
Step 1: Categorise your expenses
Start by checking the bank statements or receipts of the previous months to find out where your money is going. Categorise your expenses to make it easier for you to make urgent payments.
Your expenses may include household bills, living costs (e.g. transportation, food), financial products (e.g. insurance, credit cards), loans, and more.
Step 2: Cut down your bills and living costs
Next, figure out how and where you can cut back. Some ways to save more include:
- Cancelling a gym membership you rarely use (click here to check out free fitness apps)
- Cooking more instead of dining out
- Cancelling your cable TV subscription
- Getting a cheaper phone/broadband plan based on your needs
Step 3: Involve your family in budgeting
In order to keep your finances back on track, you need to get everyone in your family involved. Get them together and make a budget/plan that everyone can stick to.
Calculate how much money should be spent, and figure out the amount of money that everyone will have.
Step 4: Get help ASAP if you’re overwhelmed by your debts
If you’re struggling financially, don’t make things worse by ignoring your bank statements and payment demands.
Get free financial counselling from the Credit Counselling and Debt Management Agency (AKPK), or join their debt management programme.
Step 5: Work towards increasing your income
It’s a no-brainer that earning more is one of the best ways to solve your financial troubles. Here are few suggestions:
- Consider partaking in the thriving gig economy by earning some extra cash on the side. If you’re free on the weekends or have some time to spare, why not make some money by teaching students online or pet-sitting or renting out your unused car? Read our blog on mobile apps to make money on the side.
- If you think you deserve a promotion at work which would translate to a fatter paycheck, click here for smart tips.
- Congratulations if you’re up for an annual bonus, but don’t just spend it away. Instead, read our blog on intelligent ways to use it.
- You may want to improve your skill sets to quickly move up the career ladder. Click here for affordable online courses to advance your career.
- You may also want to work on your LinkedIn profile to bag a more lucrative job offer. Click here for tips to improve your job search.
- And when you get a good offer, avoid making these common salary negotiation mistakes.
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