Have you tried to reduce your spending with no avail? Maybe you even tried to decrease your debt, but still couldn’t do it? That’s because it all starts with your attitude.
A lot of people don’t have the right mindset where the money is concerned. We’re here to right that wrong. Money management is not something you’re born with, but something that you learn.
It all starts with realising your perception problem regarding money. After that, you can easily correct your behaviour. Read the article below to avoid losing more money in the future. You can thank us later.
1. You Don’t Have A Well-Defined Budget
Every successful person knows they need to plan their finances starting with their budget. If you don’t know exactly what you have, you won’t know what you can spend.
Defining your budget well keeps you in check because you can monitor your expenses better. That’s how you can cut the unnecessary ones to save more money.
Here’s how you do it:
Open an Excel page or just grab a piece of paper.
Sum up all your total earnings per month. This is your starting budget.
- List your necessary expenses, such as utility bills, food, transportation, meds, etc. Based on passed bills, assess how much you need for these out of your budget. These expenses should be your top priority.
- List what you spend on things that aren’t life-or-death, but you still want to do. For example, you can include eating out, buying books, or your gym membership.
- List things that you spend money on, even though you feel they aren’t necessary. For instance, do you need that third pair of jeans in a month?
Knowing these things will help you deal with the next step:
2. You Don’t Know Which Expenses Are Essential
After you’ve planned your budget, it will be clearer to you what expenses you can cut back. Remember that you can’t remove necessary expenses such as utility bills or instalment rates because that makes your debt grow.
The first thing you should cut back is your unnecessary spending. Here’s how you do it: every time you want to buy something, ask yourself this:
- Can I go without it?
- Do I already have one of these?
- What happens if I don’t get it?
- Can I replace this with something less expensive?
- If I really need this object, can I maybe borrow it from someone, or else buy it from a discount shop?
For instance, you may think that your children need a new toy when they instead need more time spent with you. Or, you may want to buy a new book, when instead you can borrow it from your local bookstore.
The purpose of this section is to help you eliminate unnecessary expenses. You should reassign the money from these expenses to three other categories:
- Repaying your debt
- Savings for important future purchases, such as a car or a new washing machine
- An emergency fund in case you or someone in your family gets ill
3. You Can’t Compromise
This section is also important, especially if you want to save more money. At this step, you should analyse your budget from the “non-essential, but still want it category.”
If you want to save more money, you should consider a short-term compromise that can lead to more savings in the long-term.
Let’s say you want to buy a new car next year or go on a big holiday. The money you saved at the previous step isn’t enough so that you need to cut back on rather important, albeit non-essential things.
It’s all about delayed gratification.
- Can you work out at home for a few months instead of going to the gym?
- Can you go to a restaurant only one time per week instead of three?
- Can you stop giving birthday gifts to your close family so that you can buy something you all need in a few months?
And so forth.
4. You’re Not Financially Literate
The three steps above are very practical because we’ve shown you easy tips to save more money. Financial literacy, though, is like the soil on which your attitude towards money grows. Although you need to do extensive research, the hours spent building your money know-how will pay off in the end.
That’s why you should learn how loans, credit cards, and debts work. You can start by reading the papers that came with your credit card or by asking clarifications from your loan provider.
5. You Think You Need The Loans You Don’t
You should only make loans for the things you need urgently. You should also refrain from getting debts often. These behaviours stem from a wrong attitude towards money:
- You may not be able to define your priorities well.
- You might be pleasure-seeking when you should, in fact, be more practical.
- You focus too much on living in the moment, without thinking about the future too much.
Now, it’s important to find out why you have this wrong attitude. What stops you from exercising caution?
When you find out the answer to this question, you’ll limit your unnecessary debts.
6. You Don’t Think That Repaying Your Debts On Time Is Important
But that’s wrong. Late payments lead to bigger instalments and more debt, which you eventually can’t repay. That leads to bad credit score, your collaterals being taken away, and so forth.
Here’s what you can do: pay the minimum amount you can on every card you have. Continue paying this sum even as you see the minimum plummet. When you’ve paid one of your cards, take that monthly amount and put it into another card. Continue until all of your credit is accounted for.
7. You Believe EPF Is Your Backup Plan For Old Age
The statistics show that you need to put at least RM1,500 each month in your EPF account so that you can live off it when you retire. That means you’ll need about RM750,000 total when you reach your withdrawal age. However, most contributors only have about RM50,000 in total.
Here’s what you can do:
- Avoid making withdrawals from your EPF account.
- Consider the EPF investment scheme.
- Make another savings account for your retirement.
8. You Don’t Care About Your Credit Score
Your credit score gives a number to your financial trustworthiness. If you don’t have a good credit score, banks won’t approve your loans.
Of course, you have to ask yourself why you don’t care about your credit score. Maybe you don’t feel like you’re ever going to need it? Maybe you lack caution? Perhaps you think it’s a sign of weakness to consider possible future emergencies?
Once you figure out the answer, here’s what you do: get your credit history and score from CCRIS at Bank Negara. Then, read our article about improving your credit score so that you can save more money in the long-term.
9. You’re Afraid of Investing
Many people think it’s too complicated to make investments because you have to learn a new language and because there are a lot of risks. Keep in mind that this attitude is normal. Many studies show that fear affects people’s decisions more than the possible gains.
But now that you know this, you can be realistic and practical. Just try to learn a bit about the stock and a few financial terms. You don’t have to invest today, you can take a few weeks to do maybe an hour of research per day.
After that, you can look into possibilities that appeal to you. For instance, you can invest in a mutual fund. Another good investment is into your education or that of your children.
If you’ve decided to invest, you can open an account at Amanah Saham Nasional or Amanah Saham Bumiputera. These unit trusts can get you reliable dividends of at least 7% each year.
Bank Islam also provides good investment opportunities. Inquire about their Exchange Traded Funds, for example.
Remember: you won’t see profits immediately, so be patient. Your investments require at least a couple of years to show.
10. You Want To Get Rich Today
While some people are too afraid of risks, others may not consider risks as important at all. That’s another big mistake, but studies show it’s also normal. You’re ready to take on more risks in the face of a big gain.
However, remember that finances require you to be calculated and rational, as well as flexible enough. You should make plans, but you can’t foresee all risks. You shouldn’t give up planning altogether just because life is sprinkled with unpredictable circumstances.
Therefore, learn how to be cautious without being afraid. Think about the pros and cons of each financial decision. Gauge each financial opportunity and be suspicious when something seems too good to be true.
As such, don’t trust anyone who promises to make you rich quickly and without any work from your part. Also, don’t trust unlicensed investors that ask you a big sum of money, promising a big profit. Remember that most trustworthy dividends are about 5-10% per year and not 300%.