10 Complete Guide To Manage Your Personal Finance From A-Z

10 Complete Guide To Manage Your Personal Finance From A-Z

A recent statistic revealed that more than half of Malaysians find it difficult to survive on their savings for more than three months if they lose their source of income. This shows how unprepared Malaysians are for emergencies. 

Well, everyone is capable of managing money if it is done correctly. But before we share tips on how to improve your financial habits, make sure to start with the right attitude. Yes, the right attitude is important because if you are not financially disciplined, even the most powerful formula cannot save you. So, here are 10 tips on how you can manage your personal finance better:

1. Create a budget

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Firstly, create a budget of your own based on budgeting formulas that you can follow easily. Take for instance, the 50/30/20 rule. Basically, divide your income into three categories – 50% for needs or necessities, 30% for wants, and 20% for savings or debt repayment. Half of your income goes to basic necessities like food, utility bills, house maintenance, etc., while 30% of your income allocate it for your discretionary expenses like entertainment, vacation electronics, and so on. The final 20% fraction goes into savings. It could be for investment or saving up for your emergency fund.

2. Track your expenses

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Every small expense counts, and if you don’t keep track, it can cause you to blow your budget. You can start tracking your expenses the old fashion way by writing them down in a notebook or using budgeting apps to help track your expenses. Tracking down all of your expenses helps you be aware of what you have been spending on and how you can cut down on your expenses. Here is a list of free budgeting apps that you can download to plan your spending.

3. Build up your savings

pengurusan kewangan peribadi
Photo credit: Freepik

It is essential to build up your savings, little by little, even if it is going to take time. By doing this, you are also creating an emergency fund for yourself to dip into whenever unforeseen circumstances happen in life. Experts also suggest preparing an emergency fund that is worth 3 to 6 months of your salary. 

For every month, try to allocate some portion of your money into your emergency fund. For instance, the 50/30/20 budget rule suggests that we should allocate 20% of our income into savings. For example, if your salary is RM3000, you need to save at least RM600. If you feel that 20% is quite overwhelming, start saving with 10% and slowly increase the amount at your own pace. Just keep going and don’t give up! Here’s 6 ways to build and save for an emergency fund.

4. Use multiple bank accounts

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We would advise you to set up two bank accounts, one for you to use and one to save. Leaving all your money in one account can make it easy and convenient enough to spend it all at once. Plus, it would be hard to separate your spending expenses from your long-term savings. 

If you are successfully saving a good amount every month, you can consider opening an account with a higher interest rate just to keep your savings. This way, you are earning interest by just simply saving money. For reference, UOB Stash offers a bonus interest of 0.5% per annum when you maintain or increase your account balance every month and 2.3% per annum when your balance is above RM100,000.

5. Know your needs and wants

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You need to learn how to balance out your needs with your wants. Of course, everyone’s categorization of needs and wants are different. At the end of the day, it’s all about perspective and how well you manage your money.

For instance, if needs are something that you can’t eliminate or reduce, try reducing your wants. For example, the original price for a pair of sneakers is RM100, and the sales going on is 2 for RM160. First, you are only saving RM20. Secondly, you do not need two pairs of the same shoes. 

So, the next time you see something you really want to buy but feel like it’s a little bit expensive and over your budget, wait it out and give it a week. This will provide you with perspectives and allow you to re-evaluate whether or not it’s really worth the money. 

6. Paying down your debts

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There are two easy methods to manage your debt via debt avalanche and debt snowball. 

Debt Avalanche

This method focuses on paying off debt with the highest interest rate first while making the minimum payment for all the other loans. Then focus on paying the debt with the second-highest interest rate. Repeat the entire process until you successfully pay off all your debts. This method would benefit you by reducing the amount of interest you pay and also the repayment period.

Debt Snowball

This method focuses on making large payments for the loan with the smallest outstanding balance, then making minimum payments for the rest. This allows you to pay off the smallest debt first and move on to the others. This approach is said to give you a sense of progress, as it acts as a motivation for you to keep tackling the rest of the debts.

For example, imagine these are your current debts, 

RM7,000 credit card at 16% p.a.
RM12,000 car loan at 3.5% p.a.
RM6,000 student loan at 1% p.a.

Using the debt avalanche method, you would pay off your credit card first. You would be paying RM2955.61 of interest in total and be debt-free 31 months faster than using the normal method. Using the debt snowball method, you would be paying RM4562.11 of interest in total over the span of 6 years. The difference is significant because of the credit card’s interest. However, what works for some people won’t necessarily work for you, so you need to find out which will motivate you to pay your debts on time and go with it.

7. Learn how to refinance or consolidate your debts

cara overlap loan
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Refinancing and debt consolidation are two strategies that allow you to change to a better loan with a lower interest rate and lower monthly repayments.

Debt consolidation means combining all of your existing debts into one single debt. This could help to lower your monthly payments and reduce the overall interest rates. For example, you have a few credit cards debt with different outstanding balance and different interest rates, high-interest rates such as 18% p.a., you can choose to take out a personal loan with an interest rate of 4.5% p.a. to pay off all of your outstanding balances at once. Two obvious benefits from doing debt consolidation are that you get to reduce your monthly repayments and focus on paying one installment. Should you consolidate your debts with personal loan? Read this.

Debt refinancing works by replacing an existing debt with a new debt with more favorable terms such as a lower interest rate. Other than taking advantage of a lower interest rate loan, it can also help to reduce the monthly repayment amount because you are stretching the repayment period. The reasons why borrowers refinance are to get a more affordable loan and to pay less interest. You can consider refinancing if you now have a better credit score and wish to switch your rate type.

8. Keep your credit score healthy

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A credit score is what measures your creditworthiness. It’s based on your credit history which records all of your loans, outstanding balances, repayment history and other credit information. 

In Malaysia, we look at your CTOS reports to check your credit score. CTOS, it is a privately managed leading Credit Reporting Agency (CRA). They also provide credit reporting and retrieves data from public sources. 

Having a healthy credit score indicates that you are a responsible and diligent individual who pays their bills on time. This will lower your risk as a borrower and banks will feel secured and well assured about lending you money. This will open up to higher credit card and loan approval chances, faster loan approval, and also the best part of it all is loans with lower interest rates. 

Click here to read more about CCRIS and CTOS.

9. Consider investing

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It is a misconception that only the wealthy can do investment, and not all investments are risky like the dramatic stock market crashes you see in movies. Some of the low-risk investments in Malaysia include ASB, PRS, EPF, high-yield savings account, and bonds.

Amanah Saham Bumiputera (ASB) is a fixed-price unit trust and long-term investment open for all Bumiputeras in Malaysia. ASB is a kind of unit trust fund where the fund manager uses the money from various investors to invest and generate returns. It is RM1 per unit and the minimum amount of investment you have to make is RM1.

For Non-Bumiputeras, you can check out Amanah Saham Malaysia (ASM). Both are managed by Amanah Saham Nasional Berhad (ASNB), and since there are different returns and investment holdings between the different funds, you can choose to invest in more than one. 

Another way to save while investing is by contributing to your retirement scheme. There is EPF (Employees Provident Fund) and PRS (Private Retirement Scheme). While EPF is compulsory and government-owned, PRS is a voluntary long-term savings and investment scheme managed by private companies. You can check out the list of providers here.  There are different PRS retirement funds such as growth funds, moderate funds, and conservative funds that you can choose depending on your needs, goals, and risk appetite. 

Other low-risk investments are high-yield savings accounts and bonds. These savings accounts offer interest rate ranges from 2% to 4.75% annually, you can check them out as they all have different terms and conditions that would suit different people with different spending or saving habits. Bonds are security representing a loan.

When you invest or buy the bond, you are loaning your money to the bond issuer and they will do their own investments in other funds and so on. You hold onto the bond until the maturity date and collect interest payments from the issuer. Once the bond matures, you may get your money back by selling the bond (even at a higher price), depending on the market value at the time.

10. Remember to claim your income tax reliefs

LHDN logo is seen at its branch in Damansara Perdana AZHAR MAHFOF/The Star (This photo is for archive news desk and biz desk) (Inland Revenue Board)

Tax relief is a system set by Lembaga Hasil Dalam Negeri Malaysia, LDHN, where taxpayers are allowed to deduct a certain amount from their tax payables. Some of the relief types include life insurance, medical expenses for your parents, individual education fees, purchase of laptops or smartphones. Tax reliefs allow you to reduce your chargeable income, which affects the tax rate you are charged with. If you plan it well, you will be able to save a significant amount of money.

It works like this, let’s say your annual income is RM46,000. Throughout the year you have tax relief related receipts that total up to RM6,000. Your annual income now becomes RM40,000 and your income tax will then be charged based on the revised amount.

Want to claim a bigger tax refund but don’t know what can be claimed? Here’s a list of all the tax reliefs, deductions, and rebates that you can claim for the year to maximize your tax refunds. You just have to remember to keep the receipts! 

Summary

Financial literacy is an important skill to hone. It is not difficult, but you need to get started and put in the effort to make changes. Start small and start simple, a little bit along the way can prevent a major crisis from happening. Make the choice to start implementing these tips step by step and you will thank yourself in the future.

If you are ever in need of personal financing, don’t hesitate to check out some of our most attractive terms and affordable rates koperasi and personal loan here at Direct Lending. Enjoy reading contents like this? Don’t forget to follow us on our blog and Facebook for more updated content on personal finance tips!

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