The on-going coronavirus outbreak has everyone paying closer attention to their health. But while symptoms like fever, sore throat and cough might have us running straight to the doctor, have you ever thought about your financial health?
Being in good financial health means you have enough money for living expenses and to repay any borrowings, as well as savings for emergencies and for the long-term, like retirement or to buy a house.
But how much should you save, and what else can you do with your money besides spending it on the latest tudung or on dinners with friends?
Here are five steps you can take to get your money in order:
Set financial goals and draw up a budget
A budget is a spending plan. If you stick to it, it will help you meet your financial goals and keep you financially healthy. Start by identifying your financial goals– Do you want to retire when you’re 50, buy a house by the time you’re 30 or be debt-free by 40?
Now it’s time to draw up your budget. Ask yourself: What are my expenses? What are my debts? How much money can I save? Are there any expenses I can cut out? Always keep your financial goals in mind when doing your budget
Tackle your debts first
List down all your debts. Once you have a clear idea of how much you owe, you’ll be able to come up with a plan to tackle your debt.
Next, decide which debt you can pay off first.
There are two ways to do this:
Pay off the debt with the highest interest rate first.
Pay off the smallest debt first.
Called the “Debt Snowball” method, you pay off the smallest debt first, no matter the interest rate. Once you pay off that debt, you can move on to the next smallest debt. Use the money that would’ve gone to the first debt and pay extra on the second debt. Meaning, if you have minimum repayments of RM100, pay RM200 instead.
When you have less debts, you will be less stressed out and have more options for using your money. In the end, your choices will not be shaped by the money you owe.
Build savings for your different financial needs
Ideally, you should save 20% or more of your income each month. But even if you can’t save that much, just start, no matter how small the amount.
At the very least, you should set up an emergency fund. This is the fund you will use in case of an emergency — such as if you lose your job. Aim to save enough to cover at least three months of your expenses. Without an emergency fund, you could be tempted to get into debt just to make ends meet.
However, don’t stop saving once you have that emergency fund set up. You should save continuously and you can then use your savings to purchase big ticket items, like a house or even to treat yourself for a vacation. Use your savings as a stepping stone to building your wealth.
Investing will help you build you wealth.
Investing can seem scary for beginners because of the fear of losing money. It also looks difficult! However, it is a good way to build your wealth as it gives higher returns than just keeping your money in a savings account.
For a start, you should research the different types of investment products available. You can invest in fixed deposits, unit trusts or exchange traded funds, to name a few. You can also read our guides on investing to discover the ins and outs of investing.
Protect your assets
While you’re hard at work growing your wealth, it’s also important to protect your assets. An illness or an accident can wipe away your assets if you do not have sufficient protection in place.
Investing in life, medical or personal accident insurance policies can protect your assets. You should also draw up a will. It’s not just for seniors — anyone with assets should have a will. When a person passes away without a will, their family will usually have to go through a lot of hurdles to access the assets of the person who has passed on. A will can protect your loved ones against this added heartache.
A final word of advice: Don’t feel that you must take all these steps at once. You can take things one step at a time. The important thing is to make a start at keeping your financial health in check. Start small, start now!