Have you guys planned your financial future yet? No?! Not enough money to save up? Well worry not, here’s 6 tips on where to prioritize your money so your future is set!
Start your emergency fund early
Paying off your debts and investing for your future won’t be sustainable if you don’t have backup money to fix it, in cases of emergencies.
An emergency fund can help protect you from unforeseen and unexpected situations. To get started, start saving money with the idea of LOCKING IN at least RM1,000 into a specific fund for emergencies. That means you cannot touch the RM1,000 unless you really need to. For example, to pay off higher hospital bills or fix your house etc. Later you can pump more money in for more security!
Extra money into EPF
With more money in your EPF, it will roll the money and grow it. Therefore in the future when you want to retire, you will have much more money than if you just let it grow on its own from your monthly income.
Buy the right insurance
Small financial emergencies can affect you slightly, but big ones will REALLY affect your future funds and set you back by a lot.
If you have children or people to take care of, life insurance offers essential financial protection. Even if you don’t have anyone to take care of, you still need to consider an affordable life insurance policy.
This will save you in case of emergencies, for example *knock on wood* if you develop a serious disease like cancer. It will help you pay off the treatment, because if you don’t have insurance, you will have to personally pay hundreds of thousands of ringgit, and a lot of us do not have the financial power to pay off something that big especially when we do not plan on it.
You should also consider disability insurance, so if again *knock on wood* you have a car accident for example, and you cannot work anymore due to disability, the insurance will help you sustain your financial needs, and this will really save your life if the unfortunate circumstance ever happens.
Pay off high-interest debts
Now that you have managed and prepared for some of the biggest risks because of your insurance and EPF, you will want to settle those annoying big debts.
Especially, if you have credit card debt or any other debt with an interest rate of 8% and higher, it is a good idea to pay it off as soon as possible. Why 8% is because it is higher than the typical 7% annual return you can expect by investing that money instead.
Once you have settled your credit card debt, you can take the amount you were putting toward your monthly payment and invest it into your savings and retirement account.
Review your retirement and emergency fund
Now that you have settled your bigger debts, it’s time to go back and start to really build your future.
For your emergency fund, you will want to add to that initial RM1,000 by saving enough to cover 3 to 6 months worth of basic monthly expenses. So if your monthly spending is RM1,000 try to top up RM3,000 to RM6,000. This way you will have enough cash on hand to pay for a bigger emergency.
For your retirement savings, aim to save at least 10% of your gross income. So if your income is RM2,500, save RM250.'
Remember : the amount you save each month for these two goals is up to you, but the more you save the easier your future will be and the richer you will become.
Finish paying off all other debts
While you are working toward building your retirement account and emergency fund, you should also start paying off your other debts such as student loans, mortgage, and auto loans.
Again, it is up to you how much money you should put towards this goal. So it is important to decide for yourself whether being debt-free is more important than saving for retirement or putting it in your emergency fund.
Plan on other investment goals
When you are making good progress on your saving goals, it is also truly time to plan out your future.
For example, if you have children or plan to have kids, you may want to think about saving up for their university fees. Putting them in a long term savings plan is good as all you do is put in money and don’t look at it, 35+ years later there will be MUCH more money than how much you originally put in. So it is easier to sustain and budget for the future.
Also, now is the time to consider other type of savings and investing goals and what you want to do with the money. Like going overseas for vacation, buying a new house or car, starting your business etc.
Make a foundation first, then build it up!
Every financial plan is different, but building a financial empire without a foundation will definitely be destroyed if anything bad happens. These 7 steps however, will surely help you create a solid plan for your long term and short term money goals!
