budgeting

7 Things You Should Do to Manage Your Finance in Your 40s

When you are in your forties, you have roughly 15 years to go for timely retirement if you want to retire at age 55. If you want to retire early, perhaps you might want to retire in just few years’ time. This is the stage which you have a stable career that gives you stable income streams. You should be able to save better as you have higher salary. How are you going to manage your finance better?

First – review your retirement saving goal and ensure you are on track to your retirement goal. There is not much time left until your retirement age, so it is critical to ensure saving and investment are in place in 40s to have enough retirement fund when you want to stop work. Saving and investment work best if the time is in favour of you. The shorter the time you have, the harder it is to make saving and investment work for you. If you have no idea what your retirement saving goal is, you can click here to watch the video teaching you how to identify your retirement goal.

Second – build more passive income streams, when you have higher income at this stage, your saving amount shall increase too. This is time to look for more investments and business ventures to get extra passive income streams for retirement. When you stop work later, you do not want to use up the money saved so far, hence, it is recommended to have streams of incomes from various businesses or investments. The passive income streams can be built by investing into mutual funds that give regular distributions, Real Estate Investment Trusts which give regular dividends, investment properties which give regular rental incomes or even annuity insurances which give regular annuity payments. If you have higher net worth, you can also look for special business venture investments that give regular preference share dividends.

Third – get ready the education fund. If your children are almost time for higher education, you need to start identifying the source of fund for their tertiary education. If your fund is in the investment account, you might need to start planning to switch to more stable fund so that the amount is not affected due to market condition.

Fourth – review your insurance and EPF nominees. By this time, your children might be bigger. It is time to relook at the nominees for your insurance and EPF (employee provident fund). You might want to include new family members as your beneficiaries.

Fifth – have will and trust. At this stage, you have more assets so it is crucial to will away your assets when you are not around. For will, you need to decide the executor of the will who will help you to distribute your assets when you are not around. Choose someone you can trust and competent to do the work. If you have young children, you need to have guardians named in your will too. Also, will alone is not sufficient if you have young children. When death event happens, all the assets will be frozen. You might need to set up living trust to ensure your family has liquid cash to sustain while waiting for the assets to be unfrozen. Having will does not ensure the assets to be distributed within short period of time, it still needs time for the executor to get the grant of probate from court, gather the assets and distribute it. Before this is done, a living trust will ensure the spouse and the children have some monies to live on.

Sixth – Maximise the tax benefits. When incomes are more, the tax payment will increase too. It is important to understand the tax relief announced by the government every year and maximise the tax benefits. In 2020 tax year in Malaysia, you can get tax relief up to RM3,000 for life insurance premium, RM3,000 for private retirement scheme, RM 3,000 for medical and education insurance, RM 8,000 for SSPN which is the children education contribution.

Seventh – spend more time and money on health. Health is wealth. At this stage, health might start deteriorating. It is important to not over work and balance the relaxing time and work. Ensure you don’t fall sick easily that will affect your ability to work.

Watch the Youtube video here on this topic.

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Financial management in your 30s

When you are in your thirties, you probably have just got married or have a very young kid. How you want to do well in personal finance, you must manage your finance better when you are 30s if you have not started during your 20s. How are you going to manage your finance better?

During this stage, you have new family members, expenses will increase too. If new house has been purchased, you have even bigger commitment.

First: take care of your family and wealth protection. Family protection becomes very important because there will be more commitments. If you are a bread winner, you need to have adequate insurance protection to cover the liabilities – the car or house loans. When death happens, the family do not need to bear your loans. Critical illness coverage is also important at this stage because when the bread winner suffers critical illness, the family needs more monies for supplements and treatment, the bread winner might not have the ability to work anymore. Hence, the family income will reduce tremendously. One needs to protect the income via critical illness insurance payout. How much is adequate? In general, the death coverage shall be 10x of the annual income and the critical illness coverage shall be 5x of the annual income.

However, at this stage, you will find that you have much more family expenses than when you are in your 20s. To save money, you may consider buying just term life insurance. Keep the insurance cost within 10-12% of your annual income.

Second: start preparing for retirement fund. In 30s, it is critical to start investment if you have not started investment before. Channel 20% of the income to investment for retirement fund. Watch the previous video I recorded for calculating retirement sum here. The later you start, it will be more difficult to accumulate enough funds for retirement.

Third: if you have children, you need to put aside extra 5% of your income for their children education fund. Education is the best gift parents can provide for the children. Hence, always prepare some monies for children’s higher education when the children are still young. The more time you have, the easier it is to accumulate the fund. You don’t want to regret not having enough money for your beloved kids when they are ready for tertiary education.

Fourth: scrutinize your tax and maximise the tax benefits given by the government. In 2020 tax year in Malaysia, you can get tax relief up to RM3,000 for life insurance premium, RM3000 for private retirement scheme, RM 3,000 for medical and education insurance, RM 8,000 for SSPN which is the children education contribution. As a smart person, you shall maximise these benefits because you need to protect your family, save more for your retirement and children education fee. While doing the necessary things, you save more taxes concurrently.

Fifth: Work smart and not hard. You cannot work harder and harder when the expenses keep increasing. You need to balance your family time and work time. Start to increase your sources of incomes, ideally some passive income streams. Expenses will start increasing until your retirement age. To maintain your saving rate, your need to have more income sources. You can also consider upgrading your professional skill so that you get higher pay hourly. Alternatively, you can start to have more investment properties, creating a business or intellectual properties which can bring you more passive income at the later stage.

Sixth: watch the saving and loan interest rates. You shall invest more than saving because saving rate is low. You need to schedule paying a little more loan payment every month so that you can finish paying off the loan faster. Pay the one with the highest interest rate first.

What if you cannot allocate the above-mentioned amounts for retirement and children education? Then, perhaps you are spending more than what you can afford. You shall try different ways to increase your income, understanding the 7 types of income streams here. You can also understand how you can spend wisely through this video here.

Watch the Youtube video here on this topic.

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3 things relating to finance that you can do with your family to enhance relationship

The above news raised concern for Malaysian families. Kids become the victim if families are broken. It is hence important for families to find ways resolving financial issues so that families are being protected.

The followings show 3 things you can do with your families to increase family relationship and enhance the family finance.

Have your spouse to discuss the family financial goals with you. Make sure his / her financial goals are aligned with what you want for the family. Financial goals include retirement goal, children education fund goal and lifestyle goal. How much money you both anticipate for each of the goal and by when you need to achieve the goals? Having these to be discussed will reduce misunderstanding and arguments at the later stage.

Following the goals setting, both of you should start discussing about the budgeting plan and the saving plan. Who should save for what? How much to save per month to achieve the goal? How much to spend to enable the saving required.

Family financial planning doesn’t just end with goal setting and budget setting. It is suggested that the spouse can sit together to discuss the actual implementation and the plan. Monitor and discuss about the progress. Better communication about finances can help to deepen the couple’s relationship which in turn strengthen the family tie.

Involve the kids on simple finance matters. The parents should start having money talks with the kids since young. Many Malaysian families tend to avoid the kids from financial issues thinking that it is good for the kids. However, kids should know the family financial situation so that they don’t bother the family with more financial commitments, or if possible can contribute financially. They should be educated on the basic things such as the costs of the toys, activities, classes they were enrolled into. Let them understand the impact of the cost and have the choice to make decision to select what is best for them. This will also help raise the financial literacy of the kids and they can better manage their money in the future.

Have the whole family to plan for family activities with a budget in mind. It can be a family vacation with a bigger budget or just an evening activity with a small budget say RM 150. Let the kids or spouse to discuss what to do with the small budget. It can be a meal or a movie.

Having the whole family to plan for the vacation including discussing and determining the hotel, places to visit will enhance the relationship and it gives more chances to the family to have conversation. Less arguments will occur pertaining to the selection of hotel and trip packages. Sometimes, when there is a budget set, some elements within the vacation package need to be compromised. Having the family to discuss together can help the family to identify the priorities and spend more effectively. If we want to be happy, having a loving family is important. We do not hope that the financial issues will affect a loving family relationship. Let’s implement the above 3 suggestions for better family relationship.

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How to spend wisely and save more?

Saving is crucial to retirement planning. If we cannot save, we are not able to achieve financial stability and for sure, we are not able to retire as well. Imagine, if we have no saving, when an emergency event happens, how are we going to deal with them? We will be panic, we are not financially stable in that case. If we want to retire, we will need stop work in the future, so we will use the saving to fund our retirement expenses. If there is no saving, how to stop work?

The key to saving is wise spending. The culprit of not being able to save is the inability to control spending. Well, we are all human beings. We have desires and wants. We want comfort, we want freedom, we want fulfilment and many many things. But, seldom we sit down and rank the list and check what are our priorities. In fact, we have one important purpose in life – we all want happiness in life. I assume happiness is our top priority.

By knowing this, whatever money that we spent on things that don’t make us happy is wasted. This concept is powerful if we want to spend wisely. Some simple questions to let you know the real meaning of this.

How many of you have purchased things after seeing the advertisement without evaluating whether you need the items?
How many of you have purchased something expensive and found it to be too precious and you keep it rather than use it?
How many of you have things turning expired and unused?
How many of you have bought something because of your friends or family members?

There are in fact many things that we buy which we don’t use, hence they are not contributing to our happiness level. And worse, we found out that we have lesser money to do the things we want – we are sad. But, why are we buying these things in the first place?

This is what I call “the mismatch of the priorities”. We overlook the reason why we buy them. Shopping will normally increase our happiness for a while but they are not permanent. Our desire is being manipulated by advertisement and our environment.

To avoid this, we need to be more careful when we spend. We evaluate the purpose first when we spend. If we understand our priorities that make us happy, we will be able to select things to buy more meaningfully. The following shows the list of items for you to consider to decide your priorities:-

Mental health
Physical health
Spouse
Kids
Parents
Friends
Colleagues
Communities
Freedom
Comfort
Status
Recognition
Social contribution
Hobbies
Personal growth

Spend more on the things in the top priorities. If our health is on higher priority than friend, we should buy a sport equipment for better health than spending on social event with friend. Product itself does not increase our happiness level, the experience will. Spend only on things that can create the experience that can increase our happiness level.

Start to understand your priority and you shall be able to make informed decision on spending. Have less thing or nothing being wasted. Increase your long-term happiness level by wise spending and you shall be able to save more. Watch the Youtube video here on this topic.

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7 tips to save more money every month

As per the Ringgitplus Malaysia survey on Malaysian financial literacy, 21% of Malaysians didn’t save money at all. Here is the article to share with you some quick tips on how you can save more money every month:-

Do not order drink on your meal: A lot of us are eating outside during working hours. Drinks cost much more than you think. Saving the cost of the drink can help to accumulate more saving. You can also choose to downgrade your drink to plain water instead of ordering coffee, tea or carbonated drinks. Plain water definitely is healthier too.
Save money automatically: save your money every month through a system. Get your monthly auto-debit activated. When you don’t see the extra money, there is no chance for you to spend it. Read here for one effective tool that you can used to systemize your saving.
Unsubscribe for emails or shopping updates: If you are the one who always shop online, unsubscribe the promotion updates from the online shops, this can prevent you from buying unnecessary stuffs.
Pay off your credit card debts: credit card debt interest is sky high. If you are having unpaid amount on your credit card, your saving will be seriously affected. Pay off your credit card debts to save interest and you shall see more savings then.
Review your utility bills: many of the times, due to the market competitiveness, the telephone bills can be easily reduced. Check out the promotion of the few selected providers and find the most cost-effective phone subscription plans. For electricity, use energy saving electrical appliances to save electricity bills.
Have fixed budget for each categories of expenses: having a budget in place is like setting the ceiling on how much you can spend. Ideally, you can have x amount in x account for particular purpose so that your expenses do not exceed the budget set for a particular purpose. For example, all your cash are for food only, your touch and go balance is for your tolls. You can have debit card for shopping to limit spending.
Have shopping lists: sometimes, we tend to buy more than what we need. Having a shopping list can ensure we only buy what we have planned to buy.

Execute the above tips and see how much you can save per month!

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Should you spend or save?

Financial literacy of Malaysians is low. Research shows that most Malaysians do not have enough for retirement and many millennials have high credit card debts. What is the root cause? The saving rate of Malaysian is too low. Malaysians are spending more than what it should be. Malaysians are also very optimistic about their future as they just believe that they will have enough in the future.

In order to decide whether you should spend or save, there should be a financial plan in place. Understanding your future earning capability is hence very important. Say for example, if one can only work until age 40 and will spend another 30 years not working, one needs to save more compared to the one who is working till age 60 and spend 10 years on retirement life.

Many Malaysians ignore the importance of financial planning until they are too old to work or stuck with heavy debts. At that time, it is too difficult to resolve the financial issue. When one is too old to work, can he still reverse the time to earn more or save more? When debts are piling, where can he gets money to pay off the debt?

While having financial plan in place will ensure one has the clarity how much he / she needs to save per month to have comfortable retirement life. He / she will then able to judge what item he / she can spend on. For example, if one realized that he needs to have RM 1 million to retire and he has 20 years’ time before he retires, he needs to save RM 4,167 per month or invest RM 1,700 per month at 8% annual return. If he cannot save and invest RM 1,700, he needs to find ways to increase his income or reduce his expenses. He then knows what he can spend per month. If one has no clarity of what amount he needs to save monthly, he is likely to spend more. It is not when the earning capacity is increased only one needs to do financial planning.

It is also not when there is saving only one needs to start planning. We don’t wait for problem to arrive only we are thinking about the solution, it is often too late and the problem might be too difficult to solve. We need to start planning to avoid the problem!

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