With the average starting salary for fresh graduates in Malaysia ranging between RM2,300 to RM2,500 combined with the rising cost of living, it comes as no surprise that many Gen Y are stuck in the rat race.
Studies have shown that millennials earn less today as compared to their parents at the same age.
But this doesn’t mean millennials are doomed to live in unfavourable conditions forever. Well, at least not according to Whitman Independent Advisors Sdn Bhd’s Head of Business Development, Felix Neoh.
With over 20 years’ experience in financial planning, Neoh explained, “There is a lack of urgency in preparing a budget for expenses, income and savings by Gen Y, which has led them into the habit of saving by chance rather than by choice.”
Neoh noted that millennials should not escape from the responsibility of planning their own budgets, regardless of any lifestyle changes they face or how tech-savvy they are.
Education also plays a key role, but there is a vast difference between knowing something and actually doing it.
“With the assumption that we still produce many business graduates in Malaysia, they (Gen Y) should have basic knowledge in finance. But even then, many do not relate this knowledge to themselves as an individual to manage their own money,” Neoh added.
Many are aware of the need to invest in order to grow their net worth. However, not many actually realise their lack of budgeting and savings plans are holding them back from investing.
Investments are a great option to consider especially if you want to optimise your hard-earned money. However, it can’t be done without proper budget to ensure a sufficient amount of cash is reserved for investments.
So if you want to start investing with only RM100, here’s what you must do first.
Identify all expenses and incomes
Keeping a budget is essential if you want to avoid credit card debt and bankruptcy.
“Keep track of and name all your finances so you can monitor the pattern and review the details to ensure continuous efficiency in financial planning.
“You want to make sure you are being realistic in your budget as well. Buy things you can afford and do not over rely on instalment payment plans (IPP) by credit cards,” Neoh said.
Jotting down all expenses and incomes from various sources on a daily, monthly and yearly basis may sound like a lot of work, but you will find it easier once it becomes a habit.
Automate your savings
Initiate automated savings on a monthly basis. Neoh believes that the money you don’t see in the account is the money you don’t spend.
“Though you may feel the pinch every month, at least at the end of the day you will be able to see the results in a significant way,” he said.
Once an individual complies with the simple rule of setting-up automated savings in either a savings account, fixed deposit or even other investment vehicles, he or she must learn to be flexible in adjusting expenses for his or her lifestyle.
Many people tend to only save the amount left after deducting all expenses, yet the correct way should be to prioritise savings and investing first.
Start your investment with capital as low as RM100
After having a detailed budget and consistent savings, you will be able to monitor your cash flow and determine the amount of capital you have to initiate your investment.
Between savings and investment, you can be flexible in deciding the proportion of both in your portfolio. Additionally, be sure to invest in products with decent interest rates to at least fight off inflation.
A number of investment vehicles exist for those who can only invest with as little as RM100 initially.
“What Gen Y and the younger generation have as an advantage is time. Compounding interest will only do them a favour if they invest early.
“The fact is if you are already aware of the existence of compounding interest, it doesn’t matter if the capital is low as long as you can create a habit of investing long term,” Neoh explained.
Over time, you will be calmer and not make reckless choices of whether to invest or not when there are uncertainties.
You will be able to look at the opportunities during bad times and not overthink threats and risks as long as you spread your investment portfolio into different products, and a longer timeline will allow better risk diversion.
1. Passive mode (does not require regular monitoring)
• Unit trusts: Collective investment scheme provided by various investment banks and investment firms with a fixed charge of management fees and transactions fees.
• Amanah Saham Bumiputera (ASB)/Amanah Saham Nasional (ASN): Bumiputra-only unit trust schemes managed by government-controlled agency Permodalan Nasional Bhd (PNB).
• Investment-linked insurance: Life insurance that combines investment and protection. Your premiums provide not only life insurance coverage, but part of the premium will be invested into specific investment funds of your choice. You get to choose how to allocate your insurance premiums towards protection and investment.
2. Active mode (requires regular monitoring and reviewing)
• Stocks market: Buy stocks of a company listed on Bursa Malaysia. Trading can be short or long term through brokers from investment banks with a minimum investment size of 100 units.
• Exchange traded funds (ETFs): An open-ended investment fund listed and traded on the stock exchange. ETFs combine the features of an index fund and a stock. This is one of the most cost-effective investment vehicles for investors given its low management fee.
For those who cannot afford the monthly payment, Neoh’s advice is for them to set some money aside and not withdraw it until they build enough capital to initiate their investment.
“If you can project or anticipate the salary increment next year and project them into the investment or savings, you can start this year and maintain your lifestyle spending over the next few years,” he said.
According to Whitman’s formula for financial planning, the net worth of an individual is based on the following factors:
• Increase savings
• Increase return on investment (ROI)
• Minimise cost
• Minimise risk
Investing is like playing golf – you should start when you are young so you are able to enjoy the game when you retire, instead of getting upset because you are learning at older age. Since it is a life-long skill, the sooner you start, the better you will get.
This article first appeared in comparehero.my