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Financial Lessons for Millennials

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Wouldn’t it be great if we were fully equipped with financial literacy and financial lessons by the time we leave the sacred (and safer) realm of student-hood? As we enter the very real world and embark on our first job, many times we don’t really know what we’re doing with the money and we wing it, hoping that we’ll figure it along the way.

Here are the top financial lessons they don’t teach you in college and that many of us end up learning the hard way.

1. IT IS NEVER TOO EARLY TO START SAVING FOR YOUR FUTURE Considering that Malaysians have very poor saving habits, this is a key lesson that you should never forget. Many Malaysians do not have enough to survive once they retire as their Employees Provident Fund (EPF) funds are not sufficient. Malaysians also do not have enough savings for a rainy day (emergency fund).

Create saving goals but split them into two categories: long-term and short-term saving goals. For your long-term goals, set aside money for your retirement or to buy your first property. For your short-term goals, build an emergency fund. This should have enough to help you survive should any unforeseen circumstances crop up – like a car accident, a dental emergency, or if you lose your main source of income.

2. STOP LIVING BEYOND YOUR MEANS

We all deal with peer pressure and these days, many of us want instant gratification or suffer from what is known as FOMO (the Fear of Missing Out). If you can afford the excessive lifestyle of a Starbucks coffee every single day and fancy dinners at trendy restaurants with speakeasy cocktails, then, by all means, go ahead. However, we’re pretty sure this means you aren’t saving money.

Stop living beyond your means in an attempt to keep up with the crowd. Learn how to separate your budget between necessities and wants.

3. DO NOT GO CRAZY WITH YOUR FIRST CREDIT CARD

We all get excited with our first credit card, and instead of seeing it as money we don’t actually have, it becomes an extended bank account. Knowing that your credit card gives you money that isn’t there, it is extremely tempting to go on a swiping spree. However, be careful, credit card debt can build in a matter of hours but will be an amount that you may need years to pay off.

4. YOUR CREDIT SCORE IS MORE IMPORTANT THAN YOU REALISE

Your credit score is an indication of your financial health for banks to decide if they want to approve or reject your application. This could be for a credit card or a personal loan. If you have a low credit score, this tells banks that you’re a risky customer to approve and they may either slap you with a higher interest rate or reject your application. Take time to review your credit score with agencies like Credit Tip-Off Service (CTOS) Malaysia. The good news is you can improve your credit score and most of these agencies will be able to identify the steps you can take to improve it.

5. LEARN FROM YOUR BAD INVESTMENTS AND PICK YOURSELF BACK UP

So, you may have invested in a get-rich-quick scheme hoping for 20-40% returns on your investment, and only to be left thousands of Ringgit poorer. Don’t beat yourself up about it for too long. It happens, but this is exactly the reason why you need to educate yourself on financial products and financial tools that are good investments. Learn from it and become wiser.

6. DON’T IGNORE YOUR DEBT AND CONFRONT IT HEADS ON

Ignorance is NOT bliss in this case. Confront it head on before compounding interest turns your debt into an unmanageable mound.

7. BUDGET, BUDGET BUDGET

List down your essential expenses, financial goals, and lifestyle expenses. Split this up into three(3) categories and write down every single thing you spend on or save towards.  

8. FILE YOUR TAXES AND TAKE ADVANTAGE OF TAX RELIEFS

Tax evasion is an offence and you can end up paying much more if ever caught. The good news is there is a chance that your monthly tax contributions are higher than necessary. If this is the case, you can get a tax refund or rebate. Understand the various tax reliefs you are entitled to, and keep receipts of all purchases for at least seven(7) years.

9. UNDERSTAND HOW MONEY WORKS

Become financially literate. Understand how money works, how you can save, how you can invest, the best ways to budget, identify the red flags of a multi-level marketing scam, know how to protect yourself against fraud. The list is endless. Luckily for you, CompareHero.my has a blog that writes about financial matters to help you boost your literacy levels and to be a wiser spender. 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Budgeting 101 for Working Millennials

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While starting your first job is exciting, many often neglect the painful consequences of failing to plan, set and keep to a budget during their working life. To recap, most fresh graduates and entry-level executives have been suffering from a decreasing and stagnant purchasing power over the past five years, according to a report on the Nasi Lemak Index by CompareHero.my.
 
The figure is scary. If the lack of urgency in learning to create, plan and keep to a budget continues, the number of bankruptcy cases amongst millenials may rise further in the near future. As of April 30 this year, 15% of the 429,588 clients seeking advice from Credit Counselling and Debt Management Agency (AKPK) were aged between 20 and 30. Interestingly, 75% of them earned below RM4,000 monthly, and about 52% did not know how to manage their finances. The good news is the power of change is in your hands. 
 
By creating a budget to manage your personal income, expenses, debts, and other money-related matters, you can then monitor and balance it by making the appropriate changes as time goes by. So, what are you waiting for? Here are five simple steps for Budgeting 101:
 

1. Break down your budget according to priorities

 
Make a habit of breaking down your expenses with the 50:30:20 rule, 50 for essential expenses, 30 for financial needs, and 20 for lifestyle choices. Essential expenses include your food, transportation, rent, utilities, and insurance. Financial needs comprise of savings (including retirement), debts, and investments. Lifestyle spending on your clothing, entertainment, food and the like is always the most rewarding but causes most people to end up in financial muddles due to impulse spending and lack of control. 
 
Also, the recently announced Budget 2017 entitles you to RM2,500 tax exemption for purchase of reading materials, computer and sports equipment, combined as lifestyle tax relief. This also includes gym memberships, internet subscriptions and purchase of mainstream newspapers. So make sure you keep those receipts!
 

2. Compare everything

 
Regardless of what you budget for,  always do your homework by comparing different brands, providers and  prices. This way, you will be able to make better informed decisions that suit your needs and finances. For example, our Prime Minister and Minister of Finance,  YAB Dato' Sri Mohd Najib Tun Haji Abdul Razak, recently announced in Budget 2017 that broadband speed will be doubled starting from next year at the same price. So, if you’re shopping around for broadband internet subscriptions, do remember that whatever speed you are paying for will be doubled soon, but with the price staying the same! 
 
Similarly when it comes to investing, remember to shop around before making your investment decision! In the process of making comparisons, be aware of and consider all related fees such as management fees, exit fees, brokerage fees, clearing fees. 
 
3. Avoid the debt trap!
 
 
As a first-timer in the working world, you may or may not sign up for a credit card. And if you do, spending with your first credit card is indeed exciting. But sometimes, you may lose track of your expenditure and before you know it, you are knee deep in debt! Remember, think before swiping. Always consider your ability to repay debts before purchasing anything, especially products that are expensively priced and allow you to pay in installments. When it comes to the convenience of installment plans, the general rule is that if you need to pay something in installments, you probably can’t afford it. With GST unchanged in Budget 2017, it is important to stay alert of your spending and avoid falling into the debt trap!
 
 

4. Opt for a moderate lifestyle

 
 
We all crave for a luxurious lifestyle, but the truth is not many of us can really afford. Learn to embrace a moderate lifestyle by accepting and maximising your financial capability. For example, if you can’t afford to own a Honda City, why not drive a Perodua Axia instead?  Being able to afford the downpayment is not a guarantee that you will be able to afford the monthly repayments, maintenance costs and annual insurance fees. The bottomline? Affordability should be the most important factor in living a moderate lifestyle!  

 

5. Always save some money for emergencies

 
In life, emergencies can hit you when you least expect it! A flat tire? Last-minute travel? Family emergency? Anything can happen! So, put aside some money from your salary every month for emergencies. If you are saving for retirement (it is never too early to start!), take note that the government is increasing to RM1,000 the incentive given to Private Retirement Scheme (PRS) contributors. To be eligible,  the PRS contributor should have a minimum accumulated investment of RM1,000 over a period of two years.
 
Happy budgeting!
 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

7 Common Money Mistakes to Avoid (Part 1)

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“I have been working for 20 years, yet I have very little cash in my savings. Sometimes I wonder where all of my money has gone” - Mrs Chong, Executive

“I have been working for 20 years, yet I have very little cash in my savings. Sometimes I wonder where all of my money has gone” - Mrs Chong, Executive


Does the above statement sound familiar? If you ask around, you are sure to find at least one person you know who shares the same sentiments as Mrs. Chong.

If you are thinking of improving your financial health, first, you need to be aware of how you spend your money and be able to recognise your financial mistakes. This will allow you to manage your finances properly. At the end of this article, you will be able to identify the common money mistakes and what you can do to avoid them.

 

Mistake #1:
Failing to Plan

Failing to plan is planning to fail. While most of us are fully aware that we need to set proper financial goals, not many of us actually plan our finances properly. It could be because we are too busy with work, family matters or other activities that we see as a higher priority. The idea of spending some time to analyse our finances may not be of utmost importance. To some, it could be a stressful event as the conclusion of planning your finances may require you to be more conservative and disciplined in your spending.

Failing to plan may result in us having to pay higher taxes, leaving our savings sitting silently in underperforming investments for years or overpaying for financial products. Since there are always deadlines to be met at work, we tend to let our finances be, thinking that it is of lower priority as there are no deadlines to meet nor is there anyone to force us to look into our financial plans. This may go on until we realise that we have encountered a serious deficit. By that time, it may be too late for us as we would require more in order to recover from our financial crisis.

It is important to note here that PLANNING is an act typically found among people who are successful in accumulating wealth, even with just a modest income.


Mistake #2:
Spending Beyond Your Means

Previously, most people shop with cash. A quick look into one’s wallet or purse would allow them to roughly gauge the balance available to spend for that day, week or month. Nowadays, most people have credit cards with credit limit more than one’s income. With just a swipe of the card, you can spend way beyond the balance available in your bank account. Apart from that, we constantly overspend due to peer pressure and consumer temptation that surround us on a daily basis. Since purchasing is made so easy, we tend to fall into the trap of impulse spending, grabbing whatever we desire without thinking through whether it is a need or a want. We are, to a certain extent, exposed to mild brainwashing with TV commercials, newspaper ads, sale circulars, and flashy shopping malls promoting the lifestyles adopted by the rich and famous, which of course involve having the latest gadgets and gizmos.

The ability to flaunt our gadgets and personal wealth not only extinguishes humility within ourselves but also makes us fall into the mistake of spending exorbitantly and unnecessarily. If we do not jump on the bandwagon, we will be considered left out of today’s scene. If we find that at the end of each month, after servicing our car loans, housing loans, credit card bills and other utility bills, the net salary that goes into our bank account is usually insufficient or in a deficit, we must realise that we have been spending beyond our means.

 


 


 

Mistake #3:
Spending Future Money

“Buy now and pay later!” This trend has become a norm nowadays and is even more apparent when we are anticipating a windfall such as the year end bonus or increment. The practice of paying for something with future money is very dangerous as we would not be able to manage our finances properly. Spending future money may result in us paying even more than the original price of the product and incurring unnecessary high interest fees or financial costs.

There are many risks that we have to bear by spending future money. For example, we may not have enough funds for emergencies such as medical bills or car mechanical problems. These emergency expenditures may affect our ability to pay for our previous commitment which we have made leveraging our future money. As such, it is important for us to have an emergency fund to aid us in times of need. This fund must be at least three times our monthly expenditure so that it leaves us with more than enough cash to spare.

Credit cards are also a common problem. Credit cards have become a must-have item in our wallet. No doubt it is a convenient item to have around; however, some of us misuse it and treat it like a passport to spending our future money at will. It has become a common phenomenon where, by just settling the minimum payment at the end of the month, you will be able to spend more now. As a result, the credit card bad debt snow-balls to an extent beyond our control.

According to a study by the Department of Statistics Malaysia on bankruptcy caused by credit card debt, the number of people declared bankrupt has increased in the last few years especially in the younger age group. There are cases where using credit card is a wise way to spend your money, for instance when buying flight tickets or making online purchases, but when you depend on your credit card to make even the most minor purchase of necessities, then you need to check your financial health.

 

Mistake #4:
Delaying Saving for Retirement

 

After working for about 30 to 50 years, retirement would certainly be welcome. Some of us even aim to take up early retirement. In order to achieve this, we need to plan our finances to make sure that we have enough savings to sustain our ideal post-retirement lifestyle. Unfortunately, if we have been delaying saving for retirement in our younger years, the profit generated from our retirement savings may be insufficient to allow us to sustain the retirement lifestyle that we want.

The idea to delay allocating some portion of our current salary as our retirement savings until we are more financially stable is very risky. As our income grows, our expenditure will grow as well. At the same time, we need to ensure that our savings grow proportionately with our income from a very early stage.

One of the best ways to ascertain that we save monthly is by practicing the “pay yourself first” concept. Instead of spending the moment you receive an income, put a portion of the money aside into a savings or investment account. This would ensure that we are able to live comfortably when we finally embrace our retirement.

 

(Continued in Part 2)

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

10 Super Saver Tips for a Financially Stress-Free Campus Life

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It’s not easy, and it’s definitely not cheap to be a student nowadays. Other than studying and completing assignments, good students also need to be able to manage their money smartly.

It’s not easy, and it’s definitely not cheap to be a student nowadays. Other than studying and completing assignments, good students also need to be able to manage their money smartly. Failure to practise good money management in campus may even disrupt your studies.

Fortunately, good money management for campus students can be easily kick-started by practising simple money-saving techniques. Securities Commission Malaysia (SC) would like to share with you 10 basic “Super Saver” tips that will help you achieve a pleasant and financially stress-free campus life! Upon reading this article, you should be able to apply these handy tips and change your own financial habits on campus.

Super Saver 1:

Practise the 10% Rule. The 10% Rule essentially means saving 10% of whatever money you have every month. So, every time you receive your PTPTN loan, MARA loan, scholarship or even allowance from your parents, make sure that you save at least 10% of it. This practice will also help you to be financially consistent and disciplined in future.

Super Saver 2:

Establish an Emergency Fund. Sometimes, emergencies in the form of unexpected incidents MAY require you to spend significant amounts of money. For example, your vehicle could break down, you may get sick and need to be hospitalised, your PC or laptop could malfunction and require expensive repairs, or you could encounter other money-related issues. That’s why it’s good to establish an emergency fund. This way, if you ever need to spend money suddenly or on short notice, you would not have to worry about where to get the money from. However, always remember: An emergency fund should be used for EMERGENCIES ONLY!

Super Saver 3:

Cultivate a habit of investing. You should start as soon as you can in order to obtain more returns from investments. Take advantage of compounding interest by saving your money in suitable investment products. Do your homework first by reading prospectuses, financial and annual reports, business magazines and more. By establishing some familiarity with the concept of investing, you can then pick and invest in the product that best suits your risk appetite, financial goals and budget.

Super Saver 4:

Price-check when you shop. By comparing prices and searching for bargains, you’ll be able to save money whenever you go shopping. Price-checking also teaches you to adopt a more careful and patient approach when shopping. The best part about being a patient and careful shopper is that you will not succumb to impulse purchases and you will always strive to obtain the best value for your hard-earned money!

Super Saver 5:

Cut up the credit card. A study conducted by the Department of Statistics Malaysia regarding bankruptcy caused by credit card debt among Malaysians showed that 50% of them are under the age of 30 years old. In other words, college students and young working adults make up 50% of Malaysians who are declared bankrupt. Whether you own a credit card or your parents “gifted” a supplementary one to you, always ask yourself: “Is having a credit card really necessary?” Remember, be responsible when using a credit card, either as a primary or supplementary holder because somebody (either you or your parents) will have to pay the bill!

Super Saver 6:

Reduce your bills. Keeping the fan in your apartment or hostel to a medium speed, switching to fluorescent, energy-saving light bulbs, unplugging electrical appliances that are not frequently used, and reducing the screen brightness level on your computer can help you save money on your electricity bills.

Super Saver 7:

Be a smart student. Print your work on both sides of the paper, buy refills for your printer cartridge instead of buying new cartridges, borrow reference books from your seniors/friends/the library, stay with housemate(s) instead of staying alone, and eat on campus more. Generally, the services and facilities provided to you on campus such as food, accommodation, photocopying services, etc tend to be cheaper than elsewhere, so take full advantage of them! Better yet, get your campus mates together and look out for opportunities for group discounts on campus such as buying reference books or stationeries in bulk.

Super Saver 8:

Take advantage of student privileges. A student card is one of the most powerful tools you can use to save money. Use it to get discounts at the cinema, bookstores, when taking the LRT, signing up for internet access, holidays, eating out, sports, entertainment and more.

Super Saver 9:

Use public transport. By taking public transportation instead of driving, you will spend less money on petrol. Not a fan of public transport? Get your friends together and carpool! You might also want to consider getting a motorcycle or bicycle to save on petrol money. Always plan your journey, and remember to travel only when necessary. For example, if the place you’re going to is very near and the weather is good, why don’t you take a walk to your destination instead of driving?

Super Saver 10:

Use the Internet to make calls. Instead of spending so much money on prepaid calls and top-up cards, how about making your calls on the Internet instead? Not only can you chat for hours, it also doesn’t cost you a cent (assuming you go to free wi-fi hotspots). If you absolutely must use that handphone, remember that it’s cheaper to SMS instead of call.

In conclusion, college or university is supposed to be about more than just studying. You should also be using your time in campus to discover new opportunities, experience new things and meet new friends. With so many responsibilities to handle, the last thing you want is to suffer financial difficulties because you didn’t manage your money properly and sensibly. By practising the ‘10 Super Saver Tips’ we have shared above, you should be able to enjoy a financially stress-free, fun and exciting campus life!

SC regularly conducts [email protected], a money management workshop designed for students from institutions of higher learning. To find out how you can attend [email protected], log on to www.investsmartsc.my.

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

7 Common Money Mistakes to Avoid (Part 2)

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Mistake # 5:Investing in the Wrong Products

Mistake # 5:
Investing in the Wrong Products

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There are various kinds of investment products in the market. Some generate low profit and are of low risk and some would allow us to have hefty profits but with high risk. However, in order for us to identify the right product that suits our investment appetite, we must take some time to understand the market that we are going into, the risk and returns, and the procedure of trading and investing. One simple way is to log on to the InvestSmart website (www.investsmartsc.my) and read the many articles about financial literacy that the SC has prepared.

There is also the challenge of spotting illegal investment products. Scammers are constantly looking for gullible investors and if we do not do proper research on where we are about to put our money, we might end up losing our investment. Aside from the InvestSmart website, there are various sources that provide information about investing. For example, you can go to the Bursa Malaysia website (www.bursamalaysia.com) to learn more about investing or visit the Securities Commission Malaysia website (www.sc.com.my) to check on the legality of an investment scheme.


Mistake #6:
Failing to Pay Off Debt

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The next best step to take after paying yourself first is to pay off your credit card debt. Although the option to pay a minimum of the debt is available, you should always try your very best to pay the full amount owed. This way you will be able to avoid the late interest charges on the owed balance. Imagine if you paid off a credit card debt that charges 18% interest per annum, you indirectly stand to gain 18% in savings annually. Not many investment products can offer a return rate that high! By paying off your credit card debts, you then can devote other portions of your cash to investments.


Mistake #7:
Focusing Too Much on Money Matters

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All the above tells us to focus on our finances. However, on the other extreme, we must also not be too absorbed in accumulating our wealth to the extent that we lose sight of other priorities in our lives. While we plan our financial health, we must not neglect our spiritual satisfaction, health, family and friends, career satisfaction and fulfilling interests. Without other contentment and pleasure, even the richest man on Earth would not be happy.

At the end of the day, we must remind ourselves to find the balance between accumulating wealth and enjoying that wealth according to our means. We must be committed in our efforts to improve our financial health. Unless we are truly committed to creating wealth, chances are wealth will remain estranged to us.

7 Common Money Mistakes and What You Can Do To Avoid Them

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© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

5 Key Methods to Educate Your Child on Appreciating the Value of Money

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As a parent, getting your child on the right track to smart financial management is extremely important, and it starts with making them understand and appreciate the value of money.

As a parent, getting your child on the right track to smart financial management is extremely important, and it starts with making them understand and appreciate the value of money. In fact, the money habits you teach them today may stay with them for life and serve them well when they become working adults. There are many different ways to help children understand money. Remember each child is different and may require a different approach to ensure that their learning is successful. 

After reading this article, you will be able to identify 5 methods that you can use in teaching your children about money.  

1. Bring them grocery shopping

As a parent, you have probably taken your child grocery shopping countless times. On your next outing, instead of just letting them sit in the shopping trolley, why not get them to do the shopping for a change? Explain your intention to your child and treat the exercise as a “grocery shopping game”. Give them a fixed amount of money, for example RM5 or RM10, and challenge them to purchase as much food as they can. To make it more systematic, you could tell them that the “food bank” needs certain essential food items such as milk and bread. The challenge will be for your child to buy as much of these items as possible with the limited amount of money given to them.

Another way of doing this is to let your child have your actual grocery list, and as they move around the aisles to shop, help them to calculate how much the items will cost as well as identify sections where cheaper priced items are available. Remember to reward them when they choose the more reasonably priced items!

2. Get them involved in the management of your budget

If your child is old enough to understand the concept of a family budget, try handing them the responsibility of being in control of certain sections or categories in it. You can start by letting them choose a single category or section to manage for a month. Choose a type of expense that is flexible, where you get to control how much or how little to spend. Examples of flexible sections in a budget include groceries and entertainment.

Let your child do his or her own research to find the most ideal prices, and let them allocate the budget in the way they feel is most appropriate. It is fine if they make mistakes such as overspending or picking an expensive brand, because this will also present an opportunity to teach them about balancing needs and wants, as well as making responsible decisions when faced with various choices in the market. 

3. Show them how to use budget tools

The Internet offers a multitude of free and paid online budgeting tools that you can teach your child to use. Here are some websites with easy-to-use budgeting tools to get you started:

If you are already using an online personal financial calculator, get your child involved in using it too. If they are familiar with playing games like “Angry Birds” and “Fruit Ninja” on your smartphone or tablet computer, budgeting would seem like just another refreshing game or challenge to them.

They can even set up their own budgets on it to plan their spending and savings. Best of all, learning to track expenses is a great way to prepare them for real life, when they will need to manage their own household budgets.

4. Take your child to the bank

Does your child have a savings account yet? If not, what are you waiting for? Take your child to the bank and show them around. As a start, open a savings or investment account and explain to them how interest earned will make their money grow. To get them excited about saving, buy them an attractive coin box so that they will look forward to putting money in it. In fact, most banks give away nice coin boxes to children who open a savings or investment account.

When the account statement arrives, attract and hold your child’s attention by emphasising how the savings has grown bigger, thanks to the magic of compounding interest. Once saving becomes a habit, your child will always think of a coin box (and saving) when he or she is given money.

5. Allow them to make mistakes (and learn from them)

Let your child make mistakes because when they are young, the amount involved is usually small. For example, if they absolutely must have a particular toy and somehow managed to save up enough money to buy it, let them do so, so that they can later experience the feeling of not having any money left to spend on other things. Then ask them whether their spending choice was a sound one.  You will be surprised, given rational thinking and pondering, that your child will eventually be able to differentiate between smart purchases and wrong decisions.

Conclusion

When it comes to teaching your child about money, it is never too early  to start. By educating them on appreciating the value of money, you will guide them on the right path towards smart financial management in future. The more opportunities your child has to work with and manage money, the more financially savvy they will become.

Let SC’s Captain Cash help you cultivate a savings habit in your child easily. Find out more about our Kids & Cash programme at http://www.investsmartsc.my/programme/kids-and-cash

 

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Planning Your Family’s Finances with Budget 2012 in Mind

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As a Malaysian, you would probably be aware of the tabling of the 2012 Budget by our Prime Minister Datuk Seri Najib Tun Razak in Parliament recently. What is your opinion of the Budget?

As a Malaysian, you would probably be aware of the tabling of the 2012 Budget by our Prime Minister Datuk Seri Najib Tun Razak in Parliament recently. What is your opinion of the Budget? At a time when most Malaysians are concerned with the rising cost of living, the Budget 2012 announcement has shifted the focus back to the rakyat. No doubt, the 2012 Budget will have an effect on all of us, especially for those with family. In this article, we will discuss how your financial management plans can be adapted according to the Budget.

#1:     RM500 Financial Aid for Households with a Combined Income of RM3,000  or Less

This announcement will surely bring smiles to many faces. RM500 may not seem like much, but for a parent, RM500 is very helpful as it can be used to buy diapers, food, and baby clothes. In fact, the money can also be used on essential items for school such as uniforms, stationeries and books. Remember! Spend the money on important items only and do not be wasteful.

#2:     My First Home Scheme (MFHS) Purchase Limit Raised to RM400,000 for Joint Loans (Husband and Wife)

Aspiring first-time house buyers, you are now one step closer to your dream of owning a house! Previously, the purchase limit under the MFHS was RM220,000 and this really limited options, especially for couples who live in urban areas. With the purchase limit increased, you can now plan on a bigger property and/or a better location. When choosing your dream house, remember to take into account various factors such as location, public amenities, the neighbourhood, distance from workplace, space, number of household members and most importantly, your budget. Even if you can easily afford the monthly housing loan repayments, do not forget that there may be other costs to bear such as service, assessment and maintenance fees.    

#3:     Full Import and Excise Duty Exemption For Hybrid Vehicles       

Do you and your family want to save money while preserving the environment? How about considering purchasing a hybrid vehicle? Hybrid vehicles are proven to save petrol (compared to conventional petrol cars) and be less polluting, especially when driven sensibly. If you and your family frequently use a car as the main mode of transport, a hybrid car could be your best choice. The Government’s decision to extend the full import and excise duty exemption for hybrid vehicles to 2013 is timely, making them more affordable and attractive to own.    

#4:     Abolishment of School Fees

This is a very important step taken by the Government, because for the first time in history, education is given free to the rakyat. Parents with many children can breathe a sigh of relief as the burden of paying school fees is now a bit lighter. Although the saved amount is small (RM24.50 and RM33.50 for primary and secondary students respectively), it is still enough to cover your child’s daily pocket money for a month. The abolishment of school fees is also something that has been eagerly awaited by lower income families with many children. If a couple had, say, six children with three of them in secondary school, they would stand to save RM174. By not having to pay school fees, you can use the money saved to buy essential school items or increase your own savings.  

Furthermore, all primary school students stand to receive RM100 in “pocket money”. When your child has received the money, do advise him or her  to save it or spend it on essential items only.

#5:     Employees Provident Fund (EPF) Contribution for Private Sector Workers Increased from 12% to 13% (for Those Earning Less Than RM5,000 Monthly)

At first glance, 1% of our salary seems like such a miniscule amount! However, this 1% increase is actually very useful to private sector workers in the long term. We at SC always emphasise the importance of planning for retirement as early as possible, and the increase under the EPF will be a boon for those plans. Add to that the fact that studies show 70% of retirees exhaust their retirement fund within 10 years, and the value of 1% becomes extremely obvious.

#6:     Citizens aged 60 and above to be exempted from outpatient registration fees in Government hospitals and health clinics      

To all citizens who are in the “golden age” category, rejoice as you are now exempted from outpatient registration fees in Government hospitals and health clinics! With the quality of facilities and medical care in Government hospitals and health clinics improving, now is the time for you to save money on medical expenses. With this move, you now no longer need to worry about medical costs or rely on your children to cover your medical bills.

#7:     A Half-Month Bonus (Minimum Payment of RM500) In December Salary for Civil Servants and RM500 Aid for Government Retirees

We have saved the best part of Budget 2012 for last, and that is the bonus and aid payment for civil servants and Government retirees. But no matter what the final amount of your bonus is, whether you are a civil servant or private sector worker, we would like to advise that you:

  • save a part of it first before allocating the balance for expenses. At the very least, try to save 10% of it;
  •  invest part of the money in a legitimate investment scheme. The Government also announced the launch of Skim Amanah Rakyat 1Malaysia (SARA 1 Malaysia) during the tabling of Budget 2012. For those interested in this scheme, you need to have a household income of less than RM3,000 monthly. You may also want to consider applying for the RM5,000 5-year loan which is being offered under the same scheme;
  • plan and manage your finances with care; and
  • log on to the InvestSmart website (www.investsmartsc.my) for helpful tips, advice and knowledge on financial management.

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Financial Success in 2011: Practise the Power of E.L.E.V.E.N.

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2011 has now arrived. So how was your financial performance last year? Were you able to successfully navigate and overcome the financial challenges that came your way? What about your investment performance?

2011 has now arrived. So how was your financial performance last year? Were you able to successfully navigate and overcome the financial challenges that came your way? What about your investment performance? No matter how well or how bad your financial performance last year, 2011 will bring a new opportunity for you to smartly plan your finances.

In this article, we shall discuss the E.L.E.V.E.N. technique/formula for successfully managing money. This technique is specially designed to help you set and achieve your financial goal(s) for the year:

E – Economise - Differentiate between your needs and wants

As an example, you don’t really need to splurge on expensive items to fulfil your baby’s needs, when cheaper options can do the job just as well. Furthermore, most hypermarkets today offer house brands – quality products that are affordably priced.

L – Live within (and make) your budget

Make a budget, and stick to it! Some parents love to create a rough budget “in their heads”, especially when it comes to shopping time. This method is incorrect. Ideally, you should list down exactly what you need to buy, and more importantly keep to the budget that you have set. Disciplined spending is very important, and this can only be achieved when you make a budget. If you don’t make a budget, there is a very high chance that you will encounter difficulties in managing you and your family’s finances.

E – Emotional Decisions are a No-no

It’s human nature to spend money emotionally when you’ve received your year-end bonus! All of a sudden, there are so many “new” things to buy – new car, new furniture, new holiday destination, etc. What you should actually be doing if you come into some extra money is to firstly put aside some money for yourself (and your family) and then use the rest to settle all your debts. In fact, if you have credit cards, this is the best time for you to settle all your credit card debts. Believe it or not, your life will be a lot more pleasant after you’ve settled those debts.

V – Vigilance – Always be wary of illegal investment schemes

Perhaps you already knew that investing is one of the best ways to grow your money. Therefore, you should only invest via licensed intermediaries, but be cautious of get rich quick and illegal investment schemes. Basically, if a company offers huge profits at no risk, the company and what it does is probably illegal. Protect yourself by ensuring that the company actually has a license to offer investment schemes by contacting the relevant authorities first. Remember, always obtain as much information as possible before you invest your hard-earned money!

E – Emergency Fund

An emergency fund refers to a sum of money that you put aside for use only if something unexpected or major happens. In general, financial experts recommend that you save about three to six months’ worth of your expenses for your emergency fund. By establishing an emergency fund, you will be able to handle financial problems with relative calm and ease. A sufficient emergency fund will also enable you to maintain your lifestyle despite the financial problems.

N – Nurture the concept of finance in your child

Often times, parents incorrectly assume that their child is unable to grasp the concept of finance or money because they are supposedly too young. This assumption is not accurate because realise it or not, a child usually knows how to mimic or copy their parents’ behaviour. Therefore, involve your children in family financial matters. One of the easiest ways to do so is to bring your child with you whenever you are doing a financial transaction. For example, bring your child with you whenever you go banking. This method will help you instil a habit of saving money in your child from a very young age.

Conclusion

Financial success in 2011 lies in your own hands! If you feel the need for some inspiration, just take a look at your lovely spouse, and if you’re still feeling uninspired, take a look at your child’s face. Do the best you can for yourself, your spouse, and your family in order to achieve financial management success. We hope 2011 will be a more stable and successful financial year for your entire family.

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

Saving vs. Paying Debts

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We live in a world with so much information on money management and financial planning available, but the majority of us are still clueless about our finances!

We live in a world with so much information on money management and financial planning available, but the majority of us are still clueless about our finances! With Malaysians owing almost RM25 billion of credit card debt (as of March 20101), it is becoming more important for them to realise the importance of saving money and paying off their debts. However, given our limited income, how do we find the balance between the two? Do we equally split the money we have or focus more on one?

This is an important decision to make because while having a savings account is a way to plan for the future, becoming debt-free is an excellent strategy for creating long-term financial health. At the end of this article, you will be able to identify steps you can take to assist you in finding the balance between saving and paying debts.

Step #1: Build a Safety Net

Before you decide whether to save or settle your debt, the first step that you need to take is to build an emergency fund. This should be your first savings goal, ahead of saving money for your house, children’s education and even retirement. Regardless of whether you are a newbie to saving or already have a basket full of money, having an adequate amount tucked away in an emergency fund will give you peace of mind knowing that your safety net is in place.

An emergency fund is important because it can keep you from falling into debt when financial emergencies strike; including job loss, health emergencies, automobile repairs and home repairs. Remember that this money is not for vacations, large purchases or other “wants”.

So how much should you save? Most financial experts recommend that you save about three to six months’ worth of your living expenses. As your income grows, add to the account so that you always have six months of living expenses set aside. Finally, always replenish your emergency fund once you have used it. It may feel overwhelming at first, but once you are back on your feet after an emergency, start saving again.

Step #2: Reduce Your Debts

Once you have your emergency fund established, it is now time to shift your attention to the hole in your pocket: DEBT. Given your limited income, you will have to use part or all of the money you would have continued putting aside for your emergency fund to pay off your debt.

What about your savings, you may ask? Well, adding more to your savings while you have debts does not make much sense. Most debts have much higher interest rates than those of standard savings accounts at banks. Therefore, you will lose more money on the debt than you will gain from the savings account. In other words, if you have debt, then your savings have already been spent!

For example, let’s say you have RM6,000 in a savings account earning 2% per year and RM3,000 on a credit card debt at an interest of 18% per year; how much money would you have after five years? Zero – you would lose all of your savings and still owe RM200 because your debt would have grown to RM6,800, while your savings only added RM600.

Another option is to invest the extra money instead of automatically paying off your debt. Find an investment product that may give your high returnand use the profits you earn to settle your debts. However, please note that investing your money comes with potential loses, depending on the risk level of the investment product of your choice.

Even if you choose to invest your money, your main goal is to settle your debt. Therefore, which debt should go first? The general rule of thumb is to pay off the debt with the highest interest rate such as credit card debt, personal loans and car loans. Leave the housing loans and education loans for last as these usually have lower interest rates and are considered as “good debt”. In any case, the credit card debt must be the first to go. At the end of the day, always remember to compare the interest rate of your debt with that of your savings and/or investing returns.

Step #3: Build a Nest Egg

Once you have settled your main debts, you can once again start focusing on increasing your savings. Set aside a certain amount of money every month to be put into your savings account (also known as the “pay yourself first” principle). If your employer allows automatic monthly salary deductions, do it so that you will not forget to transfer the money.

Furthermore, now is when you should start looking into investing your money, i.e. making your money work for you. You can tap into your savings and invest in investment products to help you generate income. Which investment product you choose will depend on your investment objective and risk tolerance. Last but not least, you should always monitor your investments to ensure it is relevant to your expectation.

With the three steps mentioned above, you can now begin finding a balance between saving your money and settling your debts. Do remember that saving, investing and settling of debts are all long-term activities that are linked to your lifestyle and other financial commitments. Achieving the balance between the three, more often than not, involves changes to your lifestyle and that is never easy. However, if you want to live your life to the fullest, finding that balance between saving your money and paying off your debts is the key. To further assist you, here is a simple illustration of the whole process.

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].

When Baby Makes Three – Financial Planning for Parents-to-be

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For newlyweds or those who have been comfortably living married life as two, embarking on the journey of parenthood can be exciting yet sometimes scary.

For newlyweds or those who have been comfortably living married life as two, embarking on the journey of parenthood can be exciting yet sometimes scary. Your little family is now about to become three and life as you know it is about to dramatically change.

Amidst the anticipation of receiving the newborn, most couples tend to overlook the expenses that come along with the little bundle of joy. Things that used to seem unimportant before are now making their way to the top of your priority list, from putting aside money for diapers and milk to planning funds for college education. Realizing the need to take time and plan your family budget early can help eliminate the shock that occurs to many new parents when they notice the cash flowing steadily out of their pockets.

At the end of this article, you will be able to identify steps you need to take to plan your finances according to current needs in light of the family’s new addition.

Baby-steps towards managing your family money

Step 1 : Know your financial status

Ask any parent and you will know that the needs of your newborn takes precedence among other things. However, you must ensure that your current financial commitments are still taken care of as they too are part of your responsibilities. When discussing the issue of financial status, keep in mind that the new expenditure additions are not just for buying necessities such as baby clothes and diapers, but also for pre and post maternity expenditure for the mother.

Step 2 : Create a check list

This is one of the most helpful and useful things that you can do to jumpstart your financial planning. You and your partner should list down items or services that you think you would need according to category such as baby travel gear, furniture, bathing and feeding necessities and so forth, so that you are able to trace if there are any important items that you might have missed out. Don’t forget to also list down an emergency category such as the sudden need for cesarean section birth or other medical related expenses.

Step 3 : Browse for the best prices

When shopping with your check list, don’t jump and grab the first item you see. Take time to browse and compare brands, making sure you jot down the prices next to the items in your list. Try not to be swayed by big names and branded goods. More often than not, you can find similarly good quality products without having to pay as much as the better known brand. While browsing, take time to ask the sales assistants on the usage of the items you are looking at. Sometimes, the items you think you need as soon as the baby is born can be put off until later when the baby is older.

Step 4 : Buy only what you need

Now that you’ve done your browsing, go back to your check list. By now you would have an idea of the things that you really need when the baby comes, and those that you can put off to buy later. Strike off the items that you don’t need for now, or put a KIV note next to it.

Step 5 : Put your KIV items on a wish list

Generally, friends and family love getting gifts for newborns. Sometimes, due to the sheer amount of baby stuff available out in the market, they just don’t know what to get you and end up buying toys or other things that you can do without. Therefore, create a list of items that you want for the baby and indicate price along with place of purchase. Next, announce the wish list via communication points such as emails, blogs or social networks so that they can go out and buy it for you.

Now that you know how to tackle the current issues, keep in view the upcoming expenditure that is for sure to occur such as the baby’s monthly medical checkups, baby sitter or nursery fees and domestic help wages. It is also wise to start exploring possible investment options for your child’s education fund. By investing money for their education, you are not only securing your child’s future but your future as well.

With all the above set in motion, you can enjoy your experience of becoming new parents without having to worry about financial surprises along the way.

© Securities Commission Malaysia (SC). Considerable care has been taken to ensure that the information contained here is accurate at the date of publication. However no representation or warranty, express or implied, is made to its accuracy or completeness. The SC therefore accepts no liability for any loss arising, whether direct or indirect, caused by the use of any part of the information provided. The information provided is for educational purposes only and should not be regarded as an offer or a solicitation of an offer for investment or used as a substitute for legal or other professional advice. For enquiries regarding sharing, republishing or redistributing this content please write to: [email protected].