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Personal Finance 101: These are 5 important elements

Personal Finance 101: These are 5 important elements

First of all, there are no links anywhere in this article for you to buy any savings plan or insurance or mortgage plans. There are also no links to view a virtual 360 of a property too. Haha. You are reading this in and this is from someone who has gained some investment experience and wants to share with the world.

I write to share what I know, not to sell any courses at the end of the article. Oh yeah, I do not run any course(s) too. Happy reading to understand why Personal Finance 101 is so important to all of us. It starts with getting a decent job…

#1 – Stable working salary FIRST

Entreperenuers can skip this but be reminded that when you hire people, you should tell them this so that they will work hard for you yeah. No entrepreneur can work alone in growing his / her business.

This is the base supporting the next stage; savings. Job market is all about demand versus supply. If we are good, we are paid higher. If we are good and we are not paid higher, it means we are not as good or that we are in the wrong job. Always take action and always note that if your employer does not appreciate you and you are still staying in the company, I hate to tell you but it’s not the employer’s fault.

However, if we could not find another higher paying job because our skill and expertise is not something special, it’s time to think about how to upskill and upgrade ourselves. Then, we will be more valuable in the job market. 

#2 – Needs FIRST, wants occasionally

If we really do need a car, then buy a car which can help us get from point A to point B. It does not need to be a car which will make us feel better when we compare to those driving a cheaper car. (There are so many driving much better cars!) It does not need to be a car which our friends will approve, they are not the ones paying for it every month. A car appreciates on the first day it is driven out of the sales gallery. Second-hand car need not be a second choice yeah.

If we need lunch, RM10 can be lunch money. RM20 can be lunch money. RM28 for a set lunch with a cup of coffee can also be lunch money too. Difference is RM300 saved per month if we opted for RM10 versus RM840 per month if we opted for RM28. This is just ONE meal for the day. It would not kill us to spend even lower for lunches yeah.

Spending based on needs would help us tremendously to have extra money which could then be saved up.

#3 – Fundamental is all about savings

Whether we are working in one or two jobs or we are an entrepreneur, we need to save up some of the money we earned. If we earn enough money, we could save. If we are able to control our expenses, we could save. If we did not buy what we wanted and stay focused on what we need, then we could also save. Thus, whether we could save or not would already show if our finances are healthy or is fast becoming a worry. In fact savings will provide ‘ammunition’ to the next important stage in Personal Finance 101 which is investing.

Remember, a long time ago, we can save for 30 years and when we retire we have enough money to slowly spend until we say goodbye to this world. Then, we retire at 55 and typical life expectancy is 70 or lower. We save 30 years to last us 15 years. That’s why it may be enough to use that savings.

Today, even when we retire at 60 (which is extra 5 years), it is at least another 20 years which we would have to care for ourselves. Life expectancy is likely to be closer to 80 for majority. This is why savings alone is no longer enough.

#4 – Investing requires knowledge and capability not to be cheated

How many of us realize immediately that a friend is lying as soon as they tell us that if we invest with them, they can give us returns of 2% per month or 24% per year? Actually, even if they say it’s 1% per month or 12% per year, it’s still a lie. If anyone can guarantee even a 12% return per year, the banks would invest with them because the banks are only paying you and me 3% for fixed deposit rates today.

Simple fact yeah. If banks would invest with them, why would they sell the investment plan to you? Personal Finance 101 means we must know when not to believe something which is too good to be true.

Investment returns do not come in days or even months. It also does not come from a stranger and it does not come with super high returns. How many stranger you know wants you to become rich and he is just trying to help strangers?

Invest into the stock market and someone would tell you that you have to watch at it every hour and every day. By the way, that’s called trading. Investment is always a longer term thing, exactly like if you invested into a business, the returns would come 12 months later if not more. It takes time. If you invested into a dividend stock, then the dividends will come regularly and it’s not daily or monthly. It’s usually quarterly or half-yearly or even annually.

Investing into the property market would take a longer time and does not give you immediate returns too. However capital appreciation will happen and it may just because of inflation. Land does not get cheaper. Salaries do not go lower. Building materials can only become more expensive. This is already the reason why prices would be higher in the future. So, property is a good hedge against inflation.

A property today may be worth RM350,000 and in the future may be worth RM700,000 but that RM700,000 may just be equal to the value of the RM350,000 today. The question is, can you save RM350,000 by yourself? If yes, go ahead. If no, then buy a property and force yourself to save and in the future have a RM700,000 property which you could sell and do things you love.

Every other investment needs knowledge. The good thing is, one has a wealth of information these days that it’s possible to know and learn. In fact, even reading 1-2 articles a day in would provide you that information needed too. We are not part of any property developer, not a real estate agency, does not even have a Real Estate Negotiator tag and does not sell you any mortgages.

#5 – Protecting what we have

The final part on Personal Finance 101 is to protect whatever wealth we have because we could save for 10 years and we have RM50,000 in the bank but if we were admitted into the hospital and had to stay for 2 weeks’ treatment including tests, x-rays, minor surgeries etc, the bill for this 14 days’ stay would have eaten up easily half of what we saved for 10 years. However, if we have a medical card which we paid monthly, then it would have provided us with the wealth protection if some unforeseen circumstances happened.

Insurance is NOT an expense, it’s an investment to protect what we have built up. It’s not just medical bills for us. It’s also to ensure our loved ones are protected financially if something happened to us. So, stop ignoring your good friends who happened to be in the insurance industry yeah. Getting to know more is a very good thing to start.

Happy earning, spending, saving, investing and protecting. This is the Personal Finance 101 which should be taught in schools and colleges and even universities. Feel free to invite me if you like. With advanced notice, I could deliver a Personal Finance 101 seminar. Cheers.

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