Like us, you've probably read one, or 25 generic personal finance goal lists on the web or in print. They tell you what you should be achieving by the time you're thirty; forty; fifty; sometimes even when you're dead. We thought it was about time someone wrote some advice from the real world; on ground with the average, non-trust-fund inheriting, hardworking, wage-earning Malaysian youth in mind.
Some Sobering Malaysian Real World Math
The average Malaysian fresh graduate earns RM2,500. This has been highlighted in the press many times and we've discussed the issue of fresh graduate salaries in length just last year. Most graduates come out to work at 22-25 depending on the number of years required to finish their course. This gives them between 5-8 years before they reach the social adulthood milestone of 30. According to a news report in 2013; average wage increases were expected to be 5.7% in 2014; higher than the rate of 5.3% in 2013. Taking a round figure of 5%; assuming a fresh grad is lucky enough to nab a 5% increase every year he works and he works for 5 years diligently; he will receive a pay of approximately RM3,200. This is the reason many employees rarely stay at a job long. Switching gives them a much better wage in less time, but that's a separate issue. Why are we telling you all this? Read on.
Let's, as an example, assume the average youth is able to earn RM3,500 by the time he is 28. According to many generic personal finance milestone lists; he is expected to not only have a 6 months worth of salary saved up as a contingency (RM21,000) - he is also supposed to own a home requiring approximately RM35,000 in downpayment (10% of RM350,000 purchase price) as well by 30. In total, this youth is expected to save RM51,000 in less than 10 years to hit two milestones. If he started working at 23; he needs to save RM7,286 per year for 7 years; RM607 per month. Sounds reasonable? Possibly, until you realise the following:
- He started off probably earning RM2,500;
- The costs of home buying include other miscellaneous fees than run into the thousands;
- He still needs a mode of transport, possibly a car;
- There are probably 8 - 10 other money milestones he needs to hit including paying insurance premiums (RM150); making investments and possibly paying off student loans (RM250 - RM350).
- Prices of everything today. A meal in a mamak is no less than RM6; clinic visits a minimum of RM30 per consultation; and the average transit pass for public transport being RM150.
- In 7 years of saving; there's no guarantee that RM350,000 will buy him a house considering the level of property price inflation.
We're not saying these milestones are impossible. If you've been blessed enough with a good salary and supportive conditions to hit these - that's absolutely awesome. But if you haven't; it's easy to assume you've failed at your finances and this feeling doesn't help spur you in the right direction.
The Realistic Financial Goal List
If you're feeling less than motivated about your money situation upon your 30th year; please don't fret! You're definitely not alone in your imperfect bottom line. Here are some realistic milestones you can check off (and be a winner) when the big 3-0 hits!
1. Give Your Money the Value it Deserves
You work hard for your money. The Ringgit may be falling but it didn't take any less of your effort to earn it so give it the value it deserves. How can you do this? By being a smarter, more informed and empowered consumer. No more accepting bad service, bad quality or putting up with unscrupulous businesses trying to devalue the money in your pocket. This doesn't equate being difficult or trying to haggle everything; but if you're truly being given a bum deal, speak up and be counted.
2. Take Terms and Conditions Seriously
We all do it. We check off the 'read' box and we sign the pages never really scrutinising what we're signing up for. Making big financial decisions like signing up for a 30 year home loan or investing in stocks means taking risks with your money so you want to make sure you know exactly what you're getting into. Signing off without knowing the full terms can leave you with a dud financial product, a bad deal or worse; losing lots of money.
3. Know Your Rights
Closely linked to item 2; knowing your rights be it as a consumer, tenant, investor or property purchaser means it's more difficult for anyone to 'relieve' you of your hard-earned money. If you cannot afford a lawyer; check out resources on the internet or ask your friends/family who've gone before you in similar deals/transactions. Of course, the basic rule of thumb applies: do you know exactly what has been agreed on and if so, are the terms fair to both parties?
4. Take Control of Your Money
Letting your money control you or other people to control your money is surefire way to find yourself in a deal you're uncomfortable with; with a huge purchase you don't really want at all; or worse; with an empty bank account for no good reason. It is your money and it's value and use should be tailored to you: not your parents, friends, internet resources nor even your personal financial advisor. He/She is an advisor; not a dictator. In the end, the decision on what to do with your money needs to be yours. The other way to lose control is when you don't control your money at all. Uncontrolled spending won't do your budget any good, either! The Mall shouldn't be controlling your money.
5. Understand Your Financial Profile
The first step to making better financial decisions is in knowing your financial profile. Even personal finance advisors will draw up a risk profile of their clients before writing up a financial plan so similarly, you should know yourself. Here are some questions to get you going:
- Are you keen to take big investment risks or do you you prefer lower yield investment modes?
- Are you careful with some spending but not others?
- Do you tend to forget to pay your loans on time?
- How much money do you really have to spend and what can you afford?
- Do you truly want to own property?
- How many insurance plans are your comfortable having?
These are all important questions to ask yourself when getting to know your financial side better. Knowing your money habits and personality will help you draw up plans that cater to your personal needs and requirements.
6. Have a Solid Budget and Plan
Once you understand your financial profile, it is a lot easier to budget and make plans for the future catering to your individual needs. Once you know your profile and have answered the questions above; you'll be in a better position to make plans for the future - near and far. Your personalised budget and plan will also allow you to save and spend based on what you can afford - not what someone else thinks you should be able to afford.
Make your plan and budget line up with your lifestyle wants and goals. Not everyone wants to own property because they may prefer a nomadic lifestyle - traveling and working abroad. Some may prefer to wait til the marry and buy a home together. Some may be uncomfortable with life insurance or maybe you simply do not like investing in stocks. It's not anyone's place to make these big decisions for you. As long as you know the risks, pros and cons involved; these decisions should be yours alone. There is no single way to live your life and the existence of revolutionary, successful businesses, start-ups and entrepreneurs prove everyday that innovation and individuality work.
7. Don't Beat Yourself Up Over Missteps
We all make mistakes. Maybe you got yourself in a bit of credit card debt. Missed a few payments and spotted up your credit report or maybe you simply lived a good full 3 years of your youth spending money on trading cards off Amazon. It happens sometimes and it doesn't mean you failed. It does sometimes mean starting over and trying harder but not giving up is more important than beating yourself up for not being perfect.
8. Obliterate 'Keeping-up-with-the-Joneses-Based' Financial Decisions
So your college mates have landed five figure salaries in a line of work you know nothing about and you're thinking of jumping ship. Or maybe your childhood sweetheart just married and bought a home so you think it's time you bought a house. Or maybe you read somewhere that a 30 year old should be holding a massive stock portfolio. Making these big financial decisions because the people around you are doing it (or you think they're doing it) is the worst thing you can do for your finances. Do what is right for you and your available pot of money.
9. Save as Much as You Can
We can't argue with the importance of saving. Be it for retirement, emergencies or just saving for bigger and better experiences in future. We're not going to set an exact number. You know how much you can afford to save - do your best to increase it as often as you can. Saving money is beyond a doubt important but you don't to set unrealistic expectations of savings that only force you to endanger your health, fall off the bandwagon frequently or make you use your credit card! That fixed deposit interest is nowhere near as high as credit card charges! Save. As much as you possibly can.
10. Remember: It's Only Money
That probably sounds rich coming from a list that just gave you 9 other completely money related goals but bear with us. Money is no doubt important and underpins everything we do. We need it to trade for food; shelter and other needs. But it's also just that - an item of trade. If your thoughts about money are turning obsessive or causing harm to your health and personal relationships as well as stunting your personal growth; it's time to take a step back. We're not saying throw all your money away and join an ashram (although you're perfectly welcome to do that if you wish) - but don't let it become your only motivator. Money is great - when it isn't the one holding the whip at your back.