Parents are important in ensuring their kids handle money properly as it requires a lot of discipline. Parents have all the experiences after having gone through the school of hard-knocks. Parents have learned what works and what does not work. Gaining knowledge by reading books or materials is good but it does not beat real life experiences. The advice or rules found in books may not be applicable to everyone as each person’s situation varies. This is especially true where money is concern.

For example, about 11 years ago when I was going from bank to bank to find out the best mortgage deal or housing loan, I kept hearing the bank representatives saying “Base on your income, we can loan you so and so amount of money which is one-third or about 30 percent of your income.” I knew that this was a common rule of thumb but upon hearing this, I said to myself “Heck, no way am I going to spend that amount of money repaying a housing loan. Seriously, I still need to pay for food and groceries, my two kids expenses (before my daughter was born) and other necessities. On top of that, I still need to save a portion of my income for the future.”

If I spend one-third of my income on housing, I would not have much left for my other obligations. The salary I was earning was not terribly high, just reasonable enough to support a modest lifestyle. I was not complaining as I had enough to pay my bills and meet all the necessary ‘needs’.

Back to the subject, I knew that this rule of thumb would not really work for me. My situation was that I needed 60 percent of my take home pay to take care of my family, 20 percent for savings and investments and the remaining 20 percent for any loans like the home loan. My husband and I had already decided from the onset that the new home (housing cost) should fit what we both can afford to pay. We were not prepared to overspend on a house and burden ourselves with unnecessary debt.

Another example is when buying insurance coverage. Buying insurance for the entire family is commendable and especially important for the breadwinner. It is recommended to get “accidental coverage of 10 times of your annual income.” Well, what if you cannot afford that much of insurance? The answer is to start low and buy only what you can afford. In the future, you can gradually add on according to your needs.

Therefore, whatever advice, rule of thumb or recommendation that you receive or read about, you do not have to follow any of it unless it fits into your situation. It does not matter that the advice is supposed to be the rule of thumb, the standard practice or the norm; you are not obligated to follow it.

In this scenario, a parent’s advice to the kids would be “You are always better off buying or paying what you can afford and only after taking all your other needs and obligations into consideration.” Nowadays, consumers are not made up of adults only as kids especially teenagers are also huge spenders. Don’t let one of your kids end up like the 17 years old Chinese teenager (in China) who sold one of his kidneys to purchase an iPad and an iPhone!

Jacquelyn is the co-author of the books “Teaching Your Kids About Money” and “Top 93 Personal Finance FAQs in Malaysia” with KC Lau. Jacquelyn is the pseudonym used by Amy Sipagal.

    3 replies to "Only Spend What You Can Afford"

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    • Hope

      George, I couldn’t agree more with you. Many Malaysians are not working home-based, thus the need of a car and a home to live in. There will always be that debt that needs to be paid off every month.

    • George Lim

      Agreed on your opinion bu on the practical approach, especially to Malaysian, it is extremely hard to balance the book especially with the hefty price of house and car. Let me put it this way, no car = hard life/ in convenience to travel to work. no house = no life.
      Malaysian has to choose either one only in order not to carry huge debt. So how is this gonna be?

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