5 Rules of Financial Management

Our relationship with money is an evolving one. As university students, we learn the value of RM5 when paying for a meal. When we first enter the workforce, we feel the pinch of withdrawing RM100 for season parking. As a new parent, we’d gladly part with RM500 for the security of a baby car seat. With the number of responsibilities and commitments increasing as we grow older, we find our appetite and need for money ever-growing. But does our financial knowledge and management of money grow together with it?

Basic financial planning can be covered in five simple blocks: Savings, investment, tax planning, medical expenses and life protection.

1. Start saving, start small

Most Malaysians have zero savings, and only 11% of all Malaysians have enough funds to withstand a financial shock, according to a Khazanah Research Institute study. That’s an astonishing fact, as it means most of us are only one paycheck away from financial instability1.

The basic rule to getting your finances sound and secure is to ensure you have a savings plan or are saving money from your income. For example, If you can only put aside RM100 a month, do it consistently. The amount you put aside each month can grow later on, but it is important to begin today to see the benefits in the future.

If you find it hard to put aside a certain amount from your income every month, try other methods like automating your savings, or putting aside all the RM5 notes you receive – a forced savings method, but a savings method all the same.

2. Grow your savings through investments

When you have a sufficient amount of savings (generally three to six month’s salary), it is time to go one step further and grow your money through investments.

There are many types of investment plans in the market, such as short-term and long-term savings plans, mutual funds, and Private Retirement Schemes. Before deciding on one, consider these few factors: your appetite for risk, your time available to monitor your investments and your life goals or priorities: whether you are saving for a lifestyle change, marriage, education, a new home or retirement. Here are some ideas of what you can invest in with only RM10,000.

You should also plan for your retirement early. PRS is designed to expand the coverage of retirement benefits to all segments of the population to complement a conventional retirement savings scheme. Most Malaysians do not have enough savings to meet their retirement needs, and coupling this with increasing life expectancy and living standards; there is an urgent need to relook at how and when we plan for retirement.

3. Maximising your income tax returns

Tax exemptions are a way to relieve the financial burden of the everyday man. Generally, exemptions are made for people who support elderly parents or have school going children.

However, one often overlooked area on the topic of investment is on maximising your investments to benefit from these tax returns. By planning your investments and properly filing your tax exemptions, you can maximise your returns from this annual exercise – especially with the new expansion of lifestyle tax relief to include the gym and internet fees.

Under the 2017 Budget, here are common tax reliefs you may be able to benefit from:

Smartphone, tablets, printed newspapers, Internet subscription, gym membership: RM2,500
Life insurance & EPF: RM6,000
PRS: RM3,000
Insurance premium for medical or educational benefit: RM3,000
Complete medical examination: RM500

4. Health is wealth

We do many things to ensure that we are in our best physical abilities, whether it’s working out at the gym or going for a weekend hike. However, things don’t always go according to plan, and sometimes our bodies fall prey to common illnesses which require medical treatment, and occasionally, hospitalisation.

The increase of medical fees does not help to relieve this burden, so ensure that you have a plan for medical emergencies. This could come in the form of an individual medical card or a company medical policy. By subscribing to a monthly plan, you would have complete medical coverage for emergencies and treatments. AIA’s unique panel of Platinum Hospitals enables you to enjoy a waiver of administrative fees, deposit waiver and other benefits.

Likewise, if you are a person who enjoys taking care of your physical health, it is worth looking into the AIA Vitality programme. This unique science-based plan rewards you with lifestyle discounts and premium cash back when you make healthy choices in life.

5. Planning for your loved one’s future

If you are the breadwinner of a family, it is your responsibility to ensure your family is well looked after when you are gone. This is especially important if you have young children or elderly parents who rely on you for financial support. A complete life protection plan ensures that your family receives a sum of money if you suffer from total or permanent disability or when you pass away.

Extra tip 6: Train yourself

Financial education may not be a mandated school subject, but it is a skill that’s easily learnt and practised. Read financial blogs, websites and learn from books and people you know. Just like everything else in life, the more you learn, the more you know.

References

http://www.nst.com.my/news/2016/10/182224/2017-budget-lifestyle-tax-relief-extended

http://ringgitohringgit.com/retirement-in-malaysia/

https://www.blueshorefinancial.com/ToolsAdvice/Articles/FinancialPlanning/TenReasons...

http://www.investologic.in/financial-planing-infographic/

http://www.thestar.com.my/business/business-news/2016/09/03/many-malaysian...

The above articles are intended for informational purposes only. AIA accepts no responsibility for loss which may arise from reliance on information contained in the articles.