Keep an eye on Finances

by Caroline Yap

Keep an eye on Finances Don't fall into the debt trap and an empty bank balance. It doesn't take much to be money-wise, writes Caroline Yap.

The time is finally here for you to be financially independent.Working means you make your own money and decide what to do with it.You've earned it, so you get to spend it.

But here's the catch.With your new found freedom comes the responsibility of managing your own finances.Without proper planning, you will find yourself living from pay cheque to pay cheque. And life isn't fun if you have to nervously wait for your salary to be banked in. So, be smart about your spending habits.You can't throw caution to the wind and imagine that good things will be blown back to you. You need to plan. Here are some steps to start you off.

Step 1: Prioritise your expenses Calculate how much you must set aside each month for necessities. These include loan repayments (study loans, car loans, etc), rent, food, handphone bills, transport, utilities and monthly contributions to your parents.

Make a list of these expenses in order of priority. Put non-negotiable items on the top (like loan repayments), followed by negotiable items (like handphone bills).

Step 2: Save every month Allocate a reasonable amount for savings. It doesn't matter if it seems a measly sum.Ten percent of your salary is a good start. It's good discipline to develop the saving habit.You can always raise the amount when you earn more.

There's no need to be too ambitious, either. If you set your savings quota too high, you may disappoint yourself by not keeping to it and give up altogether.

If you have the habit of spending everything you earn, it might be advisable to consider various financial and insurance plans that have a form of forced monthly savings.You will reap the benefits in the future.

Step 3: Live within your salary Compare your forecasted spending to your take-home pay (your salary minus income tax, EPF and SOCSO contributions). After factoring in your necessary expenses and savings (Steps 1 and 2), you will now know how much you can spend on extras like CDs, clothes, entertaining, etc.

However, if your total expenses are more than your take-home pay, make adjustments to negotiable expenses. For example, find a cheaper place to rent (or even stay with your parents) until you are better off financially.

Many new graduates want to live in fancy places that will reflect their yuppie lifestyles. But if you can't afford it, the only thing it will reflect is your lack of sense. If you have the habit of spending everything you earn, it might be advisable to consider various financial and insurance plans that have a form of forced monthly savings.

Handphone bills can also be reduced. There are plenty of good deals out there. Look for one that gives you the best rates. If you need to have a car, start off small. A car's value depreciates, so it is a liability, not an asset. Don't sink your funds this early into a fancy set of wheels that will get you nowhere.

Step 4: Keep track of expenses Write down, at least for a few months, how much you spend daily. It may seem like a really nitty-gritty thing to do, but this will help you see where your money actually ends up.You will be surprised at how much we spend on the little things - a bottle of water, a movie or parking at a mall. Keeping a daily log will allow you to track your budget and give you a more accurate picture of your expenses.

Step 5: Be flexible You've got your budget down in writing, so end of story? Wrong. Lifestyles and expenses change all the time, so your budget cannot be a stagnant thing.You need to revise it as you go along.

If you pick up a new hobby, you might have to spend more. If the area you work in only has expensive restaurants, you may have to budget more for food.You may need to set aside more money to care for an aging or sick parent.

Your priorities may also change.You may decide to give up fancy meals so that you can afford a better place. Or you may feel it's time to get a better car.Whatever the reasons, rearrange your budget so that it fits current realities.

Many new graduates want to live in fancy places that will reflect their yuppie lifestyles. But if you can't afford it, the only thing it will reflect is your lack of sense.

Finally, remember that there isn't a specific formula to getting your budget right. Each person has their own needs and wants. A necessity for one person may not be so for another. So create a budget you can live with and one that you will be happy with. After all, it's your life - and your money!

Credit cards

Often, when you walk through a shopping mall, you will be stopped by a representative of a bank offering you free access to a credit card. They are so easy to get hold of, it's almost impossible to believe.

Credit cards can be an evil or a benefit. It all depends on how you use them.

The best way to think about a credit card is as a form of convenience.You use it so you don't have to carry cash with you. Never use the credit card as a means of buying things you can't afford. Only use it to spend money you already have in the bank.

Be careful of discounts offered by card companies for certain purchases. There is no point in taking advantage of such discounts if you aren't able to pay it back at the end of the month.The interest you accumulate on your card balance often cancels out the amount you saved on the item.

Another mistake many make is to use the card as a means to spend money that they think is coming in the future. If your projected extra income suddenly fails to materialise, you end up in debt.

Remember, a credit card is not free money. Whatever you spend now, you will have to pay for later.

Saving tips

So, your budget doesn't look too promising? Here are some money-saving tips.

• Buying groceries? Make a list. Buying on impulse usually means you end up with a basketful of groceries you don't really need. Also remember that grocery shopping on an empty stomach increases the temptation to pick up unnecessary items.
• Take advantage of discount items in supermarkets. Bakeries also usually sell their day's goods at a lower price just before closing time.
• Make sure you wash full loads in your washing machine.You may not think it's such a big deal, but the cost of water, detergent and electricity does make a difference in the long-run.

Love your magazines? If you are not too fussy,wait a few months and you can get international titles at half price. But if you are a regular reader of a particular magazine, subscribe to it. A subscription price is usually lower than the newsstand price.

• Do you have items you don't actually use or want? Sell them off.You can have a garage sale, set up a stall in a flea market or sell your things over the Internet.
• Look out for sales, especially warehouse sales. These days, everything can be bought at lower prices, from clothes to books to sporting goods. But be careful of picking up things you don't need. Just because it's cheap doesn't mean you have to buy it.