By AARON TANG
There are no stupid questions, but there are lazy questions. Fortunately, I’m pretty lazy myself — so I can understand why people don’t want to study dry books on personal finance.
Besides, when you’re just starting out, it’s pretty scary and intimidating right? Not to mention you don’t want to look stupid in front of your friends when asking, “What is the difference between EPF and PRS?”
Don’t worry, I’ve got you covered. Apart from my work at Leaderonomics as resident Campus Head, I also write an internationally-syndicated blog which often covers money.
I guess you could say I have a huge interest in both helping young people and money. And since money is so important to young people, hopefully this one helps you.
Here are fourteen questions you might have about money, but were too embarrassed to ask. And here’s what I honestly think.
1. How can I ask for a raise without seeming like “that” kind of employee?
Most people ask for a raise based on humanitarian reasons: “The cost of living is going up” and “I have a young family.” Both are true, and both are not effective.
Instead, ask for a raise based on the added value you can bring to the company: “By doing xx, I’m confident I can help increase our company revenues by yy. Can we also look at a zz raise in my salary?”
Nothing wrong with being that kind of employee.
2. How do I get paid for what I’m worth?
Prove beyond a doubt what you’re worth in terms of real dollars and cents. To prove it: be brave and willing enough to walk away from your comfort zone to try new things — be it a new role, department or company.
3. How should I start investing? Where do I even start?
- Have at least 3-6 months of expenses in your savings first.
- Pay off your credit card debt.
- Read about the following topics online (sorted from lowest risk to highest risk): Fixed Deposits, Bonds, Amanah Saham, Tabung Haji, Mutual Funds (Unit Trusts), ETFs, REITs and Stocks. iMoney is a great place to start.
- Take an amount (below 10%) of your monthly salary, and run an experiment by buying into one of the above — that you feel comfortable enough with. Comfortable enough meaning not so risky until you can’t sleep at night, but attractive enough returns that it motivates you.
- Monitor your investment, then start learning more about other investment vehicles. Consider investing in them with next month’s salary. Or add to your current investment.
Remember, baby steps and small wins are the key to motivation.
4. Yay or Nay to credit cards?
If you’re like most (probably 80%?) people who don’t have much discipline, Nay. Or limit it to just one, with a low credit limit.
If you’ve got bulletproof discipline — absolutely Yay for all the privileges, discounts and free cash.
5. How do I improve my credit card debt?
With credit cards, you have to absolutely pay the bill every month in full. That’s the number one rule. If you can’t stick to this rule, you’re better off not having them.
If you’re already deep in credit card debt though; look to restructure your debt via a lower-interest scheme. Credit card debt is charged at the astoundingly-high 18% interest per year.
But if you ask nicely, your bank may be able to restructure it as a lower-interest loan. If you have multiple debts, you can also request to consolidate them as one — so it’s easier to keep track.
Should things get really bad, you can also reach out to the government agency AKPK for counseling and help.
6. PRS, fixed deposits, insurance; which one am I supposed to use?
Three very different instruments with three very different objectives. Private Retirement Schemes are designed an alternative to the Employees Provident Fund (EPF) — providing you another option to save for retirement.
Fixed deposits are to save cash that you might need quickly in an emergency, but still give you some interest. You can park your emergency savings here. Insurance is used to cover you/your loved ones in case you fall sick or die.
In an ideal world, you’ll have a combination of all three. And depending on your situation and objectives, one will have more priority than the other two.
7. Why can I never keep to my budget?
Either your budget is unrealistic, or you don’t have discipline. Probably a combination of both.
To help make your budget realistic: Track your spending every day for a month (the more months the better) using a mobile app like Monefy.
Look at where most of your spending goes vs what you initially planned. Then, benchmark your budget against financial budgets you can find online.
There are a lot, but here’s a common guideline: 50% on necessities (housing, transportation, utilities), 30% on wants (food, entertainment, holidays) and 20% on financial future (savings, investment).
To help make you more disciplined: Environment trumps motivation when it comes to sticking to goals. So put yourself in an environment where you’re not constantly tempted to spend more money. Perhaps less trips to shopping malls, nights out with YOLO friends, and time on shopping websites.
8. How much should I actually have saved up for retirement?
As an absolute baseline, the EPF has a guide on the minimum amount you should have in EPF Account 1 at every age. Their minimum target for Malaysians is RM 228,000 at age 55. Other milestones:
- Age 30: RM 29,000
- Age 40: RM 78,000
- Age 50: RM 165,000
Of course, your retirement fund should not only consist of your EPF. This article at CNBC suggests some higher targets:
- Age 30: Your annual salary (i.e. if you earn RM 36,000 a year, you should have RM 36,000 in retirement savings at age 30)
- Age 40: 3x your annual salary
- Age 50: 5x your annual salary
On a final note, how much you need for retirement really depends on your monthly expenses. So if you’re earning very little, but also lead a frugal lifestyle — you might be way ahead than someone who earns a lot, but spends lavishly. Here’s a pretty good retirement calculator for you to play around with and see for yourself.
9. I have a student loan, a car loan, and am still earning the same pay my father did 40 years ago as a fresh grad. How should I manage my debt?
Really? My research tells me that 40 years ago, the starting salary for a fresh graduate was below RM 1,000. Today, that figure is RM 2,000 and above. But I’ll give you the benefit of the doubt — maybe your dad worked for the 1977 version of Goldman Sachs (Malaysia) Sdn. Bhd.
I will agree on one thing: starting salaries have not kept up with the cost of living. From a layman’s perspective at least — RM 1,000 could buy a lot more stuff 40 years ago, than RM 2,000 today.
But how do you manage debt on a small salary? It’s difficult, I know. But the first thing I would look at is your car loan.
Do you absolutely need a car? Or would a combination of Grab and public transport be cheaper (not to mention more environmental-friendly)?
Or could you consider downgrading to a simpler, less-expensive second-hand car? If you want an ambitious guideline to help you aim for: your car should be worth <25% of your gross annual salary. (No, you didn’t read that wrongly: for an RM 40K yearly salary, your car should be worth around 10K.)
The other thing you can look at is creating multiple streams of income (refer above). In today’s economic environment, I’m convinced that we all need to be entrepreneurs.
10. How do you get someone who owes you money to pay you back?
I’m still trying to figure that one out. Probably one of the hardest things in the world to do, without burning relationships.
Perhaps as a future step, when you say you’re lending money — write it off as a charitable donation — or don’t do it at all.
11. How do I survive in a country where the currency is getting smaller and income is not getting higher?
Without getting into government policies, or things that the layman perhaps cannot influence much:
- Consider investing in overseas markets. Julian Ng, the ex-BFM announcer wrote a great article here on how Malaysian funds have underperformed International funds due to the depreciation of the Ringgit.
2. One step further — try building streams of income from international sources. Wouldn’t it be nice to be paid in US dollars? “4.28 Baby!” Well, with the wonders of the freelance economy and the Internet — it’s very possible to sell your services online internationally.
12. Do I have the proper amount in my emergency fund?
You should have 3-6 months of monthly expenses in your emergency fund. If you’re the conservative type, maybe even more.
If you have way more than that in your emergency fund, consider moving it into your investment fund, to look for higher returns.
13. Is there anything else I can do to reduce my income taxes that I’m not doing now?
Here are some common ways that people use to reduce income taxes:
- Fully maximizing the allowable deductions below (hence reducing your taxable income):
- RM 6,000 for EPF and life insurance premiums (if your EPF doesn’t reach the maximum allowable figure of 6K here, add on your life insurance premiums).
- RM 3,000 for medical/education insurance premiums.
- RM 3,000 for Private Retirement Schemes. (If you’re new to PRS, and below 30 years old, the Malaysian government will even give you an additional RM 1,000 if you invest your first RM 1,000.)
- RM 2,500 for lifestyle expenses like books, gadgets, gym memberships and Internet subscriptions. (Note that this is a new deduction allowed from 2017 onwards.)
- There are plenty of other deductions available depending on your situation. But I chose the most common ones above to start with.
- Giving more money to LHDN-approved charities and bodies.
And here are some slightly more uncommon ways:
- Asking to be “paid” via higher EPF contributions from your employer. Most companies contribute 12% to an employee’s EPF (the employee contributes 11%). However, companies can voluntarily pay up to 19% contributions to an employee’s EPF account — and the employee doesn’t pay tax on this contribution. (The employee pays tax on his/her own contribution of 11% minus the earlier-mentioned deduction of 6K.)So the next time you’re thinking of asking for a raise, consider asking your company to increase their EPF contribution instead.
- Start a company; so you can offset your company’s income with legitimate business expenses, and thus optimize your company (and personal) tax.
14. Is Bitcoin safe in Malaysia (legal for the long term)?
Bank Negara Malaysia has commented on Bitcoin before, saying Bitcoin is not legal tender and that BNM doesn’t regulate it.
This doesn’t mean Bitcoin is illegal, just that it’s not viewed as a proper currency like USD and MYR. But looking at how several other governments around the world are already in the process of legalizing it (or have already done so like Japan and Korea) — I’m predicting it won’t be banned in Malaysia.
Besides, making Bitcoin illegal is like trying to make the Internet illegal. It’s practically impossible.
Aaron is the founder of mr-stingy.com, where he writes about optimising time, money and relationships.
He was previously head of the campus team at Leaderonomics.