Regardless of age or social status, the majority face the same dilemma: lack of money. Most people don’t have much money to last until the end of the month and are left with no savings.
In fact, when we were in school, no syllabus taught us how to manage our finances. Plus, most parents did not educate us on how to make the right money decisions. Hence, many of us took a hard way to pick up money tips along the way. Unfortunately, some of us still lack knowledge in financial management. So, what could be the problem?
Now let’s see how to improve your financial situation!
1. Strategy in Saving Money
I believe the concept of saving money is not new to you, but ever wondered why can’t we save enough? The reason is clear: no discipline and planning! In general, I suggest separating savings into two categories: short-term and long-term savings. Let’s see the differences:
(1) Short-term savings are usually liquid-able. It should be able to withdraw at any time to meet immediate needs or short-term goals. For example: repairing our car; an emergency; or suddenly you wanted to leave your work behind and take a break for a trip. To put it in simple words, it is the savings in your bank account or fixed deposits. Alternatively, you could save in a Milo tin or piggy bank.
(2) Long-term savings should be low liquid-able, preserved for future goals. Here we are talking about continuously saving and not touching it for at least 5 years. You may look into some Structured Savings Plans or funds which require some procedures or till maturity for withdrawal. This type of disciplined savings ensures that we will have excess funds for long-term goals such as clearing loans, education, pensions, or leaving a legacy for the family.
2. Increase Earning Capacity
People often looking forward to better job opportunities, increments, or bonuses. Sadly after years of working in corporate only to realize they didn’t progress as far as they potentially could. With the younger generation joining the workforce, we are seeing an increasing number of self-employed or part-time workers. They would prefer jobs that provide flexibility, work-life balance, and a passive income.
As people are more exposed today, the majority would want an extra income. Instead of working hard, an alternate way is to let your money work for you. The question is what and how to invest? Fixed Deposit (FD) was considered an investment vehicle in the olden days and today it’s still widely used by the elderly. However, we have many ways to invest our money today.
So it really depends on the amount of your capital, risk tolerance, and investment horizon. You may venture into properties, shares, Unit Trusts, Gold, Bond, or types of investments that are approved by Bank Negara. My advice is, do some research regarding what you are venturing into. If you are not familiar with it, speak to the professionals to see which investment and strategy suit you. Yes, not all strategy applies as your profile is different from others.
3. Spend Your Money Wisely
Of course, there is nothing wrong with spending your hard-earned money. However, you want to make sure that you spend every cent wisely! So, when you are deciding to spend, ask yourself these few questions:
(1) Need or want? For example, do you need a pair of leather shoes or do you want a pair of branded shoes that is more expensive?
(2) Is there something similar? Do you have something similar that can act as a replacement for now?
(3) Is the usage rate high? Will you be wearing this new leather shoe often or is it for a random occasion?
(4) Are there any alternatives? If you really wish to buy, is there a more affordable option?
(5) Can you afford it? If you think it is reasonable and affordable, then proceed to buy.
4. Opportunity Cost
The book “Dollar And Sense” written by Dan Ariely and Jeff Kreisler explains that most people spend irrationally because they do not consider the opportunity cost. In simple words, opportunity cost means that when we choose, we must give up another opportunity.
For example, buy a new mobile phone. By paying a lump sum you missed the opportunity to profit by investing the money. However, if you are offered a zero-interest instalment, you may utilize the cash in hand to yield a profit or save for other purposes.
Another example, you found an apparel store having a “buy one get one free” promotion. This seems to be a very good deal because you can save money on buying another item. In fact, you do not need to spend anything in the first place! Due to the promotion, you actually spent to buy an item to get another item free. Unless you really need it, otherwise it is considered extra spending.
Summary
Different financial management methods should be applied to different stages of life. Regardless if you just started working, buying a car, buying a house, getting married, and having a child; or to a stage where you learn to invest to create passive income; also not forgetting the credit card debts and other outstanding loans and mortgage, it all requires financial planning.
With proper financial management, reaching financial freedom is not difficult! If you do not understand your current financial situation, reach out to a financial advisor now.
