Thriving Financially in Turbulent Times: Strategies for Personal Finance Resilience
As Malaysians, we are more than just aware that the country is in turbulent times both financially and politically. Current inflation rates have been steadily increasing the price of products across the board and the MYR has been consistently depreciating against several of the big currencies. Even plans for a local holiday may be postponed due to the recent increment of Sales and Service Tax (SST); Pushing hotel prices to increase by 10% to 30%.
The cost of living to earned income gap is ever increasing but there is a way to combat this. In this article, I will cover the basics of budgeting, saving, and investing during economic volatility, with a focus on building financial resilience.
Basics of Effective Budgeting and Saving
1. Start Tracking Your Finances
Tracking your finances is essential to ensuring that you are saving where you can and surprisingly, not many people do it. Most people only start to properly track their finances when there is a big purchase goal to be made such as a house and car. Once that goal is met, the diligent tracking takes a backseat.
I know, it can be tedious and with such busy schedules that some of us have, it is kept at the back of our minds. It requires discipline and effort but it is worth it in the end. So, what actually are the benefits of tracking them? One of them is understanding the purpose behind each expenditure, be it for essential monthly bills, personal grooming, or leisure activities.
Gaining insight into how funds are distributed enables individuals to evaluate the suitability of their budgeting. Should there be any misalignments or challenges encountered, immediate revisions can be implemented. This approach facilitates more informed and prudent financial decisions while also, which is one of the more important points, being able to identify your weakest spending habits and as Malaysians, that's usually overspending on food.
2. The 50/30/20 rule
What is this rule? It is basically the ratio that you divide your earned income into three spending categories. About 50% should go into your needs, be it utility bills, rent/mortgage payments, personal healthcare and groceries. If it essential to your survival, it is a need that should be kept in the 50% of your budget.
Your wants should be capped at 30% of your earned income. Things like Netflix, days/nights out, vacations and personal hobbies. Budgeting does not mean that you have to abandon he things you love to do, but budgeting is keeping realistic levels of spending on your wants and needs to maximize your total saved for rainy days.
Now the 20% and what this budget is all about. Saving! Allocate the final 20% of your budget towards future financial security. This could involve bolstering an emergency fund, making contributions to a retirement plan, or setting aside savings for a house down payment. Additionally, using this portion to pay off debt more aggressively than just meeting the minimum payments also falls under this strategic financial planning.
Now it is understandable if you are unable to follow the exact ratio of this rule as our financial responsibilities may vary. Just remember that even if you just saved 5%, 3% or even 1%, you are solidifying your financial security better than if you had just saved 0%.
Investing During Economic Instability
Identify Risk Appetite
Saving and investing should be synonymous in your dictionary. Saving is for the future and investing is a necessary tool to secure that financial security and ensuring you are financially resilient. Be honest with yourself and how much you can save, because investing doesn't need tens of thousands of Ringgit to work for you.
We live in a time where there are so many programs, investment opportunities and tools to make our saved money work for us. But first, before you dive into the investing world, identify your risk. If you save 20%, don't risk all that 20% in investments. Take time to yourself to identify your risk appetite and allocate money according to that appetite.
Never dive straight into options and futures trading because you hear about the big wins that investors make, because let me tell you that with those big wins, come bigger risks. Now if you have the capital to risk big, then go for it but do your research and know how to do it right, otherwise stick to low or medium risk investments that fit your appetite.
Invest Consistently
Be consistent. That is the key to investing. Do not be sporadic or frugal with your savings, put it to work. This is a piece of advice that's likely familiar to you, and it comes with good justification. Making regular investments, taking a small portion from each paycheck, holds significant power.
The straightforward truth is that with each contribution, you're incrementally increasing your wealth. Moreover, adopting this strategy allows you to benefit from the "out of sight, out of mind" principle, facilitating a smoother financial growth process.
So, dollar-cost average your investments. Allocate a fixed sum of money at consistent intervals, regardless of market conditions. For instance, setting up a monthly recurring investment of MYR100 into your investment account. Take an active role in building your wealth for your future.
Building Your Financial Resilience: A Recap
Budgeting, Investing and Saving
mastering personal finance, especially in the context of Malaysia's unique economic landscape, requires a blend of discipline, strategic planning, and a willingness to learn and adapt. From the fundamental step of diligently tracking your finances to understand where your money is going, to implementing the practical 50/30/20 rule for balanced budgeting, each strategy plays a crucial role in fortifying your financial well-being.
Embracing the discipline of saving, regardless of the percentage, signifies a move towards greater financial security, challenging as it may seem amidst varying financial obligations. Additionally, the journey of saving should be complemented by wise investing, where understanding your risk appetite becomes paramount to making informed decisions that align with your financial goals and circumstances.
Investment consistency, powered by the principle of dollar-cost averaging, emerges as a key to unlocking potential wealth growth, encouraging a proactive approach to financial planning. This not only helps in building a robust financial future but also instills a sense of confidence and peace of mind.
As Malaysians navigate through the complexities of personal finance management, the essence lies in starting small, staying consistent, and always being open to adjusting strategies as life evolves. Whether it's cutting back on the occasional indulgence in food to save a bit more or taking calculated risks in investments, the path to financial resilience and prosperity is paved with informed choices and consistent action. By adopting these principles, Malaysians can look forward to a future where financial stability is not just a goal, but a reality.
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