1. Plan a budget and be ambitious about the savings goal you wish to reach at year end
Well, you would have probably heard about this. There is a universal formula that many financial advisors are advocating.
Expense = Income – Saving
On a brief note, this formula tells you that the amount you can spend each month depends on the amount you wish to save. Instead of finding out how much expense you intend to incur each month, your first priority should be determining the amount you wish to save every month.
This formula is good for correctly pointing out the mindset you should be having when planning your budget. However, we see budget planning as an ongoing cycle where you need to constantly adjust the amount of expenses and savings to finally reach an equilibrium point between the two. That being said, you should be more willing to increase your savings over time instead of matching it with the expenses.
2. Don’t upgrade your standard of living too soon
A monthly salary of RM2,100 – RM2,500 does not seem enough only if you are trying to stretch your budget too thinly. Many have been asked or have imagined about what they would like to buy for themselves after getting their first real job.
While we doubt the feasibility of buying a property in the first few years of work, most of the time the common answers to this question would go like this: “xxx-branded car” or “xxx-branded smartphone”. Many of us selectively blind ourselves to the fact that buying these expensive items would cause a strain in our budgets.
So what do we mean by upgrading one's standard of living? It probably includes one or all of the below:
a) Going for a constant stream of parties
Your friends may be asking you out constantly for extravagant parties or celebrations. Imagine if you spend RM50 each time you head out, approximately 10% of your income will be gone by the end of the month.
It all boils down to your choice on resisting it or suggesting a less pricey option for the next meeting. Meeting at the local mamak seems like a good but less healthy choice, though!
b) Paying for a pricey telco + phone package
When it comes to selecting the right mobile plan, there are so many different packages with seemingly different values. Deciding on one might be easier than you think though. Do you really need that RM100/month plan that comes with 20GB of mobile internet data?
What we are saying is, resist the temptation to join in with the rest of the crowd in choosing the most fancy plan; for all you know, the RM38 plan with 4GB of mobile internet data is more than enough for your needs!
c) Shopping for a host of unnecessary items
In our definition, unnecessary items are goods that you already own and having more would not make you any more of a better person after buying them. Clothes, shoes and bags can be some useful examples for necessary daily items – you're not about to walk around town stark naked!
However, to own a pair of new Nike shoes or the latest iPhone (while it can be very tempting) does not give you any intrinsic added value, unless it is somehow a part of your essential tools to make money.
d) Buying a brand new car
With RM2,100 – RM2,500, there can be no reason to justify why you should buy a brand new car. While we acknowledge the fact that taking public transportation in our country can be quite a hassle, we are of the opinion that a second hand car can offer more than its lower price tag.
Comparing the decision to buy a second hand car at RM15,000 vs a brand new car at RM50,000 and assuming that both of their values would drop by 50% after three years, the magnitude of the value depreciation for both cars is significant indeed. Using some calculations, the difference in the depreciation of the car values works out to be (RM25,000 – RM7,500) = RM17,500. Imagine what you could do with that much of money!
3. Investing does make a difference
What we would like to advise you is not only to be disciplined enough to save money, but also to be ambitious enough to put your money into a high-yields savings account or to invest in other financial products. By saying so, we could tweak the formula mentioned above by a little:
Expenses = Income - Investment
Among all financial products, a fixed deposit is probably one of the safest investments, but an interest rate of 3% – 4% may not be enough in the long-run to ensure your financial freedom in the future. Thus, for those with limited financial knowledge, you could put in more effort during your free time to pick up knowledge of investing through self-study and workshops.
Meanwhile, you could allocate funds every month to unit trusts with a solid past record. Do take note that even though unit trust managers are helping you to manage a portfolio of securities, you should help yourself in selecting and buying several unit trusts of different asset classes to diversify the risks. For a conservative beginner, investing 70% of your funds in fixed income class and the rest in equity class can be a good starting point.
For many fresh graduates, the thought of entering the workforce during an economic slowdown can be daunting. Compounded by the rising costs of living, it's no wonder many are finding it difficult to even get by in life. However, we believe that the discipline to follow a strict money management plan will definitely pay off.
Remember that success does not come to those who wait for the perfect moment, but it comes to those who endure and overcome all the challenging moments. Good luck!