Building your wealth

Mohamed Akwal Sultan, the Chief Executive Officer of Agensi Kaunseling Dan Pengurusan Kredit (AKPK), provides some tips on saving money and making your money grow.

Jason* has been working for two years and is now a senior executive at a medium-sized company. Like many young graduates, he works 9 to 6 every day. During his free time, he enjoys frequenting his favourite cafe and having his regular cup of gourmet coffee, hanging out with his friends in their favourite club every week, flexing his muscles at the rock-climbing gym and shopping for the latest gadgets. On his RM3,000 monthly salary, it isn't surprising that he does not have any savings, and is finding it increasingly difficult to keep up with this lifestyle: he can barely meet the minimum payment on each of his three credit cards and at the same time, make prompt payments on his car loan, insurance and study loan.

'It is sad but true that the graduates of today are displaying a worrying attitude towards money and spending,' Mohamed Akwal shared. He supported this with statistics showing that more than 60% of the 52,000 Malaysians who received free credit counselling provided by AKPK are below 40 years of age, with many already experiencing money problems in their 30s.

AKPK, known in English as the Credit Counselling and Debt Management Agency, is a subsidiary of Bank Negara Malaysia. It is set up as a pre-emptive measure with the aim of providing financial and debt management counselling to individuals, as well as educating individuals on how to take control of their financial situation, the wise usage of credit, and to ultimately live a debt-free life.

Saving basics

Living in a sprawling bungalow, driving a luxury car, enjoying fancy overseas holidays and commanding a high salary: according to Mohamed Akwal, these are standard responses from fresh graduates when asked where they see themselves three years from their first pay slip. Unrealistic? Very probably. (Unless, of course, you are still living with your very wealthy parents, or your version of a social networking site overtakes Facebook!)

On a more serious note, those are not unachievable goals, but ones which would require careful planning and a regimented savings plan, and would most probably take a longer term - such as 10 years or more - to achieve if you are earning an average salary.

An oft-quoted expression says: 'He who fails to plan, plans to fail.' Similarly, one foolproof way of effective money management is to plan how to use and save your money. You do not need to be a Certified Financial Planner (CFP) or an accountant to learn how to work magic on those figures you have. Another point to remember is that in life, unexpected events and circumstances may occur. In most of these situations, money is needed. To ensure that you have enough money to tide you over, it is advisable to set aside at least six months' worth of salary. Easier said than done, but with a few pointers, all you need is strong determination and discipline to stick to your savings plan and to live within your means. Remember the classic Malay proverb: 'Sikit-sikit, lama-lama jadi bukit' -the English equivalent of which is, 'Even little grains of sand, over time, will build a mighty mountain.'

Increasing your net worth

Your net worth is your total assets (what you own) minus your total liabilities (what you owe). If your net worth is in the positive, it means that you own more than what you owe. This signifies that you are in a healthy financial position. If you owe more than what you own, it means that you have a negative net worth. Warning bells should sound then as this means you are in financial trouble and may be made a bankrupt. To prevent that from happening, there are a number of ways to help you increase your net worth - saving and investing.

Auto-save

Just like Microsoft Office's auto-save function silently saves your document changes and averts potentially disastrous data losses, saving your salary can be silently automated too, advised Mohamed Akwal. How do you do that? It's simple. Arrange for a standing instruction with your bank to transfer at least 10% of your monthly salary from your current account to your savings account every month. 'What you do not see, you will not miss,' Mohamed Akwal pointed out. 'It is also imperative that you do not stop this, as it will break your saving habit.'

Invest

For the ambitious, investing will help build your wealth faster. Keeping your money in a savings or fixed deposit account with a bank may be the safest form of investment with stable interest rates. Investments, although carrying a high risk, will offer you much better returns. There are a lot of investment types available in the market. The more common ones include cash and fixed interest investments, shares, unit trust funds and property. An important point to note when deciding where to invest your money is - the higher the return, the greater the risk.

Cash and fixed interest investments
Your bank savings accounts and fixed deposits are considered cash and fixed interest investments. This is the most secure form of investment as there is no chance that you could lose any capital. One thing you must be aware of - in the long term, it can be quite risky as inflation can erode the value of your investment.

Shares
When you buy shares, it represents owning a part of a company. When you own a part of a company, this entitles you to have a slice of their future value and profit. Shares are pegged to how the company does financially and have the potential to generate very high returns. On the flip side, they also have the potential to fall in value when the company's performance drops.

Unit trust funds
Unit trusts work in a way where money from hundreds of individual investors is pooled together to buy a large number of different assets. They usually have a fund manager looking into how and where the money should be invested. Each investor will then receive 'units' (representing a mix of all the assets invested in) in the fund.

Property
Investing in an apartment unit or a landed property can translate into two main investment values:

1. Property values will increase in tandem with land and house prices.
2. Rental income from tenants.

A word of advice

After receiving your first paycheque, it is tempting to spend and reward yourself or to spend on your family and friends. You can, but curb the temptation to overspend. It is imperative to start right - correct lifestyle, spending within your means, saving and investing to build your wealth. 'Once you get into a certain lifestyle, you will find it very difficult to change. So, to stop that from happening, start right,' Mohamed Akwal concluded.

*Note: Name has been changed

Your personal financial planning process

Step 1: Assess where you are now, financially
Step 2: Set goals
Step 3: Determine what actions to take
Step 4: Evaluate the options which will help you meet your financial goals
Step 5: Create your financial plan, and act on it
Step 6: Review and revise your financial plan.

© GTI Specialist Publishers. Reproduced with permission.