Blaze into the new year with these 6 finance principles!

As we approach the end of the year, we reflect on what we have done well especially in weathering the uncertainties that life throws at us. It’s time to take stock of the financial actions we did well and what would we want to bring over to the new year that is around the corner.

With experience in hand to help us weather new storms, let’s review what we know and welcome the new year with better preparation and steeled resolve.

#1: Review Your Spending Every Month

Let’s begin from the root fundamentals. If you don’t know your cash flow, it’s difficult to move forward with any financial decisions. Your cash flow simply means the money that comes in and the money that goes out. Typically, the money coming in is straightforward while the money we spend is more colorful, unsorted, or even chaotic in its various sums, reasons behind them, and in tracking.

Tracking and reviewing our spending is simple in concept but is not always easy to carry out. It can be tedious but keep in mind that the end is rewarding! A good example is that often we remember big spending but tend to forget small purchases. But when we tally up the numbers, it can be eye-opening. A daily RM3 coffee is RM90 a month.

What do you need to do?

  • Continue to cultivate the habit of keying in all your spending daily. This probably takes 10 minutes of your time.
  • Continue to set aside time once a month to review those numbers. This probably takes 30 minutes to an hour of your time.

By doing a monthly review, you can better see where your money is going. This helps you also identify whether there are expenses you want to cut or areas to redirect your cash to instead.

#2: Check Your Emergency Fund

A lot of people talk about savings. But what are they really for?

The answer is you are saving for a rainy day, also known as your Emergency Fund. This is money that you need as your backup should any unexpected situation occur requiring money you did not plan for, such as:

  • A water pipe burst at home and all your belongings are ruined.
  • Your only pair of nice shoes decided to rip today and you have a very big and important event tonight.
  • You dropped your phone and it won’t turn on anymore!

Unforeseen circumstances and emergencies can be more easily handled when you are prepared with backup money. It’s a huge relief to your mental state to not have to worry over where to get the money. Make it a point to always check that your emergency fund is well stocked and sufficient for situations you and your family might need to handle.

#3: Gradually Pay Off Your Loan Principal

Most everybody has debt in the form of bank loans or study loans. The monthly loan repayments that you pay has two components – interest and principal. The principal is the sum that you borrowed from the bank, which also determines how much interest you pay. In simple mathematics, if you want to pay less for your monthly installment, you need to work on paying off the principal.

Why this matters is because the borrowing interest rates in Malaysia have increased to 3.00% from their lowest of 1.75% during the pandemic. You probably have already felt the sting of needing to pay more recently. Alternatively, you can use free online calculators to see how this impacts your various loan repayments.

Take action this coming year and contact the financial institution you have your loans with to find out the process to specifically top up payments for your principal.

If you are overwhelmed by your debt situation, do consider working with a licensed financial planner or contact AKPK for assistance.

#4: Diversify Your Investments

Investing is another way of saying growing your money outside of your savings account. Diversifying your investments means to park your money in different types of investment options.

Diversification is for everyone and you can do it at any income level. Be like a squirrel who stores nuts in different locations – if one goes wrong, another can make up for it.

In the new year, consider investing them in the following assets:

  1. Fixed Deposit: Safest investment that guarantees a return. You can just walk into a bank and ask to put money. Or you can go online to your banking application.
  2. Exchange-traded fund (ETF): Not many people know this but banks and brokers offer ETFs to their customers. ETFs are funds that ‘follow’ the overall stock market and mostly has all kinds of companies in it.
  3. Stocks: If you are are interested in doing your research, this might be good. Just make sure that you invest in different companies in different industries.

You can also read up our article on low-risk investment options.

#5: Work On Multiple Income Streams

When people talk about job security, what they really mean is income security. In the new year, continue to secure your income by not relying on a single source. Diversify it!

If you have some spare time after work, why not take on some freelance and gig work? You get to earn some extra cash and gain experience in work that is different from your main job, among other advantages.

Furthermore, your hobbies could be earning for you too. Many amateur craft makers are marketing their products online or even post videos for others to watch them making their products, all on a part-time basis. You never know, it could later turn to be your main job.

#6: Invest in Yourself and Education

Learning is a lifelong necessity and financially it brings a brilliant advantage. In today’s world, it’s not enough to just specialise. You will need knowledge and expertise in different areas to make a more informed decision.

For example, deciding on buying a house requires you to know a myriad of things.

  • Is the developer reputable? You would need to scour through their website and annual reports to see their performance.
  • Will the house price rise in the future? You can look at the historical data of house price of your area.
  • Can you afford it? You need finance knowledge to reasonably project your future income.

But it doesn’t have to cost you an arm or a leg. There are many free online courses and videos out there that could help you upskill, or you can pay a visit to your local public library

Conclusion

As we wrap up the year, take some time to review the finance lessons you have learned and what you want to continue topping up in the coming new year. Things will come and go, but these financial actions will still prove gold.

Make use of them to chart a course for your future years!

 

Let us know your financial actions you plan to take in the coming year in the comments below.

 

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