Desmond Chong from AKPK, a government agency which provide financial education and help Malaysians who face debt issues, shared about how you can start your own financial planning by first assessing your financial position.

To start with Financial Planning, first you have to determine your Financial Position. Ask yourself these questions: Do you normally run out of cash? Do you still have balance in your account? Are you living from paycheck to paycheck?

After receiving your salary every month, do you use up everything and have nothing left? If you don’t receive your money on time, can you still live beyond tomorrow? If you answer yes to all these, then you are living from paycheck to paycheck.

What is the main characteristic of someone who lives paycheck to paycheck? These people will tend to be around an ATM machine especially before the pay date waiting for their salary.

So, what is the problem here? Why do they have to wait at the ATM every pay day to get their salary? This is because of cash flow; they’re not doing it properly. When we talk about cash flow, it only has two components: income and expenses.

There are two types of income: active income and Passive income. Then, there are three types of expenses: fixed expenses, variable expenses, and discretionary expenses. What you need to know is the result of subtracting your expenses from your income.

After knowing your income minus your expenses, there are only two possibilities, either you have a cash surplus or you have a cash deficit. So, what if your total inflow minus outflow equals zero? Are you doing good? No, because, then, you will have nothing left for your savings, and that is a big problem in itself.

A cash deficit means that your outflow is more than your inflow. Think about it, what will be the problem? What is your position? Will you be suffering? Will you be dying soon? No, not yet. What happens is you are with a cash deficit. You will be swimming in debt.

What does that mean? It means all your work and all your credit will be gone. So what will happen to you? You will lose all your assets and you will be in big trouble.

So, why are people in cash deficit? Because you have too many expenses. Income is like parachuting. Every month, when you get your money, you will fall in to this lake of expenses. If you have nothing left from your income every month, then you’re falling in to a really big lake and has been spending too much.

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Personal finance author and trainer

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