Personal finances include budgeting, setting short and long-term goals, spending, saving, and investing. Whether it’s setting aside enough money for your short-term financial needs, planning for retirement, or saving for your children’s college education, it’s important to meet your personal financial management goals.
It boils down to your income, expenses, lifestyle, financial management goals, and planning to meet those needs within your financial means. Financial knowledge is also important. This will help you distinguish between good and bad advice and make smart financial decisions.
Are you aware of your financial situation?
Take a closer look at how to manage your money better with these seven money management tips.
1) Know your current financial situation
First, you need to get an overview of your current financial management situation. Find out how you are doing financially. List outstanding debts, loans, and monthly commitments. Are you making enough money to pay off those obligations? Need to cut costs to make it more bearable?
We recommend checking your credit history to see if you have a good credit rating so you can take on more debt if needed. To access the report, use any credit scoring service available in your country or a free credit scoring site.
In Malaysia, you can get a free credit report by completing the CCRIS application form from Bank Negara Malaysia. Alternatively, you can opt for a paid credit check with CTOS, a private credit bureau. You only need to spend around RM 20 per report as the process is fast, and they usually offer discounts and special offers.
After sorting, you can set monthly budgets to keep your monthly expenses under control.
2) Set a monthly budget
Planning can give you an edge in life and money. Don’t let this describe your financial management journey. As the saying goes, “If you don’t plan, you will fail.”
Set a budget before the start of each month. This helps ensure that you can cover your daily expenses on top of your monthly obligations while also having some emergency cash.
There are various ways to achieve this. One way is to write down your budget in a notebook the traditional way. You can also use Google Sheets, download any money management app, or use your phone’s note-taking feature.
Not sure how to set your budget? Follow the 50/30/20 rule.
3) Follow the 50/30/20 rule
Do you know the 50/30/20 rule? This is a simple money rule that will help you allocate your budget effectively. Spend 50% of your net income on needs, 30% on needs, and 20% on savings.
Needs are the bills you have to pay and other things you need to survive. This includes repaying rent and mortgages, car loans, groceries, takaful (protection plans), phone bills, utility bills, and other necessities.
If your needs are more than 50% of your net income, you may need to consider lifestyle cuts. If you’re thinking of moving to a smaller apartment, choose cheaper cars, cheaper phone plans, and lesser-quality grocery stores.
Desire is everything else that is immaterial. This includes fancy dinners, Netflix subscriptions, branded perfumes, state-of-the-art gadgets, and more. These are things that make your life easier and more enjoyable, but they don’t necessarily make you richer.
If you spend too much money, you may need to consider limiting some of your desires. Don’t exceed 30% of net income.
Set aside 20% of your net income for savings. The goal is to have at least 3-6 months of net income in reserve for emergencies. Especially in uncertain times like the current COVID-19 pandemic, it is important to have adequate emergency funding. It helps to be financially prepared for what might happen in the future.
Once you have enough savings, you can invest it and start growing your money. Spend 50% of your net income on needs, 30% on needs, and 20% on savings.
4) Spend as much money as possible
Islam teaches us to spend our money in moderation, not too modest, not too extravagant.
“And when they do spend money, they are always [understandably] moderate, neither excessive nor modest.” (Sura Al-Furqan:67)
As long as you spend your money within your means, you have a great financial management future ahead of you. When you spend money within your means, you don’t have to waste it trying to impress others or maintain your wealth. Falling into the trap of following Jones is sure to blow your wallet. You only get thin wallets.
5) Pay by credit card
Credit cards have both advantages and disadvantages. On the other hand, bonuses, cashback, and rebates can be attractive and lucrative. On the other hand, her credit card can be a disaster if you don’t learn how to use it wisely. Credit card debt is something you definitely want to avoid. When things get out of hand, you end up paying a hefty amount that exceeds your actual debt, equal to the profit you made from late payments.
The trick is to only use it when you need it and pay it off on time. Also, he should not have more than two cards.
If you are in financial management trouble due to credit card debt and are struggling to get out of this situation, please contact the Malaysian Credit Control Authority or an agency such as AKPK.
6) Track your spending
To be good with money, you need to watch your spending. If you don’t know your spending, your budget planning will go awry. You need to know where your hard-earned money is going and track it to make sure it stays within your budget.
Record your spending throughout the month, not just at the end of the month. Better yet, write it down every time you spend money. That way, you don’t miss a single expense and get a more comprehensive view of your spending and budget.
Tracking your spending throughout the month is an important step in managing your money.
There are many money management apps and tools that make tracking your money easy. You can also download apps from the Google or Apple stores, use Google Sheets or Microsoft Excel, or use your phone’s notes feature.
7) Start investing early
The sooner your finances settle, the sooner you can start investing your money.
It takes time to make money. Therefore, the sooner you start investing, the higher the cumulative return on your investment and the more money you can make.
There are various investment opportunities that you can consider. Do your research to find out what works best for your finances and financial management goals. Find out if your minimum investment is one-time or recurring and how long you need to commit before you get a return.
When it comes to investing, it’s best to diversify. Don’t put all your eggs in one basket.