Congratulations! You are now officially entering the real world. *a big round applause for you and your hard work in the past few years*
It’s the first year after graduation that you will be learning the true meaning of adulthood – including managing your own finances. Gone are the days where you can just ask money from your parents and let them do the math for you. Unfortunately, colleges and universities do not teach you how to manage your money (which IMO they totally should have established this as a real subject!), which sucks, because it only cultivates ignorance in today’s young Malaysians.
But fret not, I have put together a guide for the fresh grads on tips and tricks to manage your personal finances. Since many of you might have zero ideas about the financial world, I will try not to bombard you with all the confusing finance terms and concepts. Instead, I will give you the basic ideas on the Do’s and Don’ts so you can put them to use now.
Before I jump right in, grab your coffee and answer these 2 questions to get a deeper understanding of your personal finance situation.
- How do I view my money?
- What is my money goal?
For question 1, think about what does money mean to you. You have to fathom the value of money in the first place in order to be committed to managing it the right way. Some people grew up in a family where money is all about tight-stringed budget, thus they might be extra sensitive on the in and out of their money. Some lucky peeps are born loaded, which might also mean that money, in general, is not so much of a problem in their lives. Note that I’m not saying everyone’s situations do the same in shaping their views of money because there are also lots of other factors to be considered. If money only means parties or branded items in your college days, it is time to adjust your view.
As for question 2, think of a short-term and a long-term goal you want to achieve with your finances. Let’s say, your short-term goal is to be able to pay off your car loan and you want to achieve financial freedom in the long term. Set goals today and take small steps in your day-to-day life to reach these big guys. Now that you have answered these 2 questions, I will take you to the next steps.
Your first job might not be the most high-paying job since we all know how *cough-little-cough* young Malaysians earn these days. Many people say “rilek lah, you are still young, go ahead and experiment with different jobs in the beginning of your 20s.” But I don’t agree with it, I think your first job is just as important when it comes to building your career and your future finances.
What to do:
- Don’t feel the need to rush into a job that does not match your goal or that you know you will hate just because “everyone else has a job but I don’t”.
- A lot of entry-level jobs might not require investing as much time and energy as the seniors’, so it’s the best time for you to explore other income opportunities.
- While your job gives you active income (you get paid for your time), you should also look into ways that bring you passive income (automated income that does not require you actively doing anything). Basically, active income = you work for the money and passive income = your money works for you. Take some time to learn about passive income, this is where the magic happens.
- All in all, you want to have multiple streams of income because you don’t want to get yourself into the situation of being penniless when you get laid off or unable to work due to health condition etc (touch wood yikes!).
I can’t stress this enough, save your money! What’s the point of earning money when you don’t get to save some for your future self? Many people have the habit of saving only what’s left after all the expenses, but that shouldn’t be the way, because let’s be real, if you convinced yourself you need to spend money on gifts because it’s your BFF’s birthday, H&M dresses because they are on sale, iPhone 7 because all cool people own one… I’d say you are lucky if you have leftover to save.
What to do:
- You need a separate account for your savings. Set up automatic fund transfer from your salary account to your savings account the day you get paid. Automate your savings so you will not get tempted to blow up all your money once you see your salary hitting your bank account. Let’s say, if your imaginary friends Michelle and Aisyah both earn the same amount of money, but Michelle save only what’s left after all her expenses (think about the “occasions” where she convinces herself she needs a pair of new shoes, expensive dinner, gifts etc) while Aisyah is committed to putting away 20% of her salary every month into her savings account and being prudent with her expenses, you will see the difference on their total savings after 6 months. I’m not saying that Aisyah’s lifestyle is definitely the best, but when you see the numbers at the bottom line, which one do you prefer?
- Thousands of financial experts say this: build your rainy day fund. And there’s a reason why they say it. There are varying opinions on how much you should save. Some recommend having a fund at least 3-6 months equivalent to your expenditure, and some suggest 6-12 months. Decide what suits you the best.
- After feeding your rainy day fund, you also want to start saving for your investments which I will talk more about under investing section.
- You may want to read my “8 ways to save extra bit of money in your daily life” here and here.
Live within your means. What a popular saying. If you never hear this, you have to repeat after me, now – live within my means. Great. The idea is you want to spend less than – at least equal – to what you earn each month. People who earn RM3,000 a month but brought themselves into RM4,000 debt because of the pressure of upgrading to a better smartphone should teach themselves how to manage their money wiser.
What to do:
- Create a budget for yourself and stick with it. Spending money is about priority. Which one is more important to you: stashing cash away and putting it into your retirement fund or blowing your money on every week’s TGIF party? You may click here on the simple formula to use to allocate your money before spending it.
- If you ever get tempted to spend on something unnecessary, you can consider using this one simple step I use every time my mind is battling. Cutting your expenses here and there can go a long way.
- You might at this point have some kind of student loans like PTPTN. The first thing you want to tackle when you started getting your income is to pay off any debts you carry with you. Remember that you will receive a 15% discount if you pay back your PTPTN in full or 10% if you pay back in half at one go or agree to automatic salary deduction. Read more here. My tip is, if it’s possible, borrow money from your parents and pay off your student debt at once to get the 15% discount, then pay back to your parents each month without interest. (I assume that your parents won’t ask for interest, if they do, negotiate with them or pay back in some other creative ways!) When you are debt-free, you are one step forward towards your financial goal.
- A credit card can be a useful tool if you’re financially-savvy enough to know how to take advantages of it. It gives you tons of perks like discounts, cash-backs, frequent flyer miles etc. But I would not recommend applying for one unless you know you are disciplined enough to pay off in full every month. Getting yourself into a deeper debt is the last thing you want to do to your finances.
Now comes the “scary” but necessary part of managing your money – investing. I know the word itself is intimidating and terrifying, and you probably think that investing is boring and is only for some older guys who read Business Times every morning in a café or for the financial experts who are good with numbers and figures. The fact is everyone can invest, even children can do that – with the help of their parents of course. When you have your finances in shape and you have built up your war chest of savings, it is time to consider investing for your future. You want to make more out of your money.
What to do:
- First things first, invest in yourself. Before jumping the gun, you have to spend money on developing and growing yourself because it will be the best ROI (return on investments) you will ever get. Read books, attend seminars/webinars, take courses… in short, educate yourself. There are many articles out there on this topic alone, so go ahead and Google it.
- There are different options on where you can invest your savings depending on your risk tolerance. The most common one for the first-time investors is Fixed Deposit or FD for short. The returns of FD are guaranteed but smaller, so it is considered low-risk investment, and safe to say it is one of the safest ways to invest.
- If you’re a Malaysian Bumiputera, you can consider invest in Amanah Saham Bumiputera (ASB) which gives quite decent return (more than 8% per annum) and it is also a low-risk investment. If you’re a Non-Bumiputera, you may also think about Unit Trust Fund. A unit trust is a collective investment where the investors pool their money to invest in a portfolio of diversified asset managed by a professional fund manager. It is especially suitable for fresh grads who don’t have too much money but are interested in investing in a diversified portfolio.
- Other investment options include REITs, stocks, real estate… I don’t want to throw in too many jargons and terminologies to confuse you, but please comment and let me know if you want me to go deeper on these topics.
Related: Investing Terms Explained
Last but not least, good luck and all the best! 🙂