Managing Your Money

by S.C Chua

Now that you have graduated, your thoughts will naturally turn to financial matters. Some of the immediate issues will be how to budget, invest surplus cash and resisting the temptation of reaching out for your credit card. S.C. Chua explores what is out there for you.

One of the biggest challenges you will face is learning how to manage the money you are finally earning. While it may seem like a big step, learning how to be financially savvy is not that difficult.

Being financially smart also means knowing how you can make your money work for you. You are never too young to learn about investing and the different options out there to make extra cash. But before you plunge ahead with an investment programme, there are a few things you should look out for to make sure you're investing wisely.

SAVE FIRST, THEN SPEND

Accumulating unnecessary debt is no way to start your working life. Unfortunately, even with close to 15 years of formal education, this is one life-skill that is not part of the formal education curriculum.

" Instead of thinking about how to spend your money, start by thinking of how you can save "

The euphoria of getting your first pay cheque is like having the cash flood-gates open to buy this and that. You go out for dinner with your friends, buy something new for yourself, and before you know it, you are anxiously waiting for your next pay cheque because your bank account is in the red!

So, instead of thinking about how to spend your money, start by thinking of how you can save. If you start putting away a little now, you will have the peace of mind 30 or 40 years down the road that you won't need to be dependent on someone else in your old age. In general, most financial experts will tell you to save 10 percent of your take-home salary and never touch it.

KNOW WHERE IT'S GOING

There are a few things you need to consider when planning your budget. First, be realistic. Make a list of your fixed monthly expenses, such as transport, food, rent, and any other repayments. Then, note down every day how much you spend on non-fixed expenses. When you review this daily expenditure list, you will be surprised at how much impulsive buying you did during the month.

Finally, calculate how much you have left after paying all your bills. You can then work out how much you have left to invest.

INVESTING SURPLUS CASH

Step 1: What are your goals?

Is it to buy a house? Retire early? Or maybe you want to start a business someday?

How Minimum payments can drag your repayment out to 10 years or more." about something more short-term, like going for a dream holiday? If you have a clear goal, and a rough idea how much money you need to achieve your goal, it's easier to plan what action you need to take.

Step 2: Educate yourself

Ask yourself a few questions: How much money do I have? Do I understand what I am investing in? How long will I be able to commit myself? What are the risks and returns? Will someone be able to help me monitor my investment? These are all sound questions to ask before you part with your money. If you can't find the answers, speak to a financial planner or consultant.

A word of caution, though. Take advice from people who know what they're talking about and not just trying to sell you a financial product so they can get a commission. Ultimately, it's your money, so do your research as well.

Step 3: The right fit

Before you pick a financial plan, understand how it works. Each investment product is different in its risk-return profile. Not too sure where to begin?

When it comes to investment, there are a few rules to keep in mind. First, don't borrow to invest. You should never borrow from a friend or use money from a credit card to start investing. The rule of thumb is simple – if you don't have the money, don't invest.

Also, keep in mind that an investment is not a quick and high-return plan. Be cautious of the many illegal get-rich-quick schemes. While they may promise quick money for your investment, chances are you will end up broke.

Also, only invest when you are ready. Some investments, such as futures trading, involve a high degree of speculation and risk. If you are not interested in paying attention to the details, then think twice about investing. And don't invest on the basis of ‘hot tips' and rumours. These will always remain just what they are – gossip.

Check out Bank Negara's website www.bankinginfo.com.my for a whole host of information, including financial tools, and some great advice. It even has learning programmes for young people, so go attend!

LURE OF THE CREDIT CARD

For many young Malaysians, credit card charges are probably the number one debt. When using your credit card, there is one thing you must remember – while it is a convenient method of payment, you are actually spending money you don't have. In 2005, 1,497 credit card holders were declared bankrupt, a 34 percent increase over the 1,117 defaulters in 2002. In 2004, the number was 1,397, according to a newspaper report.

Make it a point to settle your outstanding balance in full by the due date to avoid finance charges "

This prompted Deputy Domestic Trade and Consumer Affairs Minister Datuk S. Veerasingam to say recently that most problems begin when fresh graduates apply for a credit card and spend beyond their means. “They sometimes hit the limit allowed on the card, spending up to five times their monthly salary. Then they get blacklisted by financial institutions and suffer their whole life.”

For many young people just starting out, the lure of having a credit card is hard to resist, especially when they can get one with just a RM1,000 monthly income. Without proper financial and budgeting skills, the young person – who now has a job and a card that allows him to ‘spend' up to five times his salary – impulsive buying becomes easy.

While the person may have good intentions about paying the amount spent at the end of the month, this is often forgotten or ignored. Slowly, the amount owed begins to balloon and just keeping up with the interest payments becomes increasingly difficult. Some people say they keep up with their payments by meeting the minimum payment at the end of the month. Break that habit!

Minimum payments can drag your repayment out to 10 years or more. What that really means is that you will still be paying for something you don't even have or use anymore!

SHOP AROUND

If you are getting a credit card, make sure you shop around for one that best suits your lifestyle. Compare the different rates and features each credit card issuer has to offer before your sign up. A tip from www.bankinginfo.com.my is to look out for three features:

• Promotional Gifts – Some credits card offer gifts like handphones and wallets when you sign up. But terms and conditions will apply, so pay attention to the fine print.
• Teaser Rates – Some credit cards may waive your finance charges for the first year, but charge a higher rate the following year. Be aware what you are signing up for.
• Finance Charges, Fees and Interest Free Period – Do know that you will face finance charges as a result of not settling your outstanding balance. Some credit cards give you a longer interest-free period, so read the details to find out what works best for you.

Once you've picked the card that's right for you, resist the impulse to swipe it every time you see something you must have right there and then. Take a breath and step away.

When you put it on the card and only repay the minimum amount, you are most likely paying two to three times for the product in interest compared to if you paid in cash. Also, avoid taking cash advances from your card unless it is an absolute emergency. It should be your last resort, as finance charges and fees can be very high for cash advances. Make it a point to settle your outstanding balance in full by the due date to avoid finance charges. Finally, as tempting as it may be to have a wallet full of credit cards, control yourself. The more credit cards you have, the more likely you are to rake up more debts.

For more advice and tips on managing your money, go to www.bankinginfo.com.my.