How to manage money wisely

Money is use to meet our emotional and psychological desires. Money provide certainty and security to our day to day life. We live our life more significance with money. Without money life can be miserable and out of control. As such, we shall manage our money wisely in order for the money to continue to work for us while we retire or faced unexpectedly events.

HOW TO MANAGE YOUR MONEY

We all know that we can’t work for money forever. Money need to be multiply by saving it either through saving in bank, investment or insurance. It doesn’t really matter what median we used to multiply our money, but the key point is WE ALL HAVE TO SAVE.

One of the main reason we all need to save is no one knows when emergency will hit us. Just like Covid 19 pandemic which hit every human on this earth badly. And what if one day our company just ask us to leave without compensation ? What if dread diseases hit us which force us to stop working ? How prepared are we facing the consequences ?

Besides, saving is vital due to rising cost of living and rising cost of education for kids. If we don’t save now, how can we support our future living expenses upon retire and kids education fees which keep on increasing year by year.

A survey conducted by  AKPK’s 2018 Financial Behavior Survey (AFBes’18) showed that individual between age 50-59 were more serious in their planning while those with higher income have less planning. An online survey done by Department of Statistics Malaysia found that 71.4% of self-employed have saving which can last for one month and 82.7% of those in private sector have saving which can last for 2 months only. (source : https://www.nst.com.my/news/nation/2020/10/636843/saving-awareness-still-lacking)

When manage money, make sure the money is kept in a safe financial tools such as bank account or fixed deposit even though they are not paying high interest. Emergency funds need to have high liquidity because the term ’emergency’ means we do not know when it will hit us. Experts suggest to save at least 6 months of monthly expenses.

If money is really tight at this point of time, do try to save a small fraction of your income. Set aside a saving amount as the monthly expenses that cannot be missed. Automated your saving every month is one of the way to force us to save too. Do not underestimate the power of compounding.

Place a fraction of income to investment. Money in investment enable the money to accumulate faster then expected. Practice to invest a small amount every month with a safe and licence financial instruments. Keep track with the performance every month, quarter or year depends on how volatile is your investment.

Besides that, having an insurance to pay for your medical expenses and income replacement is advisable because the above may drain up your entire saving faster than your thought. The reality in insurance is that when you begin to realize the importance of having it, there’s when you might not be accepted by the insurer due to health complication.

SAVE FOR RETIREMENT

Saving for retirement is equally important as saving for emergency. No one would like to work until the day they leave the world. Besides working, there’s a lots of things in this world waiting for us to enjoy and explore. Increase in life expectancy and inflation are what makes retirement fund more important.

Life expectancy for Malaysian in year 1950 was 52.8 years while in year 2021 it increase to 76.36 years. This means a person who tends to retire at age 60 do have another 16 years in this world without recurring income if he do not plan wisely. (source : https://www.macrotrends.net/countries/MYS/malaysia/life-expectancy#:~:text=The%20life%20expectancy%20for%20Malaysia,a%200.19%25%20increase%20from%202019.)

Try to have a basket of retirement fund and do not just solely rely on one source of fund as retirement. What if the only source of fund you invested failed you and by the time you notice is way too late ? Don’t you agree ? Try to set a purpose for retirement fund. For example funds to enjoy life after retire-Happy Fund; funds for house, car and personal maintenance –Maintenance Fund; funds to visit doctor – Medical Fund and funds to protect our dignity –Sense of Presence Fund.

SET UP A PRIVATE TRUST

Trust is a very powerful financial tools normally used by the wealthy individuals to protect their wealth. Due to the effectiveness, Trust started to be used widely and available to all. What can Trust benefit us ? Trust can make sure our plan moves based on our intention. For example, Mr J bought an insurance to replace his income and one day he met with an accident and fall into coma. Where do you think the payout shall fall to ? Not to the beneficiary but to Mr J personal account because Mr J still alive. Then how Mr J going to benefit from the payout if no one can withdraw the money ? But with a Trust, Mr J can assigned his power to the trustee to act on his behalf and withdraw the insurance payout to pay for his medical bills, hired a nurse and pay for his monthly expenses.

Trust also widely used by retires to enable them to life a significant life. Many retires or old aged parents prefer to transfer their house and money too soon to their child, hoping that the child will in return take care of them. But sometimes it resulting to parents being kicked out of the house, money being misused or scammed away and end up living a miserable life. As an individual aged, handling of money may be difficult at times. They can set up a Trust and place all the assets into it, set a condition as how he would like to benefit from it and the balance of wealth to be transfer to the next of kin upon his demise.

Lastly, saving habit need to inculcate during childhood. Make it a practice and when kids aged, they shall automatically treat saving as top priority. Further do not underestimate the power of compounding. The more you save, the more you compound and the more you will get at the end. To ensure the money we save can act as per wish, do set up a Trust.

Let’s start it right now !

Let’s talk further from here.

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