Category: Cash Management

This is a story about Andy and Amy (not their real names). Andy is an enthusiastic entrepreneur with a reputable position
in his industry. A successful man and earning a good income, however, his expenses were high as well.

After marrying Amy, he became stressed with his finances, which worsened with the birth of their first child. The pressure of the monthly deficit of approximately RM2,000 and worrying about the future expenses triggered the couple to engage our services. I was then able to we help them through with our holistic financial planning service.

Andy and Amy have different attitudes towards managing their personal finances. Andy is a very positive person who anticipates that good things will happen in life as long as he strives for it. “Tell me what I need to do and I’ll make it happen!” is his
favourite motto.

He applied this attitude to his finances, which often resulted in him committing to things he cannot afford today, but with the conviction that he will be able to grow his income and pay for it in the future.

Amy is almost the polar opposite when it comes to money. She’s cautious and prefers to plan ahead and be prepared for the worst situation. Indeed, the desire for a more secure future was amplified after having a child. A clear visual reality of their current
family’s financial situation was provided to them through our holistic financial planning process.

The hard facts and numbers seemed ruthless but it showed them the gap between their goals (purchasing a bigger home, tertiary education funding, retirement security, etc.) and their available resources.

In addition to the risk of not being able to achieve their desired goals, as a single income family with a child, there were other potential risks that needed to be addressed, such as Andy’s insufficient insurance coverage for the family’s income needs (should something untoward happen to him) and the lack of estate planning tools in place to safeguard his family.

We helped Andy and Amy tidy up their cashflow, focusing on their expenses as there were many loopholes and excesses that could be avoided or minimised with good budgeting. For example, we noticed the huge amount spent on dining out and impulse purchases. During the financial planning process, there were some unavoidable differences of opinions between the couple, but fortunately we were able to help them manage their expectations and bring them to work together towards their common goals.

The role of a financial planner is unique. We not only provide clients with relevant and timely financial advice, but we also take on the responsibility of educating them to cultivate good financial habits. In this case, tracking their monthly family budget and inculcating a habit of saving before spending were their immediate priorities.

Trust me when I say that financial planning is a long journey. We help clients understand their current financial situation and plan for their fi nancial future. But as circumstances change over the years, we also need to accompany them as they make major
financial decisions in their life, and keep them updated on the latest happenings along the way.

Although Andy and Amy are still striving to be more financially stable after their first year of engagement with our service, their progress have been remarkable as their finances are now more organised. They were able to address their immediate gaps and
started adopting good fi nancial habits.

These new habits will help them form a strong and healthy foundation as they work towards their goal of achieving financial freedom.

About the Author

Ocean Pon is a Licensed Financial Planner with Finwealth Management Sdn Bhd.

We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth

In order to become financially independent, the need to track your net worth is a crucial step. And for our net worth to grow, we need to have good cash flow management where part of our income is retained and converted into financial assets. Can we spend or can we not?

However, when I say good cash flow management, this does not mean you have to track what you spend every day. Usually, people associate this with not spending money or cutting back on their lifestyle, which is inaccurate.

Rather than doing that, I believe that we should not suppress our urge to live our life the way we want it. We work so hard every day, so why shouldn’t we live the lifestyle that we would like to have?

Why it’s OK to spend?

I’m not here to tell you not spend money, and I’m not here to tell you that you should save x% of your income either. With our lives surrounded by advertisements that promote consumerism, it’s not easy to resist the temptation to spend. Instead, I’m here to tell you that it’s okay to spend money.

Generally, there are three types of spenders – which category do you belong to?

Type 1: Spend More Than You Earn

Despite enjoying and living on our own terms to the max as a Type 1 spender, it comes with consequences. Since the additional spending is funded by money that is not ours, there will be time when you will need to pay it back, and it will not be fun when that time comes.

Immediate gratification is common for Type 1 spenders, as their wants and needs get fulfilled. Over time, however, this may become a habit and if you are trying to adjust or change this habit later, it may already be too difficult, and the process may not be easy.

Type 2: Spend What You Earn

Those in this category are usually smart enough to avoid the painful journey of paying back what they owe the bank, and so they spend within their means. If they bring home RM1, they spend RM1. This seems slightly more attractive than the first type, as this is living in the present without having to worry about payback.

However, this has its downsides too.

The downside comes from you having to continuously earn an income to pay for the food and services you need. It means that you cannot stop working. The day you stop working is the day you stop earning an income, and you’ll then no longer be able to pay for what you need.

That said, this category isn’t entirely ideal either. On the flipside, if you are a salaried employee, you are automatically made to save at least 11% of your gross salary in anticipation of your golden age.

Interested to invest for your old days. Worth a read, Selecting The Right Investment Funds For Your Retirement Portfolio.

However, this can only be enjoyed after your retirement. What about the other life priorities and goals that you would like to pursue between now and when you retire? If we spend all that we take home now, we will never have the ability to pursue these life goals.

Type 3: Spend Not More Than 90% Of What You Earn

This type of spender acknowledges the irony of the need to spend and to save, and makes it a point to set aside part of their take-home income to prepare for their future.

While living in the present, they also prepare for the future. This group of spenders understand that it is better to prepare than to repair. With the goal of spending not more than 90% of the take-home income, they practice what is referred to as ‘pay-yourself-first’.

You can decide how to spend as you like, so long you keep the maximum available for spending at 90%. If you can lower that spending amount, you will have more control over your quest towards financial independence.

By doing so, you have choices for your future. You are not just saving money; you are giving yourself more flexibility and options.

Honest Self Review

So, which type of spender are you now? If it’s up to you, which type of spender would you want to be? If you are not there yet, what is stopping you from getting there?

Usually, people who have insufficient monies to spend every month would say that they have to spend all their monies because they are not making enough. For these people, their mantra is ‘I will start saving when my income increases”.

Do you have these same thoughts too? My advice to you is to not wait – we can start making an effort to not spend all your take-home income today.

Don’t forget your emergency funds!

Read here : 3 Tips to Building Your Emergency Fund in Malaysia

However, despite its benefits and advantages, just being a Type 3 spender is not going to promise you financial independence. Without managing the monies that you save in an efficient manner that supports your personal values, chances are you are not making full use of your financial muscles.

If you are unsure about your current spending behaviors and how to manage your personal finance, let’s chat.

Kevin Neoh is a NextGen Money Coach who works with people to help them transform their relationship with money to improve their lives with the money they have. Kevin can be contacted at kevin@nextgenadvisors.my and www.kevinneoh.my. 

C: Women have inherent qualities that enable them to plan their own and their family’s finances

In my financial planning practice, I have observed that female clients, whether they be single career women or married with children, tend to face similar dilemmas and challenges when it comes to planning their personal finances.

But why is that happening to them? They should and they must have their roles in family finances.

Lack Of Time Due To Multiple Roles

There is no denying that the modern-day woman is highly adept at multi-tasking – from her job, her family, her children’s education to other social obligations and so forth. The downside of assuming so many roles and responsibilities is that it leaves hardly any time for herself at all.

Any precious moments of “me-time” that ladies can manage to squeeze out of their packed schedule goes towards rest and de-stressing to rejuvenate themselves. Financial planning issues will hardly be on their minds after a long day.

Tendency To Priorities Family Rather Than Themselves

Being selfless and filial are undoubtedly noble characteristics that every parent, husband or sibling would want their daughter, spouse or sister to have. However, when putting the interests of family members ahead of your own, more often than not, your own needs may be neglected.

A Senses Of Apprehension When It Comes To Managing Money

This can be real, imagined or selective. Numbers and calculations can be intimidating to certain individuals regardless of gender or age. Others tend to shy away from money matters because they find it too complicated and confusing, preferring to let their spouse handle it so that they can focus on other responsibilities.

My wife is happy to help our son with his algebra and trigonometry, but she claims to make no sense out of a financial spreadsheet.

Worth A Read : Financial Literacy & Financial Accountability Are Life Changing

Decision Making Guided By Sentiments And Emotion

Female clients sometimes base their decisions on how they “feel” about something. While having a keen financial gut instinct has made many billionaires, it is another thing when the heart overrides the mind in making investment decisions.

Examples would be putting money in investment plans because a friend “strongly recommended” it, or out of sympathy for your banker whom you known for ages and needs to meet his/her sales target.

Choosing To Save Rather Than Invest

Some individuals consciously decide to continue saving in cash, preferring to keep the bulk of their money in fixed deposits despite the dismal returns. They are in fact aware and reasonably well informed of their options but due to their position in the family (for example, being the only daughter or the only unmarried sibling), they feel a sense of duty or responsibility to have funds on hand to assist other family members should they require it urgently.

Read : How to Choose the Right Investment Vehicle for Yourself?

Taking on the status of the family’s “standby banker” no matter how well-meaning, denies some women the opportunity to plan for their own financial future. Instead of viewing these challenges as barriers, turn them into catalysts for your personal financial growth instead. There are many ways to empower oneself to take control and own your financial destiny.

Reprogramming The Mindset And Be Prepared

While you may currently have the luxury of someone else handling the household’s financial matters for you, i.e. your spouse, there may come a time when you need to take over or assist in those duties. If you are already prepared, well and good. If not, take time to increase your own financial literacy so that assuming the role of the home’s financial manager will be a comfortable transition.

Be Heard And Be More Involved

Suppose money matters are not exactly your cup of tea. It may be tempting to leave all the family finances to someone else, especially if things are running smoothly and the party handling it has the necessary expertise and experience and doesn’t seem to mind doing it. However, you may have insights and suggestions for improvements, so share your thoughts rather than keep them to yourself.

Make It A Learning Process

If your financial matters are currently delegated or outsourced to other parties, there is the danger that you may one day find yourself in a situation where this party is unable or unwilling to continue the responsibility. Thus, it is important to get yourself educated on how to handle your own personal finances rather than leaving such a crucial task entirely to someone else.

Leverage On Other People’s Time

If you find yourself already overwhelmed with work and other obligations, learning to put your personal financial matters in order from ground zero may seem like a mammoth task. Under these circumstances, a licensed financial planner would be able to work together with you and assist you through the entire process while ensuring your involvement every step of the way.

Individuals are not born with good personal financial skills, but everyone can learn how to be competent at it. Due to personal and family circumstances, women are often unable to take advantage of the opportunities present to improve their financial knowledge and be as hands-on in their personal financial matters as possible.

Nevertheless, women already have a natural advantage in taking on the role, thanks to two critical attributes that play a huge part in successful financial planning.

Firstly, regardless of age group, education level or social strata, almost all women are inclined toward a long-term mindset in whatever course of action is decided upon. This is usually more evident when it comes to buying a vehicle for example, or renovating a home or planning for the children’s education. Rarely are decisions made by women in the household without thinking two or more steps ahead about the effects and implications, contrasted with men like many of us who are more prone to “act first, think later”.

Secondly, women tend to err on the conservative side of men by questioning downside risks before taking action, which is actually a good thing. While profit and returns are typically top on the list of male investors, having a woman jointly involved in the investment decision would help to temper any hasty actions and mitigate potential financial risks.

As such, these inherent qualities in women make them suitable candidates to plan their own and their family’s finances. With guidance and financial education, they have the potential to surprise even themselves.

A household may have mixed styles of financial management as both men and women are good in personal finances in their own ways, therefore by complementing one another and learning from one another, amazing results can be achieved.

About the Author:

Felix Neoh CFP ^{CERT TM} is the Director of Financial Planning at Finwealth Management Sdn Bhd and is a certified member of FPAM. He can be contacted at enquiry@finwealth.com.my

We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth

For us to pursue our multiple life goals, we will need to have financial resources, which is like our ‘financial muscle’. We will need to have muscles to do the weight-lifting, which is to turn our life goals into reality. Therefore, we need to have the know how.

This, essentially, is financial literacy.

The Organization of Economic Co-operation and Development has defined financial literacy as a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing.

Why Is Financial Literacy Important?

Obviously, the decision we make today has a long-term impact on our financial wellness in the future. Hence, a poorly made decision may have a very detrimental impact on our future.

If a person is not financially literate, then this person may face multiple challenges in respect to managing his or her own wealth. Potential consequences can be:

• Not protecting savings and assets adequately;
• Not prudent in borrowings and ending up with too much debt;
• Not investing to inflation-proof your purchasing power;
• Not having a will; and
• Not having financial safety net like an emergency fund and health insurance.

The list can go on and on.

When a person is in a situation as above, it’ll be rather difficult person to attain financial independence as well as pursue his or her life goals.

How Financially Literate Are We?

The following statistics from the National Strategy for Financial Literacy 2019-2023 Report gives us a picture of where we stand as a nation in terms of financial literacy.

• 43% of Malaysians understand that growth of money is compounded over time, while 22% believe money grows on linear basis;
• 75% of Malaysians understand that inflation means cost of living is rising, only 38% can relate the effect of inflation on their own purchasing power;
• 84% of Malaysians who claim to save regularly typically withdraw it at month-end to cover daily subsistence expenses;
• Three in 10 of working adults need to borrow money to buy essential goods;
• 52% have difficulty raising RM1,000 as an emergency fund;
• Only 24% are able to sustain their living expenses for at least three months if they lose their main source of income, and only 10% can sustain for more than six months;
• Six in 10 adults are self-employed and hence not covered by a social security system or any formal retirement fund; and
• About 60% of investors were found to have unrealistic expectations on potential annual return from investment in capital market products.

A Financially Responsible Person

When a person is financially literate, he or she will be more capable in understanding how his or her decision can impact their financial future, hence becoming a responsible person financially.

When we are financially responsible, we will be careful about adding financial responsibility to our finances. We will ensure that we do not spend all we make but make provision for our future, and for emergencies.

In fact, most people are aware of this but somehow, fail to take action.

What Is Missing?

Since most of us who are working adults have not been taught about financial literacy in school, we need to learn it from somewhere.

Learning is a passive thing – you can continue to read, learn, listen to podcasts or attend workshops for years. However, it is not the learning that matters but the doing that makes a difference.

To ensure that we do what is in our best interests, not only do we need financial education, we also need financial accountability. I truly think this is the key missing piece of the puzzle.

Perhaps you can read Unit Trusts, The ‘Safest’ Investments For Beginners In Malaysia?

That is why we are unable to behave rationally and stick to our plans, fail to save what we plan to save every month, all because of a lack of accountability.

I will define accountability as having a sense of ownership over your work and accepting consequences for your actions and behaviours.

Many times, we are aware that if we don’t save, it will leave us in a worse shape compared to when we save. But we spend anyway.

So to increase your financial accountability, it’s best if you work with someone interested to help you stay true to your own words, and be accountable for your own actions.

Financial Accountability Partner

An accountability partner is someone who coaches another person to keep a commitment. Getting a right accountability partner is known to be a highly effective strategy for goal-setting and achievement.

The good news is that If we want to stick with our action plan, we just need an accountability partner. The bad news is that we cannot be our own accountability partner.

And if you have selected a candidate who is not so suitable, your accountability partner may well turn into your partner in crime.

What To Look For In Your Accountability Partner?

Ideally, this person should be able to complement you in terms of knowledge, skills, expertise. Since this is a financial accountability need, your candidate should possess extensive knowledge on this subject matter. Otherwise, coaching you to do the wrong thing will eventually send you down a path that is cursed as well.

However, you should look beyond things that are measurable such as knowledge. Will this person be willing to challenge you to out-grow your limit?

Your main objective of getting an accountability partner is to outperform your own set objectives. Therefore, you need someone who has the courage and discipline to tell you what you need to hear, not what you want to hear.

Your accountability partner should also be able to make sure you follow through on your commitments, monitor and review your action plans with you so that you can find ways to improve on it.

When you are in doubt, he should also be able to provide you with independent feedback and show you the next step so that you will not be stuck at status quo.

Who Can Be Your Ideal Financial Accountability Partner?

Most of us have friends, and family members who we care a lot for. Are we their financial accountability partner?

Did any of our friends or family members volunteer to talk to us about our financial successes and planning? Has anyone have taken the time or initiative to tell us the importance of save-first, spend later, or the importance of having an emergency fund?

I guess the common answer to these questions will be a string of “no’s”.

That is also why I volunteer myself to be your financial accountability partner by devoting my lifework to be a licensed financial planner. I have a strong sense of fulfilment whenever people feedback to me that they are seeing progress and happy because they are sticking to their own plans and are seeing results.

That sense of fulfilment is even stronger when I get credit for the success my client is having.

Personally, I believe that it is important for us to work at something we love to do and are passionate about. I’m just glad I’m under this category.

I think someone who is doing what they are doing when not motivated by monetary reward alone, will be the right person to do the best work.

So, get an accountability partner to make sure you are accountable for your financial independence.

About the author 

Kevin Neoh is a NextGen Money Coach who works with people to help them transform their relationship with money to improve their lives with the money they have. Kevin can be contacted at kevin@nextgenadvisors.my and www.kevinneoh.my.