Still Young? These Financial Tips Are for You

When it comes to young age, most of us envision the age range of 18 to 28 years, which marks the beginning of our independent lives after completing schooling or higher education.

Some of us enter the workforce after finishing high school, while others continue their studies to higher levels, such as certificates, diplomas, and bachelor's degrees.

Regardless of the choices made after completing Form 5 or 6, it is essential to start focusing on managing our money wisely, as it is the only way to live a comfortable life.

The young age should not be squandered by accumulating unnecessary debt; instead, it should be used to build savings and wealth. Remember, the power of compound interest will only benefit those who start early.

How can you manage finances wisely?

Here are seven elements that you need to focus on :

1. Create a Budget from Your First Salary

A budget is a simple document that will help you monitor the inflow and outflow of your money. Let's say your monthly salary is RM1,500. Record this amount as your income while categorizing expenses and commitments as your outflow of funds.

To manage your finances effectively, prioritize investments, necessities, and bills such as electricity, water, and telecommunications in your budget.

Since debt is not a necessity, it should not be part of your budget since you just started to live independently unless you have taken a PTPTN to cover your education costs.

Budgeting apps like Spendee can be used to create a budget and track your expenses. These apps will also assist you to view your spending habits.

Ensure that your budget is debt-free for at least six months to a year and has an allocation for investments, even as low as RM50, to build an emergency fund.

2. Investing

It would be best for you to adopt a lifestyle of 'investing first before spending' to align yourself with the latest trends in managing money. The practice of investing only if you have a surplus has long been abandoned by those who are wise in managing their finances.

Since you're still young and have little commitment, it is recommended that you allocate a minimum of 10% of your income toward investments. Setting an objective to have at least six months' worth of your salary in your emergency fund is essential.

Investment is not an option; instead, it is a necessity, much like your obligation to pay electricity and water bills.

Make your salary work for you by investing in low-risk investments such as Amanah Saham Bumiputera (ASB) or Fixed Deposits to build your emergency fund.

You can invest in ASB up to RM300,000, and the invested amount will receive annual dividends, allowing your money to grow yearly. The power of compounding interest will grow your investment if the capital and dividends are not withdrawn.

As such, set your goals and prioritize investment to make it a reality, be it to build an emergency fund and afterward for your wedding, to buy a dream home, or to travel the world.

For example, suppose you want to get married in five years with a simple wedding dream. With a monthly investment of RM500 and an annual dividend of 5%, you will have around RM34,000 in your account.

Keep investing even after achieving your dreams, as our life is a long dwindling road, and only through investment will you have the opportunity to enjoy a comfortable life and build wealth.

However, strategize your investment carefully and only choose to invest in high-risk investments such as Forex, Bitcoin, or the stock market once you have enough emergency funds and knowledge to maneuver the risk.

3. Manage Debt Wisely

Have you ever realized that nobody would have a debt until we created one to satisfy our needs and wants, mainly when we use credit cards or personal loans?

Debt is the root of many financial problems, and some get too burdensome to the extent that they barely have enough to eat as they struggle to pay their loan commitment. The reason is that their loan commitment is beyond their financial capability. As such, most of their income goes to the bank instead of themselves or their family.

Therefore, manage your loans wisely by avoiding using credit cards or personal loans to finance your needs, such as buying branded goods, taking vacations, indulging extravagantly, or just showing off. Refrain from doubling your commitment by taking 2 loans for one purpose, such as a personal loan for a deposit and a home loan to buy a house.

Accumulating debt could be stressful as it mainly involves a lengthy payment period; as such, you need to carefully evaluate before making any decision by looking at the interest rate, loan period, monthly installments, insurance, and also terms and conditions.

So, if possible, only take loans to buy a house or a car, but remember your debt-to-income ratio should be less than 40 percent of your salary.

4. Generate Side Income

The best time to hustle is when you are still single and young, and as such, use it to seek additional income to add to your investment.

Side income will add significantly to your capital so your investments can grow faster. Currently, there are many platforms that you can use to generate additional income, such as creating a blog or website, being active on social media and YouTube, selling images on websites like Shutterstock, or working part-time for food delivery services like Food Panda or Grab.

As it is only a side job, you can work independently to fill your weekends and spare time.

5. Take Takaful/Insurance

Many fail to see the importance of getting Takaful/Insurance from a young age as they do not recognize its significance.

The advantage of getting Takaful/Insurance while young and healthy is that the monthly premium is still reasonable and within capability.

Takaful/Insurance is essential to protect your financial resources in unexpected circumstances, such as accidents that affect your ability to work, including covering medical bills and compensation.

Ensure you choose the right policy and do not pay excessive premiums. Therefore, seek opinions from several insurance agents before making any decisions.

You must pay the monthly premium as the coverage can automatically end unless you pay it for a certain period, and you will not get any compensation from it.

6. Pay Income Tax

Learn about income tax and how to manage your expenses wisely to assist you in minimizing your payable tax and eligible for tax refunds.

Ensure that you know these 4 elements: tax exemptions for specific investments, deductions, reliefs, and tax rebates.

These are crucial as every investment, expense, or contribution will allow you to make a claim during an income tax assessment, thereby reducing the amount of tax payable.

Since most of us already pay monthly taxes through monthly Scheduled Tax Deductions (PCB), failure to submit our tax assessments to evade paying tax will put you at a loss as you cannot get a tax refund if you overpay your tax via PCB.

Only via tax assessment can we claim for the incentives offered by the government, and as such, if we fail to do so, we will not be eligible for tax refunds, if any, causing us to lose out.

7. Learn Financial Planning and Investment

Learn about financial planning and investment by familiarizing yourself with concepts such as interest rates, dividends, the relationship between risk and return, and many other principles that will help you to make wise financial decisions.

Many financial problems arise because most of us lack the knowledge to manage our finances wisely. What you can do is to always keep learning, as continuous learning ensures that you can make the right financial decisions whenever needed.

Among the websites that you can follow is ASNB Academy, which provides various knowledge and information related to financial planning.

Key Takeaways:

1. You can manage your money better if you start from a young, starting with investment and avoiding unnecessary debt.
2. Try to earn extra money for your investment, as compounding interest will help grow your money significantly if the period is extended.
3. Living within your means is the only way to live a comfortable life.