On July 23rd, Prime Minister Tun Dr Mahathir Mohamad launched the National Strategy for Financial Literacy 2019-2023 and ignited a thought-provoking discussion between Roshan Kanesan and Robert Foo on Wednesday’s Ringgit and Sense Podcast. Themes of the podcast include financial literacy, financial planning and EPF’s e-Member Investment Scheme but for contextual sake, let’s take a look into the financial situation occurring in Malaysia.
Knowledge is Critical
How do we expect to manage our money well and make the best financial decisions if we have no sources or information to base our decisions on? It is a dangerous path, one committed by millions across the world and especially among Malaysians. Which is why financial literacy is so important.
Financial literacy is defined as being educated about money and finance, with a special focus on an individual’s personal finances. Damien Lovett explains the importance of it well;
“Financial literacy is important because it’s pretty much one of the things that will encompass just about every aspect of a person’s life. So even in families, even in marriages, lots of the hard times that people will have are gonna revolve around money. In the system that we live in, everything revolves around money. We’re in a capitalist society, so it’s to everybody’s benefit to know as much as they can about being wise about their money so that they can at least give themselves some type of stability in the future.”
Hence the introduction of National Strategy for Financial Literacy 2019-2023, a stepping stone for Malaysians. And with financial literacy comes financial planning.
A financial plan is a plan you set to make sure you achieve your financial goals for the year. Having a financial plan is important for you to save money for future investments, prepares you for important milestones in life, manage sudden financial changes in your life, control your expenses better and most importantly, reduce your stress.
But How Do You Plan Your Finance?
Robert Foo highlights the importance of cashflow management as well as wealth management.
Cash Flow (CF) Management
Cash Flow (CF) is the increase or decrease in the amount of money a business, institution, or individual has. In essence;
INCOME – EXPENSES = CASHFLOW
To manage your CF, your options are either 1) cut your expense and increase your income or 2) increase your income. Realistically, the first option makes more sense because expenses can be controlled. Cut back on back on utilities, rent or payroll and cancel subscriptions or services that you no longer need. Consider your financial situation and prioritize.
Also, consider having two sources of income. Your primary income is obviously for your primary expenses but what happens when an unexpected situation occurs? Try to find another source of income – through online business etc – for backup in case of such situations (this income will be your fallback income).
Your main objective of CF management is to be CF positive.
Manage your wealth by investing.
Investing your money can allow you to grow it and most investment offer returns on your money over the long term. This return allows your money to grow, creating wealth over time and improving the quality of your life!
However, before you invest, do your research! Which, again, relates back to financial literacy.
As mentioned, The EPF’s e-Member Investment Scheme will be introduced to allow the public to invest directly from EPF into unit trusts. So far, a total of 8 funds has been approved by EPF for future contributors. What EPF does not disclose to the public is that 1 out 4 of the approved funds did not perform well in terms of higher returns.
Therefore, always be updated and knowledgeable (aka financial literacy) to make the right decisions – in this case, to invest your EPF money into something that will beat EPF in terms of return).
Be clear of your financial journey – plan well, save well and earn well with SyncWealth.
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