Here is my take on this.
First, it is one thing to recognise this as a part of your shortcomings. However, it is another thing to use this as an excuse to not work on your finances. Hiding all your bank statements into your closet wouldn’t magically rid your money issues right away.
But, I totally get it.
Not everyone understands numbers. The thought of even looking at numbers is to you, a dreadful one. Maybe, as you read, you just feel that these things don’t quite gel with you.
If that’s you, take heart.
In the next 5-minutes, I would like to share with you just 4 things that you could do immediately to work on your finances and feel really good about it. Trust me on this. They are anything but technical. So, let’s get started.
#1: Income – Savings = Expenses
Commonly, we learned that:
Income – Expenses = Savings
And psychologically, if we earn RM 5,000 per month, we tend to spend first and save whatever is left. Usually, this results in many to have irregular savings or to overspend, funding the excess via borrowings.
So instead, here is what you can do.
When you receive your income, take 20% and put it into your other account. As for this account, the cash put within is meant to build your financial future. This is best practice by consciously transferring 20% of your income, from your bank account into your designated account for ‘savings’, which could be:
1. Fixed Deposit.
2. SSPN Account.
3. EPF Account.
4. Digital Cash Management Platforms like KDI Save.
5. Loan Accounts, if you have a mortgage.
6. Amanah Saham Bumiputera (ASB), if you are a Bumiputera.
7. Pay Off Credit Card Debt, if you have any outstanding amount.
Do not use mental accounting. Make the conscious effort of transferring money into your designated account. This is an important step because psychologically speaking, you are separating the 20% money for your financial future from your 80% that you can use to fund your monthly expenses. Essentially, you’ll do:
Income – Savings = Expenses.
So, if you receive RM 5,000 a month in income with your Maybank account:
1. Take RM 1,000 immediately and put it into any of the 7 accounts above.
2. Live off the RM 4,000 until your next income is received.
#2: What if My Expenses for the Month is RM 4,500?
Should I take money from any of the 7 accounts to fund the excess RM 500?
Well, it depends.
First, if the RM 500 is inevitably an emergency expense (medical fees, car repair and house maintenance), I totally get that and I think it is okay to withdraw it to fund the excess RM 500.
But, if you are thinking about the latest widget, holiday getaway, gift purchases, and entertainment, then, the answer is no. You may fund all these expenses via any excess from the RM 4,000 or 80% of your income. Here, I believe it is useful for you to reflect what is needful and immediate from others that aren’t so that you’ll have an easier time in improving your finances.
Here is a trick to building wealth:
It is not so much about financial smarts or intelligence. Wealth building is faster and more efficient if you can control your spending. Period. The act of making a simple effort of saving money consistently is very powerful in building wealth. If you can live off comfortably and be satisfied with RM 4,000 per month, you can build wealth faster than one who always spends more to get more satisfaction.
#3: Make New Friends
Some equate the act of saving money as being a miser, a scrooge, and a servant to money. Some felt happy and accomplished if they could spend money. In this view, it would feel awesome to spend money and miserable to save money. The thing is – ‘If you have this feeling, it will be very difficult for you to build wealth.’
This situation is made worse if your circle of friends adopt a similar belief about money.
If that is you, it is time to change your mindset and your friends.
If you are the average of 5 friends you hang out with, it is timely for you to have new friends who are more responsible with their financial lives. It will be easier, simpler, and effortless to save money, if your friends are financially responsible, capable, and independent. They may not necessarily be rich and wealthy today. But, they have a rich mindset and would encourage you to achieve your goals in finances.
Therefore, try making friends with people who are good with their finances.
#4: Set Mini-Goals with Small Rewards
So here, this is about making finances as seamless and pleasurable as possible.
Instead of complicated formulas, I believe it is helpful to set simple goals, which you can attain easily and decide on a reward for attaining them.
Here is one:
How about saving 20% of your income consistently for the next 3 months and if you did so, just reward yourself with a simple treat like a movie or ice-cream?
The objective is well-defined. The actions are simple. The reward is pleasurable.
Then subsequently, you could set yourself a new goal or adjust the existing goal to suit your current objectives. You can continue to do so and make this a habit, a culture, and a system that you can practice over the long-term.
So, once again, here are the 4 action steps to be taken immediately:
1. Save 20% of Your Income. Put that into a Designated Account for Savings.
2. Live off 80% of Your Income.
3. Make Financially-Responsible friends.
4. Set short-term goals with small pleasurable rewards at the end.
The most important thing here is to just start and get the ball rolling.
If you do so, I’m sure that you’ll end up a little richer 2-3 months later than how much you have in financial wealth today.
If you have any questions, please feel free to post them at the box below.