Setting up an Emergency Fund (cashflow planning)
This is a very important step before going on for other personal financial goals. According to BNM’s recent report, many Malaysians hardly have RM1000.00 for emergency use.
Normally, you have to set aside at least six months of your gross monthly salary for an emergency fund. For instance, if your monthly gross salary is RM3,000.00, RM5,000.00, or RM10,000.00 then your emergency fund will be RM18,000, RM30,000 and RM60,000 respectively.
Please do not overlook this Emergency Fund, because it can provide you and your family to cover your monthly expenses in situation like illness, accident, loss of job and etc. Many people can see the importance of it especially at this period of government implementing the Movement Control Order (MCO) that started from 18th March 2020 to 14th April 2020 in breaking the chain of spread of COVID 19!
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Monthly bank loan repayment (debt management planning)
This is the second important basic step that we must implant in our minds so that our total monthly car loan, housing installment and credit card repayment does not exceed 35% of our net monthly income. In the banking terms, it’s called Debt Service Ratio (DSR). Do not take a bank loan of more than 35%, if not you will face a shortage of allocated funds into other daily expenses, child fund, savings for retirement or monthly investment for long term goals.
Insurance Planning (protection)
Many people do not like insurance. Frankly speaking, even I dislike it but do you have other tools that can transfer the mortality risk away in the world? Well, the answer is no. You can use simple ways to calculate your insured sum as per the rule of thumb.
According to the Rule of Thumb method, you need to at least buy six to ten times of your annual income with 10% annual income as the insurance premium.
For example, if you have an annual income of RM60,000.00. Thereafter, your sum insured is RM600,000 (RM60,000 x 10). The reason behind this formula is simple; your children need this period of time to live on, study, and etc. The sum insured at RM600.000 should cover against death, total disablement, diagnosis of illness, Personal Accident, hospital expenses individually not adding up all the coverage. The insurance will pay us compensation upon the event happening rather than touching from our personal savings meant for other purposes such as deposit for buying a new house, holiday fund and so on.
Writing a Will (Estate Planning)
Many Malaysians are still very superstitious whenever we talk about this matter. But in reality, writing a Will is as simple same as you would buy life insurance policy when you are healthy and available. Therefore, the best time to write a Will is when we are free and available and do not wait until it’s too late. An important factor for a Will is finding two witnesses to prove you’re of sound mind when signing the documents.
Let me explain briefly as to what happens when a person passes away without a Will. A person’s wealth (or the estate) must be distributed accordingly to the Distribution Act 1958 and not according to the deceased’s wish. For example, in 2016, all unclaimed monies were as high as RM60Billion. His or her beneficiaries need to apply Grant Probate in order to unlock his or her frozen assets.
Save and invest every month (wealth accumulation planning)
We should save and invest every month at least 10% from our monthly gross salary. The reason is not only you’re cultivating savings habit but also increasing your current asset especially your Emergency Fund, Fixed Deposit, Cash in the bank and investment asset such as bonds, unit trust, shares and etc – hence, increasing your Networth.
In short, by practicing the 5 above-mentioned basic personal financial planning, it can let us live in a simple way and have a peace of mind. For more understanding, log on to www.smartfinance.my to learn online financial planning education at home during this MCO period in order to enhance your financial planning knowledge.
**The facts and views expressed are solely that of the author/authors and do not necessarily reflect that of the editorial board.
About author :
CFP CERT TM
Chairman of FPAM JOHOR CHAPTER and also licensed financial planner of Phillip Wealth Planners Sdn Bhd. He can be contacted at firstname.lastname@example.org.