4 Simple Tips to Manage Your Finance Better

The mindset of many Malaysians are always about "making more money" or "finding investments that will give the highest returns". While finding the best invesment or making more money is a good mindset, we should always remember and practice the basics of personal finance. Don't you agree that it's easy to become complacent with our spendings and finances whenever we make more money? Hence it is of upmost importance that we strenghtened the roots of financial management in order to prevent loss of wealth.

You don't need to be a genius to manage your personal finance. With the right mindset and discipline, managing your personal finance can be a breeze. To have better control of your own finance, start by practising these 4 simple tips.

Tip 1 : Set A Goal

Anything is achievable if you set specific goals. When it comes to financial goals, setting a target in mind is a great way to ensure your finances are within control. Setting a goal can be easy as "123" but sticking to it is the difficult part. Most of the time we fail at achieving our financial goals due to lack of proper financial planning.

It's easy to say "My goal is to set aside 30% of my income monthly for savings", yet why so many fail to do so?  The key failure reason is in the statement itself. Setting aside 30% of your income is a means toward achieving a goal. With no measurable and specific goal set, how are you able to drive yourself to save that 30%?

Tip 2 : Track Your Income & Expenditure

For those who have taken the Accounts subject for SPM, you'll remember that in the ledger book, there will be a section for debit and another for credit. In school, we were taught to balanced our ledger yet after leaving school, many of us fail to do the same for our personal financial ledger. Knowing or unknowingly, most of the time our financial ledger is in overdraft (credit card debt) due to uncontrolled and unmonitored spending.

Keeping track of your income and expenditure helps you to get a better grasp on where and how your money is spent. Having a record tells you how much you've spent on a day to day basis. That allows you to cut back on unnecessary expenses whenever you find yourself overspending for a particular month. Despite the tedious process of tracking your income and expenditure, the control you have over your financial situation far outweighs that of the effort spent on tracking.

Tip 3 : Buy Your Needs not Your Wants

This age old financial advice have been repeated so often that many Malaysians are probably immune to it. In the new age of personal finance, the advice is not about discouraging people from buying the "Wants", instead "If you REALLY WANT IT, go buy it!"

The new financial advice encourages us to spend on something that we really want as a form of self reward for achieving certain financial goals. However, you should only spend on your Wants only when you have the extra cash to spend. How do you know if you have extra cash to spend? Read Tip No 2 again.

Tip 4 : Live Within Your Means
A fresh graduate starts working with a basic pay of RM3000 per month. He needs a car to get to work and believes that getting an imported car is a better value for money. He's needs to pay about RM1000 a month for the next 7 years based on a RM80,000 car loan. He "feels" that with the remaining RM2000 per month, it should be sufficient to live on. In your opinion is he making the right decision to purchase a RM80,000 car?

Has he taken into account the cost of petrol, maintenance, annual road tax and insurance of the car? These addtional hidden expenses of a car that will eventually eat into our income the moment you start owning one. Eventually, that graduate would have to start skimming on certain expenses such as food just to make ends meet. Could he have had a better way of life if he had choosen a local car worth about RM40,000 and switch to a better car once he earns a larger paycheck?

Living within your means is not about being extreamly thrifty/stingy with your money. Living within means is about having all your needs addressed, being "bad" debt free and ultimately worry free.

Summary
I'm very sure that you've come across all four tips countless times yet why are there still so many Malaysian living in debt and below their means? Are we to blame others for our lack of financial control or should we start learning how to manage our money? I leave that decision to you.

Cheers and Happy Investing!

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Related Articles:
1) Financial Freedom, Making It Your Own Business
2) Investing In Yourself

Financial Freedom, Making It Your Own Business

Have you ever thought that achieving Financial Freedom (FF) is somehow similar to achieving success in a business. That thought came across my mind when I was having a discussion last night with a colleague about the meaning of Financial Freedom and what are the factors that we should cover in order to be truly Financially Free.

Let's take a look at a few facts about business first:

1. 96% of small businesses fail within the first one year
2. Most small businesses fail because of mismanagement due to inexperience.
3. Preparation and planning is an important key to ensure a successful business.
4. All businesses should have a goal in mind which will be supported by a proper business plan.

Say for example I have a goal to establish a successful restaurant that sells chicken rice, what should I do first?

Having A Business Plan

Obviously the very first step to start my own restaurant is to set a goal and develop a proper business plan. A business plan helps to ensure that all factors for starting up a business are covered and taken into consideration. That of course requires a whole lot of effort in determining the key factors such as:

• How much start up money do I have and how much more do I need to start a business
• Where can I obtain that kind of additional funds?
• Where to open up the restaurant?
• Any nearby competition?
• What are the legal requirements to meet?
• And the list goes on...

All the above requires due diligence to find out either from reading, asking, listening or getting consultancy. 

Challenges In the Business

After working out the details of the planning and executing the steps, I've managed to start my own chicken rice restaurant. Obviously there are many key factors to look into in order to have a proper running restaurant such as:

• Hiring manpower and staffing (chef, cashier, waiters/waitresses, etc)
• Ensuring that important raw materials (rice, cucumber, chicken) are delivered on time.
• Customers are happy and satisfied with the food served.
• Continuous menu innovation to attract more customers.
• Total monthly sales is enough to pay off salary of staff, purchase raw materials, rental, utility bills and any other expenses incurred.
• Ensure availability of "rolling cash" if there a need for emergency purchases or additional unplanned expenditures.
• And the list goes on...

The bottom line of business is then measured by the net profit at the end of each month or year. A successful business on the other hand is repeating and improving upon the net profit year in year out.

What's Business got to do with Financial Freedom?

In actual fact Financial Freedom (FF) is your very own Personal Business. Like it or not, if you wish to achieve a successful business in "Financial Freedom", you've got to plan, execute, revise, and  monitor the progress like any successful business man/woman would do with their business. 

The first step is to set a goal which will then be supported by a well planned strategy (very much like having your business goal and plans)

Let's take a look at the similarities between planning a Chicken Rice Business and planning a Financial Freedom Business in the table below: 

	Chicken Restaurant Business	Financial Freedom Business
Goal?	To open 3 outlets in Klang Valley within 5 years	To achieve Financial Freedom by 45 years old
Current Financial Status?	What is my current funds status and how much more do I need to start my first restaurant? Do I need to take a loan?	What are my current assets, savings and investments? Am I in debt? How much more do I need to be Financially Free?
Forecasting and considering  threats	Who are my rivals and is my restaurant location  strategic to attract the right customers?	What is the worth of my money when retire at 45? Have I factored in inflation?
Legal Requirements	Type of License required and what type of tax II have to pay from my profit?	Identify what are the type of tax I have to pay from my investment returns?
Action Plan	How should my menu be? What kind of Chicken Rice will generate the most sales? Should I serve only chicken rice or should I add in other choices in my menu?	What kind of investments should I pick which will generate the highest returns? Should I concentrate on one or diversify my investment?
Insurance	Is my business and assets insured? Do I have enough insurance to protect my premises?	Do I have insurance? If I do, is the coverage sufficient?

See the similarities now?

My Financial Freedom plan is ready, what's next?

Most businesses fail largely because business owners do not stick to the original business plan. Many business owners that start off with a small initial profit tend to be easily lulled into a false sense of security that their business is doing well!

Mismanagement due to overconfidence, losing sight of the goal and not following the plan have caused many businesses to fail within the first year itself. Try asking any successful business owners and you'll find that all of them already have a goal in mind, execute their strategies accordingly and always seek for ways to increase their profits. 

The same can be said when you plan for Financial Freedom. A Financial Freedom plan needs to executed, monitored closely, revised accordingly and finally reviewed at least once a year to ensure that your Financial Freedom goal is on track. 

Here is another similarity table between running a Chicken Rice Business and running your own  Financial Freedom business.

	Chicken Restaurant Business	Financial Freedom Business
Increase in Customers	Is my chicken rice good enough to attract more customers? If not, should I continue serving plain chicken rice	Are my investments giving me better returns? If not, should I search for better investment alternative?
Ensuring raw materials are available and sufficient when I need it.	I must ensure that all raw materials that I need to prepare a chicken rice is available and delivered on time.	I must ensure that I have enough insurance protection and coverage.
Availability of "Rolling Cash"	I must have certain amount of liquid cash for any emergency purchases.	I must have certain amount of liquid cash saved up in case I need it during an emergency.
Income from my business enough to pay off all my overheads	I must make sure that my business is able to generate income to pay for the salary, raw materials purchases, rental, utility bills, etc	I must make sure my investment  returns are sufficient to pay off all my expenses without the need for me to work.
Expansion of business	Net profit from my business allows me to eventually ecpand my business	Additional investment returns allows me to enjoy things like going on a vacation yearly

See the similarities again?

Financial Freedom, a business that you should venture into!

Many tend to give the excuse that doing business is not their fortitude and financial freedom is never going to happen. Have you realized that sub consciously you have been practicing business every time you plan on what to do with your income, how much insurance to buy, how much should you save for your child's education and more? The only difference between individuals is how well you run your business from the perspective of personal finance. A well ran business will eventually reap the reward of Financial Freedom at the end of the day!

Don't you think it's time for you to mean business as well?

Cheers and Happy Investing!

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You Don't Need To Be A Genius To Manage Your Money

To become financially free, it's not just about having a solid investment program laid out for you. Investing is all but one part of the many criteria towards become financially free. An important criteria many of us tend to overlook is having a proper money managing plan. Without setting financial goals and proper money management, successful investment returns will only end up being spent away or spent on the wrong things.

It's not that difficult (really) and you don't need to be a genius to manage your money. All you need is to allocate some of your time and put in some effort to start your own financial plans and goal. Here's something I found from from BankingInfo that I feel is worth a read and hopefully kickstart your own money managing plan!

Taken from BankingInfo:

Whether you earn a little or a lot, it’s always wise to start budget and plan your finances smartly. Common mistakes that most people would make when it comes to money is getting too deep in debt, paying bills late, and not knowing how to save for the future. You can avoid making these mistakes by always keeping track of where your money goes and knowing what you can spend on.

Here are some steps that you can use for managing your money wisely

STEP 1 - SET YOUR FINANCIAL GOALS

Financial goals reflect things you want to do with your money within a certain period of time. Setting these goals will help you understand the value of money and encourage prudent spending. Be sure to know how long you should plan for each goal. 

Are they short, medium or long term goals? Which one of the following are your financial goals?

• Buying a house
• Buying a car
• Starting a family
• Child’s education plan
• Traveling
• Medical and Health Insurance
• Saving for retirement

STEP 2 - KNOW WHERE YOUR MONEY GOES TO 

After setting your goals, start developing a spending plan so that it’s easier to achieve your goals. Remember that your aim is not to cut your budget but to note the direction of your spending. 

With this you will know:

• Where and how you spend your money
• How much you owe monthly
• How much is left at the end of the month

STEP 3 - ASSESS YOUR SPENDING HABITS

If you find that you have nothing left at the end of the month, it’s time to assess your spending habits. Look through your list of expenses and determine if they are a necessity or luxury item. 

Look out for the following warning signals of bad spending habits that may lead to real money problems:

• You use your savings to pay current bills
• You take new loans to pay for old ones
• You owe more than you earn
• You buy on impulse even when you know you cannot afford it

STEP 4 - WRITE DOWN YOUR SPENDING PLAN

A spending plan can help you manage your finances. You can also target areas where spending is out of control and also set a clear path for saving.

You can start making your own spending plan by using this simple guide:

• Establish your monthly total income
• Add up your total expenses including fixed monthly bills, loan repayments, rentals and daily living expenses, etc
• Put aside a fixed sum of money to meet emergencies or seasonal expenses (e.g. school fees, road tax, insurance renewals)

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1) How much $$ is Enough??

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