Get that Personal Finance In Check

Assalamualaikum,

So, I made a poll on Twitter/Instagram to see what people wanted me to write about as a continuation of my previous post [Fresh Grad 101: Getting that First Job]. While the results seem pretty much evenly spread between Networking/connecting, Interview experiences and Personal Finance, the last one seems to have won by a tiny margin, so I guess that’s what I’d be writing about today.

I would not go too much into the detail of personal finance, because (1) I really want to sleep by midnight (if possible), and it’s already 11:06pm as of now, and (2) I’m not too well-versed in it, so I’ll leave it to the people who have been in this field for longer to give all the professional advice and everything.

I will, however, share some of the things I do to keep my personal finance in check. And yes, that means saving up for my wedding (happening in less than 10 days, fyi), tracking and managing my expenses, saving up for future goals (a car, a house, a kid, etc), emergency funds and everything in between.

Do note that this is a sharing post, mostly on my own experiences and what I read and/or talked to with my friends and colleagues. It may differ with your experiences. Everyone has different needs and requirements, so feel free to tweak and adjust as needed to suit you and your lifestyle.

50-30-20 rule

If you Google up the “50-30-20 rule”, you’d find a lot of articles and websites mentioning it. This is a good rule to start off with, but it is definitely not a set requirement to follow (like I said earlier, everyone has different needs and requirements, so feel free to tweak according to your lifestyle).

In summary, the rule means, out of 100% of your monthly income, you should split it into three categories:

50% will cover your ‘needs‘ or your fixed expenses every month. So this includes things like your car loan payment, any personal/educational loan, your house rental, groceries, and basically the things you need to survive. These expenses should not make up more than 50% of your income.

For me, personally, this includes the monthly MARA loan repayment and the money I give to my parents. I’m lucky that I am living with my parents right now so I save a lot on rental. But for others who are renting with friends or spouses, those monthly rentals would also fall into this.

Split up your needs and wants.

The next 30% of your income will go to your “wants” or variable/flexible spending. This are things like your monthly extra shopping sprees (new clothes, etc), your toll/fuel charges, spending on eating out for dinner/lunch with friends, etc. This is basically the ‘fun’ part of life, things that you can cut down if necessary, like your Netflix/Spotify subscription.

The final 20% of your income will be for your savings and investments. This can definitely be more/less depending on your lifestyle and/or responsibilities. So, this include whatever that you are saving in Tabung Haji / ASB / savings account / fixed deposit, etc. If you’ve never been the type of person to save consistently every month, or if you have a lot of monthly commitments (taking care of elderly parents or sick siblings/family members, etc), I would recommend at least starting with saving 10% of your income – which can be increased to a higher % as you climb up higher.

This is most definitely an easy enough rule to remember, and you can always tweak and edit as necessary. You don’t have to follow it exactly, and you can, for example, save more than 20% and spend less than 30% on your wants/flexible spending, if you want to (which is good too btw).

Expenses = Income – Savings, and NOT Savings = Income – Expenses

One of the biggest mistakes that people do in spending is that they spend first before they save. This means that they may sometimes have no savings at all if they’ve spent more than what they should’ve in the first place.

The correct (and proper) way to do it is to set aside some money to be saved first before you spend the rest of your money. This help ensures that you will actually have some savings at the end of the day.

For example, imagine that your take-home pay (after EPF deduction, etc) is RM2,500. If we follow the 50-30-20 rule from above, 20% of your take-home pay is RM500. At the end of the month, every single time your salary is paid, automatically put aside the RM500 savings into a different account (i.e. transfer to Tabung Haji account, to ASB, to a different non-ATM/debit card savings account, etc) where it is harder to touch. In this case, you would only have the leftover RM2,000 to spend, ensuring that you don’t spend more than necessary. And, hey, if you ended up spending less than RM2,000, you’d have additional savings, which is awesome.

Automating your savings

One personal habit of mine is to automate as much things as possible, and to pay off the ‘recurring payments’ as soon as my salary comes in. So every 26th (or was it 27th, I can’t remember when my salary is paid lol), Maybank will automatically deduct money for my MARA loan (so that I don’t forget to repay it), and I’d also go in to Maybank2U and transfer a sum of money to my Tabung Haji account for savings. A portion of my salary will also be (1) transferred to a different savings account (also under Maybank) to be deducted for my Takaful payment, and (2) withdrawn for me to (i) top up my parking card, (ii) top up touch and go card, (iii) give to my parents, and (iv) top up my phone credit.

So it felt funny that while I get my salary every end of the month, but within 2-3 days of getting paid, I’d be down by about half of it to last me until the next salary payment. But I don’t feel bad about it because I know that I’ve paid off a lot of my fixed monthly expenses, and I don’t risk spending a lot and ending up with less/no money for my ‘needs’.

Tracking your expenses

There are lots of ways / apps for you to track your expenses, and I highly recommend you to explore and experiment to see which methods are most suitable for you and your lifestyle.

Personally, I use the app Income OK (the free version is called Expense OK) on App Store. I think it’s been great so far (have been using it consistently since I started working last July, and have only been on a hiatus from last month due to wedding preparations and lack of focus lol). I think it’s a great app to start with, but unfortunately it’s only on App Store.

Some may recommend using a Google Spreadsheet – this is also one that I use (I consolidated my expenses from Income OK to a Google Spreadsheet at the end of the month, helps me to see any major changes in my expenditures from month to month).

Whatever it is that you decide to use, make sure you update it consistently. Every single cent and ringgit that flows out of your wallet / bank account, jot it down and categorize it (I have categories for family spending, gifts, self-care, entertainment, etc), and keep track of your budget to see if you’re spending more or less of what you’ve budgeted. Do this for at least the first few months and then it’d be easier for you to adjust and review your budget based on how you’ve been spending.

Have emergency funds / savings available

Some people suggest having 3 months of expenses as your emergency funds, others suggest 6 months of expenses. But, whatever it is, you must have at least some form of emergency funds / savings available in case the unwanted happen (like a car breaking down, a sudden illness, being laid off, etc). This emergency fund will act as a ‘cushion’ to you in case anything bad happens, so at least you wouldn’t be in much trouble at times of emergency.

I recommend having your emergency funds in an easily-accessible place, but also ‘hidden’ so that you are not tempted to take money out of it whenever you feel like it. So it can be in a Tabung Haji account, a different savings account (that is probably linked to a debit card that you keep only at home), or any other places la that suits you.

This is, however, different than your savings for your future goals (wedding, car, downpayment for a house, etc), so it’s best to keep it separate. For example, following from the example above, if you save RM500 monthly, you may allocate RM300 to be in your emergency funds, and RM200 to be in your future goals/savings for a wedding.

Calculating your emergency funds:

Say your monthly expenses (for house rent, monthly groceries, phone bills, etc) are RM2,000, so a 3-to-6 months emergency funds is RM6,000 to RM12,000. This fund will help you to cover all the fixed payments (rent, etc) while you are unemployed, for example. It may seem like a huge amount to have, but you can slowly build up that emergency fund. If you allocate RM500 monthly, in 12 months you’ll have your 3-months emergency funds already. But, if you opt to save RM250 monthly for this, it’d take you 24 months to have the 3-months emergency funds. Slowly, but surely, you’ll get that 3-to-6 months worth of emergency funds, which can be a huge lifesaver for you in case of emergencies.

Credit cards – yay or nay?

Credit cards, in my opinion, is a double-edged sword. I personally love using my credit card(s) because I like to collect points and rewards. However, if not used correctly, it can damage your credit score and create hell for you (which is probably why a lot of people do not recommend young people to use credit cards as younger people tend to abuse it more).

My advice is: know your limit, and do not treat it as a source of money. Instead, treat it as a debit card. Whenever I use my credit card (mostly only for groceries and fuel), I will always pay it off immediately. This ensures that I always make the payment on time and do not accrue any interests or late payment fee.

A lot of the issues about the negatives of credit cards revolve around people misusing the credit cards – using it to buy expensive things that they cannot afford to buy with cash, and not paying the credit card off in time. This happens because the credit card is treated as an unlimited source of money, which it is not. It is merely a way for you to pay easily, and, in some cases, earn from it.

But credit cards can be good too.

A credit card can be useful in many ways (in my case, mostly for points when fueling up or buying groceries). Some credit cards offer points on purchases (different purchases at different stores or on weekends/weekdays, etc). Some credit cards offer extra mile points when you purchase flight tickets (useful for avid travelers). Others may offer 6-month 0% interest on certain purchases (this was how I paid for my GoPro Hero 4 previously in the US, where I used my Amazon credit card to pay, and I break the payment down into smaller payments over 4 months instead of one huge lump sum payment).

Personally, I think credit cards are useful – and having a good credit score can definitely help in the long run (when you’re applying for a house loan, etc), so be sure to fully do your research before getting one, and make sure that you always always always pay off the credit card as soon as possible.

Think you can keep that personal finance in check now?

So that’s five tips for now, which I think is good enough. It is also 12:05am, which means it took me ~1 hour or so to type up almost 2,000 words for this post. Yikes.

That should be all for now, and I’ll be more than happy if you want to share your tips / suggestions for fresh graduate in the comment section below. I apologize for not being able to write on about more things (takaful, etc), but as I mentioned, space and time is limited, and other people have already done so on their websites/blogs.

As a last note, I would recommend visiting MyPF and signing up for their newsletter. I find that they give solid good advices and recommendations, and is definitely a good read. Other sources that I enjoy reading are also KewanganGraduan on Twitter, Suraya’s RinggitOhRinggit, RinggitPlus and iMoney (to compare cards, etc) and MrStingy‘s website. Or you can also view a bunch of recommended websites on personal finance on Suraya’s blog here (p/s thanks Suraya!).

Until next time, Selamat Hari Raya and stay awesome! 🙂