School Days vs Adulthood
Ethylene, propane and…What’s it again? Ever since I can remember, mixing some chemical liquids and lighting a Bunsen burner are all the stuff that I learned during high school.
Geography, history, additional mathematics were all the fantastic subjects that made you a Grade A student. But did you learn anything about personal finance? How about investing?
Only IF we were taught about the basics of budgeting…And only IF our mindsets were instilled with the importance of investing early. I guess things would be so much different for most young adults.
I couldn’t care less during my college life. I’d always get more than enough pocket money to spend. Lucky me! Until I graduated and got my very first job. I was relishing a moment of joy. “Finally, I can earn money myself!” “I can buy whatever I like without asking for money from my parents anymore.”
Unfortunately, the reality is not as simple as what I’d always been thinking…Thinking back, I don’t blame myself for being so naïve.
Didn’t you feel the same as well when you just started working? Muddling through the real world and living from paycheck to paycheck. Squeezing every penny out of your wallet to avoid sacrificing your social needs. And only took a breather once a year when you finally got your bonus.
How I wish someone would have shared with me the 5 financial tips below during my school days.
Financial Tip #1 – The Basics About Budgeting
Have you ever experienced a situation where you were running out of money before the next paycheck? If yes, it basically means that you’re seriously lacking in budgeting skills. Budgeting is more important than ever for you to survive when you reach adulthood.
Why is budgeting so important?
Not only it helps you build a spending plan, it also ensures that you will always have enough to spend on necessities. More importantly, it helps you avoid spending excessively to keep you out of debt. A budget keeps your income and expenses balance while you’ll still have a small portion of income set aside for savings.
Unsurprisingly, many young adults got into the black hole of credit card debts due to lack of budgeting.
Financial Tip #2 – Invest Early
If you were lucky enough, probably you’d have a piggy bank when you were still a kid. That’s how we learned about saving money during childhood. “That’s really awesome huh?”
I’m not saying it’s a bad thing. But all we learned was just keeping coins in the piggy bank. Though I enjoyed counting coins with my dad and mom. It’s probably one of the best times I’d spent with them.
But what if the school taught you to invest early? Even if it’s just putting small amounts in fixed deposits earning a few pennies. All that matters is learning the concept of making money works for you. It gonna change your whole perspective about making money decisions.
There’s always a misconception that only rich people with big bucks can invest. Nah! You should always invest early to learn the ropes.
More importantly, you can leverage on the magic of compounding.
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein
By saving only RM500 every month with 6% return p.a. After 30 years it will grow to RM502,257. The earlier you invest, the bigger the effect of compound interest.
You can start investing in ASNB fixed price funds with low entry requirement and doesn’t require any specialised financial knowledge . P2P lending is also a great investment choice that provides an average return of 12% p.a. Refer to Peer-to-Peer Lending in Malaysia – Quick Guide for better understanding.
Financial Tip #3 – Live Within Your Means
“Aha?” It’s all because of low financial literacy among the millennials. Don’t be surprised that even some professionals don’t have a good grasp of financial management skills.
Not to also mention the advocacy of living in the moment among the new generation of youths without thinking about consequences. Bragging about expensive branded goods, spending on entertainment and social networking lead them to debts piling up.
Many young adults see credit cards as convenient tools to spend in advance. Don’t they know that they’ve to pay the bills? Don’t scratch your head. I’m perplexed too. Probably their intuition keeps whispering to them. “Only pay the minimum amount shown on the credit card statement!”
Live within one’s means should be taught and instilled into our minds since young.
“Never spend your money before you’ve earned it.” – Thomas Jefferson.
Financial Tip #4 – The Importance of Having a Good Credit Score
Most young graduates, if not all, don’t know the importance of maintaining a good credit score. Neither they understand how does a credit score work.
Banks typically refer to your credit score to evaluate your creditworthiness. The chances of you getting a loan approved are very much depending on your credit score. Be it a housing loan, car loan or personal loan.
Your credit score is directly affected by your payment history, length of credit history, existing outstanding loan amounts, etc.
Why is having a good credit score so important?
Probably you’ve been living comfortably by renting someone’s place and taking public transportation to work day after day. But a day may come when you realize that you’ll need to own a house or a car. All the more reason if you’re planning to build a family.
Most likely you’ll need to get a mortgage loan. Imagine you’ve not been paying your bills on time and it hurts your credit history badly. Chances are you’ll fail to get a loan from the banks. Even if you’re lucky enough to get a loan, you gonna bear a much higher interest rate. And it’ll impact your life (not in a good way) somehow.
Financial Tip #5 – Save For Rainy Days
Last year, Bank Negara Malaysia (BNM) revealed that 75% of Malaysians find it a challenge to even raise RM1,000 for emergencies.
How long can you sustain your daily expenses if you lose your job tomorrow suddenly? You’ll never know when unforeseen circumstances will sneak up on you.
That’s why an emergency fund is so important. And I can’t stress this enough. It ensures that your family’s and your own bare necessities are adequately covered in the event of any possible catastrophe. An emergency fund also keeps you sleep well at night.
If you’ve not built an emergency fund, you should start immediately. You can refer to this guide on how to build an emergency fund easily.
Related: How to Save Money: 5 Great Tips For You.
Forget about investing early if you don’t know how to live within your means. If you’re just prioritising on social needs and enjoying your life without proper budgeting, unlikely you’ll be able to maintain a good credit score. And of course, having an emergency fund will never make sense to you.
It’s obvious that these financial management skills are all interrelated. One thing leads to another. It all boils down to just one question.
How financially literate are you?
“Money, like emotions, is something that you must control to keep your life on the right track.” – Natasha Munson
It’s never too late to improve your financial management skills. Start now!