Salary Hike : 5 Steps Towards Financial Freedom
Some 1.6 million civil servants are in for good news as our Prime Minister announced the new salary adjustment mechanism, in which those in the implementing and professional group will receive a 15 percent salary increment effective December 1, 2024.
The civil servants in top management and professional roles will see an increase of 7 percent.
This follows a salary review of civil servants under the new Public Service Remuneration System (SSPA). The increment will be implemented in two phases: the first will be in December this year, and the second will be in January 2026.
The move to raise civil servants' salaries is the highest rate in the country's public service history. The last time a new rate of civil servant salary increase was introduced was in 2013, with a 13 percent increase.
Of course, this is good news for all involved, as they will have extra money to live on. When enjoying a salary increase, surely many of us start thinking about improving our lives. However, it is better to take careful steps to manage finances, especially in today's uncertain economic environment.
Salary increments do not always happen, so it is important to manage the extra money well to build a better life. As such, the first and most crucial step that you need to do is to reassess your current financial situation and create a budget based on your newly received salary.
While developing your new budget, you should consider the following:
1. Invest to Build an Emergency Fund
The most important step is to start investing if you have never invested or increase the amount of your existing investment if you have already invested.
With a more than 15 percent salary increase, you should invest at least 5% of your new salary to build an emergency fund or retirement fund.
A suitable investment destination for long-term savings must be low-risk, provide stable returns, and have high liquidity, such as Amanah Saham Bumiputera (ASB) or Amanah Saham Malaysia (ASM).
2. Pay off debt
Suppose you have unsettled debt, especially credit cards, personal loans, or other debts such as Buy First, Pay Later (BNPL) and study loan. In that case, this is the best time for you to reorganize your debt by paying it off.
Credit card debt and personal loans charge high interest rates, and the outstanding debt balance that fails to be paid off will be compounded every month.
Therefore, prioritize paying off debt, especially credit card debt that has piled up by making monthly payments of more than 5 percent. Did you know that by paying only 5 percent of the total credit card debt each month, you will never be able to pay off your credit card debt, and your debt will keep on adding up over time.
By paying off existing debt, you will have more cash at hand to generate more income via investments.
Avoid: Adding bad debt, such as taking loans to buy furniture and cars or for expensive vacations to fulfill one's needs and enjoy a luxurious life.
3. Invest to Diversify Sources of Passive Income
Suppose you already have a comfortable financial standing, with an Emergency Fund representing more than six months of your current salary, a Retirement Fund that is already strong in numbers with stable returns, and your debt is under control. In that case, the salary increase allows you to further diversify your investments to generate passive income.
However, this investment should be done cautiously, as you can choose to invest in medium—to high-risk investments for a higher return. As you can lose your capital, be more discreet when making investment decisions.
Among the investment instruments you can choose are gold, unit trusts, or the stock market, and buying a house for rental.
Avoid: Investing in investment schemes that offer high returns but are not known to be valid. Check the Bank Negara Malaysia website for a list of authorized companies.
4. Enhance Personal Skills
You can also work on honing existing skills to generate additional income with the extra money available. If you are interested in becoming a writer, you can sign up for a professional writing class. If you are interested in photography, you can join a photography class. If you want to create content, you can enter a digital marketing class.
In today's digital world, soft skills can help you generate income without breaking your bones completely.
5. Improve the Quality of Life
You can set aside some money for health expenses, including subscribing to insurance if you don't already have it, buying healthy food and exercise equipment, or making time for exercise and leisure activities.
Remember, health is wealth; therefore, investing a little money to improve the quality of life and health is very important to ensure that you stay healthy in the long term and do not need to allocate a lot of money to finance treatment alone.
Avoid: Spending more on lavish lifestyles, such as eating at fancy restaurants and buying designer goods.
Ideally, the salary increase you receive will improve your financial position and that of your family. However, if you don't manage the extra money you receive from the salary increase wisely, you may not enjoy any long-term positive effects on your finances and life.
