7 Attitudes to Money That Could Be Holding You Back
In the realm of online money management articles, much of the same advice has been bouncing around concerning money management. Spend less, save more, reduce bad debt, and so on.
Here, we look more at attitudes towards money, rather than behaviour.
Why? Because many Malaysians find themselves financially adrift due to a poor attitude towards money. The art of managing money is not something inherent to everyone.
Low financial literacy is an acknowledged problem in Malaysia. But being aware of what you might be doing wrong, is the first step to correcting this situation. So, take a look at this list – you might just discover a few things that keep you from getting ahead.
1. Treating budgeting casually
Yes, this one has been covered numerous times in other articles and blogs, but it bears repeating.
It is also central to any best-laid plan for financial management to be put at number one. After all, without any form of monitoring, you can’t possibly know your exact financial situation, can you? Even worse, you’ll be prone to monetary surprises for which there is no contingency.
Without an overview of your spending, you’re laying the groundwork for disaster and most likely will end up in a debt trap.
If you do monitor your expenses, but it’s a situation of ‘oh a few hundred here and a few hundred there’ - that’s no good. You will need to know what is going where, at least down to double digit figures. Likewise, if you’re a frequently online shopper, or use your card often, you can easily lose track of what’s going on.
What to do:
Start a table, whether on paper or Excel. Begin with your spending and track both monthly fixed expenses (loan and credit card repayments, Astro, etc) and your daily expenses (toll, latte at Starbucks, that cool bauble on Mudah).
Once you know with some precision what your expenses are, you can easily see how much is being spent in a category (i.e. eating out), and where it can be saved (eat out less!). From here, you can set a monthly budget.
2. Treating money casually
Learning about money and the many forms it takes can be tedious, confusing and frustrating. But financial literacy is an important aspect to enable healthy financial management.
Not understanding how financial products work can send the person signing up for them, whether a loan, credit cards, hire purchase, and so on, into all kinds of debt traps. Is that loan really affordable or does it just look at that on paper backed up by the bank rep’s sweet talk?
The situation is exemplified in a study the Asian Institute of Finance, which revealed that 58% of Malaysians surveyed admitted to having only “average financial knowledge”, with only 28% of respondents confident in their financial literacy.
The end result of this is almost half a million Malaysians having participated in the Credit Counselling and Debt Management Agency (AKPK)’s debt management programme in the last ten years.
What to do:
Get educated. Learn about the various financial instruments out there.
Engage with someone who knows about these things. Start with what you have now, whether a housing loan (do you know the difference between conventional and Islamic, for instance?) and credit cards.
3. Not knowing your debt
Do you have trouble paying bills?
How about paying back money you’ve borrowed from others, even just RM100?
Do you remember your bank account balances?
When money comes in from other sources, do you know where it goes or does it just fritter away and one day it’s all gone?
Do you feel like your money is out of control?
If so, this indicates you’ve got a problem with debt.
Don’t feel alone, though. Malaysians overall are highly leveraged. Statistics from last year based on research by financial institutions revealed the shocking statistic that 68% of Malaysians carry debt, which averaged out to RM56,000. When considering the average monthly household income of RM5,500, the gravity of the situation is apparent.
What to do:
Pay back these debts as soon as possible! Credit cards are particularly insidious, due to their high interest rates. One tactic for settling credit card debts is the snowball method, here's how it works.
Pay the minimum owed now on all cards, and keep paying that amount even when the minimum drops as the balance is paid off. When one card is paid off, take the amount paid every month from there and add it onto another card. When that card is paid off, take that double amount and add it onto the third card, and so on. Before you know it, you can cut those plastic goblins up. But keep one for emergencies!
4. You believe EPF will take care of you in your golden years
Sorry, but nope. Malaysians are living on average to 75 years of age nowadays. The EPF has stated that RM1,500 is the ideal monthly amount for an urbanite to survive, if there are no debts involved.
With that figure, you’d need around RM750,000 in your EPF – which many Malaysians would not achieve by 54. According to EPF, only 22% of active contributors aged 54 have RM196,800 or more in their savings, the minimum amount that a contributor’s EPF Account 1 should have upon reaching withdrawal age. Even this only amounts to RM820 monthly. In fact, over 60% of EPF contributors have less than RM50,000 in their accounts upon retirement!
Of course, if your income is high, this isn’t a concern. But for the majority of middle-class Malaysians, this is quite important as they very likely will need to keep working into old age!
What to do:
First, try not to withdraw anything from EPF. It’s tempting, especially since they allow complete withdrawal from Account 2 for housing loan repayments.
Second, look into EPF’s investment scheme, for which you can withdraw up to 30% of savings in Account 1. Third, look into a second savings plan for retirement and start immediately. Every month counts!
5. A lax attitude towards what others think of you …
… in terms of your creditworthiness. Your credit score determines how much confidence banks are going to give you, especially when you apply for loans.
In Malaysia, the Central Credit Reference Information System (CCRIS) by Bank Negara keeps an active record of all credit facilities held by an individual. Each of your mortgages, loans, credit cards, car loans, and so on are all tracked by this system and compiled handily in CCRIS for banks and other credit institutions to access.
What to do:
Get yourself informed about your credit rating. Anyone with credit facilities in Malaysia can check their CCRIS score at Bank Negara. Just bring your IC or passport (for foreigners).
CCRIS will show how many months you are currently in arrears for each loan. It’s not something banks and other lending facilities like to see. Paying off any arrears removes this, although the historical information remains (and is only accessible by the banks), but it does show your commitment to servicing loans.
6. Fear of investing
There are a lot of Malaysians who believe they do not understand the complicated language of investments. Coupled with a fear of losing their savings, the tendency is to keep their Ringgit in safe, but low-yield instruments such as fixed deposits and worst of all, a savings account.
Real investments offer promising opportunities compared to the savings account in the low-interest environment.
It isn’t necessary to be a professional with the Midas touch for picking the right stock, getting up every morning and perusing complex columns of esoteric financial figures over coffee. Investment options are simplified so that more people can get into them.
Investments can have many forms, from mutual funds to further education to your children – all of these are better options than letting your Ringgit sit in a bank, generating measly returns that do not even cover the cost of inflation.
What to do:
One immediate step is to open an Amanah Saham Nasional account, or an Amanah Saham Bumiputera if you’re eligible. These are unit trusts operated by Permodalan Nasional Berhad (PNB) and have historically provided good dividends, 7-8% per annum.
Also look into Exchange Traded Funds (ETFs) and the various Islamic investment options available through Bank Islam, for instance. Just remember that investments take time to mature and grow.
7. Get-rich-quick mentality
Aiyah! Please. Briefly: MLMs only work for those who get in early, or not at all.
The Nigerians do not have millions of dollars lying around to give away to random people on the internet. Cryptocurrency is unproven. Anything that could be sold in a shop, but is instead sold through ‘agents’, is suspicious. Any business opportunity that requires you to upfront a whole wad of cash is suspicious.
The list is endless … but it’s simple to avoid these traps. Just keep one simple question in mind: is it too good to be true?