“Oh No! Where did all my money go??”
Does the above question sound familiar around the end of each month? If it does, rest assured that you are not alone. Hundreds of thousands of Malaysians are in the exact same position.
The reality is that the majority of the private sector workforce is not paid enough by their employers to comfortably survive in Malaysia, especially a large city like Kuala Lumpur, at today’s prices. This holds true regardless of the level at which you live. The hardcore poor, the lower income group, the lower middle income group and even the high-income group, face the same difficulties; just on a different scale.
Property prices are skyrocketing, public transport is an unattractive option so those who can, must buy cars (also expensive), the cost of food is rising, the cost of property is rising, the cost of fuel is rising, the cost of living is rising – in short, everything except salaries, is on a relentless upward spiral.
In spite of all the hype and feel-good factors propagated by the powers-that-be, the statistics reveal a far less rosy picture.
Data from the Economist Intelligence Unit’s (EIU) indicates that approximately 60% of Malaysian households earn less than RM6,000 monthly, with 80% of households earning an average income of RM2,500. As a result, all lower income and middle income wage earners, invariably find themselves with too many financial obligations left over at the end of the month, and too little cash. The situation is compounded as the employee becomes older and takes on more responsibilities – housing loan, car loan, marriage, children, etc.
Let us look at it this way – if you do not implement a clear plan of action with which to fight back, you will soon find yourself trapped in the rat race that is engulfing thousands of working adults between 25 and retirement age. Many Malaysians do not sleep well at night, worrying about expenses and cashflow, trying to work out how they can improve their financial position.
Take action now, with these tips below:
Doing an annual budget
This may come as a surprise, but it’s not just companies that need an annual budget. You do, too!
This is a document organized according to the months in a given calendar year, when you already know that you will incur certain expenses every year at the same time.
Examples of such expenses include property insurance payments, car road tax and insurance payments, season parking payments, assessment fees on property, payment of income tax, payment of annual service fees on credit cards, even celebrations such as Raya or Christmas, or birthdays. If it’s an expense that you’re going to face every year around the same time, without fail, list in under your annual budget. This will help you to track your monthly cashflow.
Doing a monthly budget & cashflow statement
There are two documents here – one to be reviewed at the beginning of the month and one to be reviewed at the end of the month.
The monthly budget, should be reviewed at the beginning of the month. First, plug in the data inputs (expenses and projected amounts) from your annual budget. Then, add any additional expenses or items that were not covered in the annual budget.
Once this is done, you’re ready to start on your cashflow statement. This is basically, a couple of entries listing your opening balances in all your accounts at the beginning of the month, and your closing balances at the end of the month. From these figures, you can ascertain how much was spent, how much was saved, and how much was invested.
Doing a daily budget & tracking expenses
If you’re not the sort of person who keeps track of their expenses, then these tips are especially for you!
It’s worth reading a little more about the latte factor – an euphemism for a money-saving strategy whereby the cost of non-essential “nice-to-haves” is redirected towards savings or more high-priority expenses. The rationale is that the amount spent on a latte every day, may seem like small change – but if you were to save that money instead of spending it, the figure at the end of the month could be quite substantial!
A great day to identify and then eliminate the “Latte factor”, is to keep track of what you spend on a daily basis. Some might go for a complex spreadsheet, but the simplest option that has withstood the test of time, is the little notebook that fits easily into a pocket or handbag. All you need to do is to make it a habit to note down every cent that you spend.
At the end of the first month that you do this, you’ll be able to get a pretty good insight into your spending habits. You’ll be able to clearly identify which of your expenses are necessary (such as bills, transport costs, and other payments due), important (such as personal care expenses, food, medical etc), charitable donations and nice-to-haves such as shopping, entertainment and travel. As a rule of thumb, you must be able to pay your bills, take care of yourself and your loved ones, put aside money for savings and have a little left over to give away, buy something that you need, entertain yourself or travel.
The above tips are a good start to getting your “financial” house in order so to speak. Understanding where your money has gone, will better equip you to manage your expenses better, and most importantly, sleep better at night!