Some Facts First
40% of Malaysian household earn less than RM2,000 per month. 2/3 of the Malaysian population are surviving with less than RM4,000 a month with another 1/3 earning less than RM700 per month. Adding to that our salaries only increased by 2.6% from 2007 to 2009 while Indonesia is at 10%. If you still think we are superior, reality is that Indonesia is doing much better than Malaysia in many areas but I'll leave that in another story.
There are 7.9 million credit cards in circulation in Malaysia with a total of RM25.73 billion outstanding balances (debts!). Though only 3% default their loans, I really wonder how many people only pay the minimum amount because debt has been increasing year by year. It was only RM23.30 billion in 2008 plus the fact that 50% of bankrupts are those lower than age 30. Surprising isn't it?
Above sources are from statistics released by Bank Negara Malaysia. Luckily BNM has taken notice and is mulling on stricter credit card rules like min RM24,000 annual income to get a card instead of current RM18,000. Two cards per holder if salary is less than RM30,000 annually. Also coming could be loan to value ratio (LVR) for housing loan to 80:20 and disallow 100% and 95:5 financing. I will also post something about property prices in due time.
Why people can go into debt? Probably because they overspend and do not know how to manage or save some money. My personal view is that:
There are 7.9 million credit cards in circulation in Malaysia with a total of RM25.73 billion outstanding balances (debts!). Though only 3% default their loans, I really wonder how many people only pay the minimum amount because debt has been increasing year by year. It was only RM23.30 billion in 2008 plus the fact that 50% of bankrupts are those lower than age 30. Surprising isn't it?
Above sources are from statistics released by Bank Negara Malaysia. Luckily BNM has taken notice and is mulling on stricter credit card rules like min RM24,000 annual income to get a card instead of current RM18,000. Two cards per holder if salary is less than RM30,000 annually. Also coming could be loan to value ratio (LVR) for housing loan to 80:20 and disallow 100% and 95:5 financing. I will also post something about property prices in due time.
Why people can go into debt? Probably because they overspend and do not know how to manage or save some money. My personal view is that:
- A new grad with no commitments (house and car) can easily save >50% of salary.
- A experienced worker with decent house and car can still save 30% of his/her salary.
- A young family with decent house and car can still save 15% of his/her salary.
- 10% is not really a challenge so please save as much as possible but ensure it is >10%.
Find it hard to save? Here are some of my previous ideas: 8 Simple Ways To Save Money
Delay Gratification
Giving an example of two persons: Amanda and Christy. Amanda at age 18 started to save RM1,000 each year and invest with 10% returns pa until she stops saving at 28 but still continue to invest will have RM230,000 at the age of 55 with just initial capital of RM10,000 from saving just 10 years.
Christy chose to enjoy life at her young age and only start to save RM1,000 each year at the age of 28 to 55 with investment of 10% returns pa as well. Christy only managed to have RM134,000 at the age of 55 despite saving for 27 years with a capital of RM27,000.
This gap of RM230,000 minus RM134,000 of ~RM100,000 comes from deferring spending or prudent financial management. When you get your paycheck, do you spend it now or save it for investments? Amanda deferred her spending for 10 years while Christy deferred for 27 years and still fail to catch up LOL. The question to you is how much can you delay gratification (happiness or satisfaction)?
Christy chose to enjoy life at her young age and only start to save RM1,000 each year at the age of 28 to 55 with investment of 10% returns pa as well. Christy only managed to have RM134,000 at the age of 55 despite saving for 27 years with a capital of RM27,000.
This gap of RM230,000 minus RM134,000 of ~RM100,000 comes from deferring spending or prudent financial management. When you get your paycheck, do you spend it now or save it for investments? Amanda deferred her spending for 10 years while Christy deferred for 27 years and still fail to catch up LOL. The question to you is how much can you delay gratification (happiness or satisfaction)?
To invest is risky, true I won't deny it but everything that you do is risky too if you do it WRONG. Drive a car but at reckless speeds, go hiking but not with proper shoes, put money in FD but in a shaky bank, invest in stocks but chose wrong company. What it implies is that whatever you do without prior knowledge is deemed taking unnecessary RISKS with no view of the consequences.
If you don't think how to put your money into good use, will it be enough for retirement? Plan to work part time even after retiring? Depend on your children? (I wouldn't if I do have my own family). Think about it. Starting it young is great, starting it now is still okay but starting it later will only delay your retirement and as you know it, time is limited and scarce.
You could also read my previous post on: Everyone Must Be A Millionaire
If you don't think how to put your money into good use, will it be enough for retirement? Plan to work part time even after retiring? Depend on your children? (I wouldn't if I do have my own family). Think about it. Starting it young is great, starting it now is still okay but starting it later will only delay your retirement and as you know it, time is limited and scarce.
You could also read my previous post on: Everyone Must Be A Millionaire
Budgeting Tool
With that, it is important to set our financial straight. Formerly I have been using pen and paper quite old school, don't laugh la. But as I have moved my research into the digital world of blog so have I moved my budget into an online tool named MoneyStrands. Click the few pictures below to see how the interface is. If you want to toy with it, I have a dummy account:
Username: nicktest
Password: test100586
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| Overview (top page) |
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| Overview (bottom page) |
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| Credit Card Details |
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| Expense Analysis |
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| Accounts |
The tool is really neat and I can upload my credit card statement via csv files, tag my expenses into categories, set monthly/annual budget, determine my personal cash flow, observe my debt-to-income ratio and personal networth. What really makes it strong and truly useful is that you commit to check and update your expenses and review them accordingly. For me I simply do it every Sunday night which is why I am writing this now coincidentally.
Budgeting is not being stingy, it is the foundation of a sound financial plan. Some people will say you are stingy because you don't treat them enough or that you don't know how to enjoy life. Let them say what they like, when you are financially strong and generating lots of wealth, that is the time you can treat people without stress & also tell them it is not just about present life, it is on having a secure future. This is what you don't learn in school :)
Budgeting is not being stingy, it is the foundation of a sound financial plan. Some people will say you are stingy because you don't treat them enough or that you don't know how to enjoy life. Let them say what they like, when you are financially strong and generating lots of wealth, that is the time you can treat people without stress & also tell them it is not just about present life, it is on having a secure future. This is what you don't learn in school :)
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