CONGRATULATIONS! If you are a young adult in your early 20s, you would have been waiting for this moment for quite some time now. You have just finished college, got a job, and you harbour ambitions of making loads of money all while carving out a wonderful and luxurious life.
But hang on for a moment. This is a crucial moment and important time in your life, and if you don’t manage your finance properly during this crucial period, those lofty dreams of living a comfortable life further in the future will remain just that – a dream.
Financial Traps To Avoid
Khalil however says that besides the higher cost of living faced by young people who are just entering the workforce, other factors that have a bearing on their financial management include social pressure, attitude towards spending, level of financial literacy, and the ability to differentiate between ‘needs’ and ‘wants’.
“These youngsters often are not living within their means. In a race to compete with their peers, they tend to overspend on non-essentials such as the latest gadgets and cars. They also fail to differentiate between ‘needs’ and ‘wants’. A ‘need’ is something you must have and cannot do without such as food, a home, or clothing. On the other hand, a ‘want’ is something you would like to have but is not absolutely necessary such as overseas vacations, luxury cars, and fine dining,” explained Khalil, who is AKPK’s Head of Corporate Communications.
Khalil also points to youthful exuberance as a possible downfall. “There’s a trend among youth of ‘earning to spend’ and ‘spending before earning’. Furthermore, some believe in living the moment and allowing life to take its course. Their worldview is defined by instant gratification and have the viewpoint that retirement is still a long way away and hence, they put off retirement savings. In most cases, the Employee Provident Fund (EPF) contributions alone are insufficient to see us through retirement.”
Other financial mistakes this young group of people tend to make are getting caught in ‘too good to be true’ investments schemes and inadequate knowledge on responsibilities of borrowers and financial products in general.
Financial Rules To Live By
“There is no short cut to financial freedom. It takes a positive attitude, planning, discipline, and patience,” Khalil tells us.
The most obvious financial rule is definitely to save some money. But what actually is the best way to do so?
“One should start saving early to benefit from the effect of compound interests and we should ‘shop’ around for banking institutions which give the highest returns on savings,” Khalil says before adding: “We also recommend saving 10-30% of the monthly salary for emergencies. Ensure that you have emergency funds worth three to six months of your monthly expenditure for life’s uncertainties. For example, if one starts at the age of 22 to begin saving RM1,000 a year at the return rate of 5%, by the time he reaches the age of 37, he will have amassed a savings of RM21,578.56.”
Khalil also advises people to prepare a monthly budget and adhere to it strictly. “This budget will track the inflow and outflow of cash efficiently if it is consistently updated. So naturally it also acts as a reminder not to overspend.”
One of the most interesting pieces of advice we received from him however was this – live like a student for as long as possible. “Students survive on a shoestring budget throughout their entire college and university days,” Khalil pointed out. “If one is able to continue living on a tight budget, you will be able to use the additional money for other expenses.”
Providing for retirement may seem unimportant to youngsters, but it is never too early to start one’s retirement planning. Khalil says that ideally a fund for retirement should be started from the very first salary onwards to complement the EPF savings.
He also advised young people who have just entered the workforce to invest funds prudently in order to increase net worth and build wealth. “But beware of financial scams and get-rich-quick schemes,” Khalil reminds us. “Be alert to the latest happenings in the investment world and acquire as much information as possible before investing. It is important to diversify investments and not place all eggs in one basket.”
He urged us to ask ourselves a few questions before investing. “Ask yourself how much money you need to save and how much do you invest. Then ask where you are going to get the money for your investment and how much risk you are willing to take to achieve your financial goals. Furthermore ask what returns you expect from that investment and what sacrifices you are willing to make to achieve those goals. Finally, ask how much you are willing to lose if the investment fails.”
So young people, it’s time to empower yourselves and take control of your destiny! Plan you finance wisely now!
