The new year gives you the opportunity to reinvent yourself. Naturally, personal finance is an area where everyone would like to see an upward trajectory.
This is especially true for Malaysians. Alarming statistics show that 75 percent of us were unable to fork out even RM1,000 for emergencies
The Bank Negara Malaysia report said many lacked the skills to manage their money and could not make wise spending decisions.
The beginning of the year 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.
Here are five common money management habits you must 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, adjusting your spending is the best way to get your 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 is that Malaysians spend their monthly salaries 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.
3. You don’t have a savings and a retirement fund
There are three major types of savings that you should allocate your money to – emergencies, retirement, and major personal spending such as holidays.
The first two are the more important. If you have not met your target, you should increase your monthly savings.
If your income is small, you’ll have to consider using a portion of the monthly amount you allocate towards personal spending for emergency and retirements funds instead.
Generally, 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.
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 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 with benefits best aligned with your lifestyle requirements and affordability.
- Use them smartly to maximise the value of spending 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.
Hence, you should always try to diversify your investment portfolio to offset combined risk.
This article first appeared in BBazaar.my
BBazaar Malaysia (BBazaar.my) is part of BankBazaar International, the world’s leading neutral online marketplace that helps people decide on financial products such as insurance, credit cards, fixed deposits, saving accounts, mutual funds and many more.