Extra money - How you manage it?

Sometime, you may have an extra income or extra bonus beside your monthly income. In addition, this may due to the winning of the lotto or some cash prize from the competition. How could we handle this extra money?

They are several way to manage this money:

a. If you don't have any goal to use this money, it is better to save it in the bank or deposit in the fix deposit before the subsequent investment or debt payment. We tend to have a habit that if we have many cash inside our wallet, we may spend it without any proper planning.

b. You can use the money to buy the necessary items in your life.

c. Treat it as a special purpose spending, such as buying magazine, or books for mental invest ment. Besides than that, you can buy some gift as to strengthen your relationship with your relatives.

d. Use it to pay back the debt, especially the credit card debt.

e. Use it to do investment in mutual fund or investment in stock market if the extra money is enough to do so.

Who need to do money planning?

Money planning or financial planning is not the rich people game. For us, who still live within our salary or beyond the salary, we really need to understand the financial planning.

Sometime we thought that we have car, house, and not debt in the credit card, we are safe and no need for further financial control. However, if something unexpected happen and we don't plan the money properly, it will push us to the bottle neck of the financial crisis.

Who need to do financial planning?

a. Fresh graduate who have the new jobs
For the fresh graduate, this is better to have a medical card insurances and the life insurances. However, another insurances like investment link which combine the life insurances, medical card and critical illness is a good insurance to consider. In addition, the premium is much lower for those who buy the insurance in the early stage. However, don't overbuy the insurances and must be wisely in picking the insurances since there are too many insurances and some of the insurances may not applicable to your current situation.Beside insurance, the fresh graduate need to force himself to saving a portion of the salary every month.

b. Those who around 30s, and have property
At this age, people may have family, and have property such as house and car. This stage is the time when you need to check for your insurance coverage and may increase your sum of protection. In addition, they need to put out some money for investment to increase the value of the money.

c. Retirement
Those who retire will finsh the KWSP saving within 3 years. It is a very risky spending since many people now can live up to 75 years. At this age group, they can consider to put the KSWP or the retire fund into fix deposit and invest in low risk unit trust. Instead of money from the KWSP, they can also have extra income from the dividend or interest from the unit trust or dividend. The medical insurance is a must to buy. If the condition is worsen, at least it can prevent any big burden solely to the children and reduce the cost of medicine.

Financial planning is the long term education in your life. Money is yours and you have to learn to plan it wisely to prevent any unnecessary regret. Start it in early stage and you will observe your wealth accumulation in later years. However, all the planning is base on your disciplinary to execute.

Manage your money

Many of us just spend without thinking about our current financial status. Sometime, we may just feel regret when we spend a great amount of money after buying something that we really not needed.

Before we use our money wisely, we need to follow several steps as below as a way to manage our money.

a. Understand your financial status
This will let you understand your assets and your liabilities. With good understanding, it help you to set your goal clearly.

b. Clearly set your goal/objective
Set the goal. With a goal, it will drive you to meet the goal. For an example, you find that you have debt, you set your goal to paying back the debt within 2 years. The goal can be in short term or long term. For long term wise, it may involve your retirement, your children education fees and so on.

c. Set the plan and strategy
What is the strategy and plan in order for you to achieve the goals you set.

d. Find the correct tool for money growth
Due to inflation, the money will depreciate if we don't plan it properly. The tools here is mean the investment. This is like how you invest, either put into bank account, mutual funds or stock market. For the protection wise, you need to chose the correct insurance plans to protect you and your family.

e. Adjust of the plan according to the current situation to meet the goal
Once plan and planning is set, you many need to check the status for every six months to make sure that it all in control. Soemtimes, some unexpected issue may arise and you may need to readjust your plan accordingly in order to achieve the goal. Hence, review, adjust and readapt the planning and strategy is important.

The recommended financial magazine for beginner

I find that the magazine "Personal Money" form the edge provide information about the financial tips and planning for the public. This magazine is simple to read and as a beginner for the financial planning of yourself, this magazine sure will be a good reference to start with.

Are your salary increament beating the inflation rate?

You may find that your increment for this year is just 5% -6%. You feel happy and would like to treat yourself with nice food in local hawker stall. When you order the food, you may find that the price has increased. You will also shock to know that the herb tea you used to drink also has increased it price.

You then just say, never mind, it is just for 10 cent to 20 cent increment for the drinks, and may 50 cents increment for the food. It is just alright since you have an increment in salary recently. However, if you calculate clearly, you may find that the the price is increased that higher than your percentage of the salary increment.

For example, the herb tea, it become RM 1.10 since last year due to the spike of the oil price that hit the history high. However, the price keep on become stable although the oil price drop. Recently, the price has up to RM 1.20. Just imagine, a RM 1.00 drinks has increase into Rm 1.20. It is a 20% increment of the prices. Do we really aware of it?

For the fried rice, may be the original price is RM4.50 with a sunny shine up egg. That's mean you need to have extra RM 0.50 fo the egg (Normal fried rice is RM 4.00). However, some restaurant has increased it into RM 4.80, with the add-on egg for RM 0.80. The single egg itself has increased for 37.5% from RM 0.50 to RM 0.80. Does our salary really beat all those inflation ?

We may hear that this consumer item increase for RM 0.10 or RM 0.20, but if we look at the percentage of the increment, it may even higher than what we have in our recent salary raise.

Even the tol have increased. Some tol increase for more than 35% as compare to last year. Oil price also have increase during last year for more than 18% since last year (RM 1.62 to RM 1.92).

After reading until here, you may find that I am too calculative for every item in the live. And then you may say that some item also decrease in the price such as LCD TV, hand phone, and other electronics stuff. The price for the car also very attractive and lower as compare to last time. I could not deny that those items have decrease in price, however, those item will keep on depreciate the value during the time passes. The hand phone you buy today may depreciate down to 50% if a new model is coming up to the market.

In here, I am not saying that the salary we have are not enough. Just that we need to invest our money in order to make it worth and would not depreciate in a long term run. With the correct financing planning and investment tool, we can secure our money and increase the value of the money we earn today.

I am not an expert in those thing yet. I still in the beginner stage. We all need to start to learn how to do the financial planning now.

How to Record Your Salary / Earning

It is a good to record your income and expenses in an excel file. It is a first step to enable you to plan your financial. By having a clear record of your money earning and expenses, you will able to understand which items in the expenses need to be reduce if you need to save extra money for future investment.

Cash Inflow :

1. Work Income
a) Income I
b) Income II
c) Income III
d) Performance Bonuses
e) Others

2. Investment / Business Income
a) Bonuses
b) Dividends
c) Director Fees
d) Interests
e) Rentals
f) Others

Cash Outflow with suggested percentage :

1. Housing/Living Expenses ( 30%-50%)
a) House Payment / Rental
b) Water, Electricity & Phone
c) Meal / Eating Out
d) Groceries
e) Maintenance / Household / Furniture
f) Medical / Nutrition
g) Clothing / Hair / Facial
h) Children / Dependents Maintenance
i) Maid / Assistant
j) Quit Rent / Assessment
k) Property Insurance
l) Loan Repayment
m) Others

2. Transportation (10%-15%)
a) Car Payment
b) Petrol
c) Toll & Parking
d) Maintenance
e) Road Tax & Insurance
f) Others

3. Entertainment & Recreation (3%-5%)
a) Entertainment / Social Function
b) Vacation / Travel
c) Wedding / Gifts
d) Sport/Recreation
e) Club Fee & Expenses
f) Others

4. Miscellaneous ( 3% - 7%)
a) Income Tax
b) Books & Periodical
c) Donation / Contribution
d) Seminar / Continuous Education
e) Others

5. Insurance (3% - 5%)
a) Life, Critical Illness, Accident, Medical
b) Others

6. Children Education Funding (8% - 15%)
a) Education Insurance
b) Unit Trust
c) Bond
d) Others

7. Financial Independence (15% - 25%)
a) Endowment Insurance
b) EPF / Retirement Fund
c) Bank Saving
d) Unit Trust
e) Equity
f) Property
g) Others

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