Here Are 3 Simple Steps To Start Saving 20% Of Your Income

What Is Forex Trading ? – A Definition & Introduction What is Forex? – The basics… Basically, the Forex market is where banks, businesses, governments, investors and traders come to exchange and speculate on currencies. The Forex market is also referred to as the ‘Fx market’, ‘Currency market’, ‘Foreign exchange currency market’ or ‘Foreign currency market’, and it is the largest and most liquid market in the world with an average daily turnover of $3.98 trillion. The Fx market is open 24 hours a day, 5 days a week with the most important world trading centers being located in London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney. It should be noted that there is no central marketplace for the Forex market; trading is instead said to be conducted ‘over the counter’; it’s not like stocks where there is a central marketplace with all orders processed like the NYSE. Forex is a product quoted by all the major banks, and not all banks will have the exact same price. Now, the broker platforms take all theses feeds from the different banks and the quotes we see from our broker are an approximate average of them. It’s the broker who is effectively transacting the trade and taking the other side of it…they ‘make the market’ for you. When you buy a currency pair…your broker is selling it to you, not ‘another trader’. • A brief history of the Forex market Ok, I admit, this part is going to be a little bit boring, but it’s important to have some basic background knowledge of the history of the Forex market so that you know a little bit about why it exists and how it got here. So here is the history of the Forex market in a nutshell: In 1876, something called the gold exchange standard was implemented. Basically it said that all paper currency had to be backed by solid gold; the idea here was to stabilize world currencies by pegging them to the price of gold. It was a good idea in theory, but in reality it created boom-bust patterns which ultimately led to the demise of the gold standard. The gold standard was dropped around the beginning of World War 2 as major European countries did not have enough gold to support all the currency they were printing to pay for large military projects. Although the gold standard was ultimately dropped, the precious metal never lost its spot as the ultimate form of monetary value. The world then decided to have fixed exchange rates that resulted in the U.S. dollar being the primary reserve currency and that it would be the only currency backed by gold, this is known as the ‘Bretton Woods System’ and it happened in 1944 (I know you super excited to know that). In 1971 the U.S. declared that it would no longer exchange gold for U.S. dollars that were held in foreign reserves, this marked the end of the Bretton Woods System. It was this break down of the Bretton Woods System that ultimately led to the mostly global acceptance of floating foreign exchange rates in 1976. This was effectively the “birth” of the current foreign currency exchange market, although it did not become widely electronically traded until about the mid 1990s. (OK! Now let’s move on to some more entertaining topics!)… What is Forex Trading? Forex trading as it relates to retail traders (like you and I) is the speculation on the price of one currency against another. For example, if you think the euro is going to rise against the U.S. dollar, you can buy the EURUSD currency pair low and then (hopefully) sell it at a higher price to make a profit. Of course, if you buy the euro against the dollar (EURUSD), and the U.S. dollar strengthens, you will then be in a losing position. So, it’s important to be aware of the risk involved in trading Forex, and not only the reward. • Why is the Forex market so popular? Being a Forex trader offers the most amazing potential lifestyle of any profession in the world. It’s not easy to get there, but if you are determined and disciplined, you can make it happen. Here’s a quick list of skills you will need to reach your goals in the Forex market: Ability – to take a loss without becoming emotional Confidence – to believe in yourself and your trading strategy, and to have no fear Dedication – to becoming the best Forex trader you can be Discipline – to remain calm and unemotional in a realm of constant temptation (the market) Flexibility – to trade changing market conditions successfully Focus – to stay concentrated on your trading plan and to not stray off course Logic – to look at the market from an objective and straight forward perspective Organization – to forge and reinforce positive trading habits Patience – to wait for only the highest-probability trading strategies according to your plan Realism – to not think you are going to get rich quick and understand the reality of the market and trading Savvy – to take advantage of your trading edge when it arises and be aware of what is happening in the market at all times Self-control – to not over-trade and over-leverage your trading account As traders, we can take advantage of the high leverage and volatility of the Forex market by learning and mastering and effective Forex trading strategy, building an effective trading plan around that strategy, and following it with ice-cold discipline. Money management is key here; leverage is a double-edged sword and can make you a lot of money fast or lose you a lot of money fast. The key to money management in Forex trading is to always know the exact dollar amount you have at risk before entering a trade and be TOTALLY OK with losing that amount of money, because any one trade could be a loser. More on money management later in the course. • Who trades Forex and why? Banks – The interbank market allows for both the majority of commercial Forex transactions and large amounts of speculative trading each day. Some large banks will trade billions of dollars, daily. Sometimes this trading is done on behalf of customers, however much is done by proprietary traders who are trading for the bank’s own account. Companies – Companies need to use the foreign exchange market to pay for goods and services from foreign countries and also to sell goods or services in foreign countries. An important part of the daily Forex market activity comes from companies looking to exchange currency in order to transact in other countries. Governments / Central banks – A country’s central bank can play an important role in the foreign exchange markets. They can cause an increase or decrease in the value of their nation’s currency by trying to control money supply, inflation, and (or) interest rates. They can use their substantial foreign exchange reserves to try and stabilize the market. Hedge funds – Somewhere around 70 to 90% of all foreign exchange transactions are speculative in nature. This means, the person or institutions that bought or sold the currency has no plan of actually taking delivery of the currency; instead, the transaction was executed with sole intention of speculating on the price movement of that particular currency. Retail speculators (you and I) are small cheese compared to the big hedge funds that control and speculate with billions of dollars of equity each day in the currency markets. Individuals – If you have ever traveled to a different country and exchanged your money into a different currency at the airport or bank, you have already participated in the foreign currency exchange market. Investors – Investment firms who manage large portfolios for their clients use the Fx market to facilitate transactions in foreign securities. For example, an investment manager controlling an international equity portfolio needs to use the Forex market to purchase and sell several currency pairs in order to pay for foreign securities they want to purchase. Retail Forex traders – Finally, we come to retail Forex traders (you and I). The retail Forex trading industry is growing everyday with the advent of Forex trading platforms and their ease of accessibility on the internet. Retail Forex traders access the market indirectly either through a broker or a bank. There are two main types of retail Forex brokers that provide us with the ability to speculate on the currency market: brokers and dealers. Brokers work as an agent for the trader by trying to find the best price in the market and executing on behalf of the customer. For this, they charge a commission on top of the price obtained in the market. Dealers are also called market makers because they ‘make the market’ for the trader and act as the counter-party to their transactions, they quote a price they are willing to deal at and are compensated through the spread, which is the difference between the buy and sell price (more on this later). Advantages of Trading the Forex Market: • Forex is the largest market in the world, with daily volumes exceeding $3 trillion per day. This means dense liquidity which makes it easy to get in and out of positions. • Trade whenever you want: There is no opening bell in the Forex market. You can enter or exit a trade whenever you want from Sunday around 5pm EST to Friday around 4pm EST. • Ease of access: You can fund your trading account with as little as $250 at many retail brokers and begin trading the same day in some cases. Straight through order execution allows you to trade at the click of a mouse. • Fewer currency pairs to focus on, instead of getting lost trying to analyze thousands of stocks • Freedom to trade anywhere in the world with the only requirements being a laptop and internet connection. • Commission-free trading with many retail market-makers and overall lower transaction costs than stocks and commodities. • Volatility allows traders to profit in any market condition and provides for high-probability weekly trading opportunities. Also, there is no structural market bias like the long bias of the stock market, so traders have equal opportunity to profit in rising or falling markets. While the forex market is clearly a great market to trade, I would note to all beginners that trading carries both the potential for reward and risk. Many people come into the markets thinking only about the reward and ignoring the risks involved, this is the fastest way to lose all of your trading account money. If you want to get started trading the Fx market on the right track, it’s critical that you are aware of and accept the fact that you could lose on any given trade you take. Forex Trading Terminology The Forex market comes with its very own set of terms and jargon. So, before you go any deeper into learning how to trade the Fx market, it’s important you understand some of the basic Forex terminology that you will encounter on your trading journey… • Basic Forex terms: Cross rate – The currency exchange rate between two currencies, both of which are not the official currencies of the country in which the exchange rate quote is given in. This phrase is also sometimes used to refer to currency quotes which do not involve the U.S. dollar, regardless of which country the quote is provided in. For example, if an exchange rate between the British pound and the Japanese yen was quoted in an American newspaper, this would be considered a cross rate in this context, because neither the pound or the yen is the standard currency of the U.S. However, if the exchange rate between the pound and the U.S. dollar were quoted in that same newspaper, it would not be considered a cross rate because the quote involves the U.S. official currency. Exchange Rate – The value of one currency expressed in terms of another. For example, if EUR/USD is 1.3200, 1 Euro is worth US$1.3200. Pip – The smallest increment of price movement a currency can make. Also called point or points. For example, 1 pip for the EUR/USD = 0.0001 and 1 pip for the USD/JPY = 0.01. Leverage – Leverage is the ability to gear your account into a position greater than your total account margin. For instance, if a trader has $1,000 of margin in his account and he opens a $100,000 position, he leverages his account by 100 times, or 100:1. If he opens a $200,000 position with $1,000 of margin in his account, his leverage is 200 times, or 200:1. Increasing your leverage magnifies both gains and losses. To calculate the leverage used, divide the total value of your open positions by the total margin balance in your account. For example, if you have $10,000 of margin in your account and you open one standard lot of USD/JPY (100,000 units of the base currency) for $100,000, your leverage ratio is 10:1 ($100,000 / $10,000). If you open one standard lot of EUR/USD for $150,000 (100,000 x EURUSD 1.5000) your leverage ratio is 15:1 ($150,000 / $10,000). Margin – The deposit required to open or maintain a position. Margin can be either “free” or “used”. Used margin is that amount which is being used to maintain an open position, whereas free margin is the amount available to open new positions. With a $1,000 margin balance in your account and a 1% margin requirement to open a position, you can buy or sell a position worth up to a notional $100,000. This allows a trader to leverage his account by up to 100 times or a leverage ratio of 100:1. If a trader’s account falls below the minimum amount required to maintain an open position, he will receive a “margin call” requiring him to either add more money into his or her account or to close the open position. Most brokers will automatically close a trade when the margin balance falls below the amount required to keep it open. The amount required to maintain an open position is dependent on the broker and could be 50% of the original margin required to open the trade. Spread – The difference between the sell quote and the buy quote or the bid and offer price. For example, if EUR/USD quotes read 1.3200/03, the spread is the difference between 1.3200 and 1.3203, or 3 pips. In order to break even on a trade, a position must move in the direction of the trade by an amount equal to the spread. • The major Forex pairs and their nicknames: • Understanding Forex currency pair quotes: You will need to understand how to properly read a currency pair quote before you start trading them. So, let’s get started with this: The exchange rate of two currencies is quoted in a pair, such as the EURUSD or the USDJPY. The reason for this is because in any foreign exchange transaction you are simultaneously buying one currency and selling another. If you were to buy the EURUSD and the euro strengthened against the dollar, you would then be in a profitable trade. Here’s an example of a Forex quote for the euro vs. the U.S. dollar: The first currency in the pair that is located to the left of the slash mark is called the base currency, and the second currency of the pair that’s located to the right of the slash market is called the counter or quote currency. If you buy the EUR/USD (or any other currency pair), the exchange rate tells you how much you need to pay in terms of the quote currency to buy one unit of the base currency. In other words, in the example above, you have to pay 1.32105 U.S. dollars to buy 1 euro. If you sell the EUR/USD (or any other currency pair), the exchange rate tells you how much of the quote currency you receive for selling one unit of the base currency. In other words, in the example above, you will receive 1.32105 U.S. dollars if you sell 1 euro. An easy way to think about it is like this: the BASE currency is the BASIS for the trade. So, if you buy the EURUSD you are buying euro’s (base currency) and selling dollars (quote currency), if you sell the EURUSD you are selling euro’s (base currency) and buying dollars (quote currency). So, whether you buy or sell a currency pair, it is always based upon the first currency in the pair; the base currency. The basic point of Forex trading is to buy a currency pair if you think its base currency will appreciate (increase in value) relative to the quote currency. If you think the base currency will depreciate (lose value) relative to the quote currency you would sell the pair. • Bid and Ask price Bid Price – The bid is the price at which the market (or your broker) will buy a specific currency pair from you. Thus, at the bid price, a trader can sell the base currency to their broker. Ask Price – The ask price is the price at which the market (or your broker) will sell a specific currency pair to you. Thus, at the ask price you can buy the base currency from your broker. Forex trading is everything.

On a daily basis we hear from our readers and users about how they need to get more loans because their income is insufficient for them to survive after repaying all their existing debts. It is also not unheard of for Malaysians who are just clueless as to what happened to their salary by the second week of the month.

These stories, though heart-wrenching, can be frustrating to hear.

Our millennials survey last year found that the biggest concern most Malaysians have when it comes to their finances is the high cost of living. But if I may be brutally honest, I believe the biggest problem we have is the lack of financial planning.

I mean, sure, cost of living has skyrocketed and income is trying to catch up, albeit in snail-pace. But I the disparity between income and cost of living is not that great that it is impossible to survive.

Perhaps, we should do some self-reflection and look at our finances to figure out how we can cut and trim to match our current cost of living. We can’t have it all – buying our first home and shopping every weekend, something’s got to give.

So, how do you do it? What can you sacrifice and what do you spend on? Here I break down budgeting in the easiest way for you, and show you how you can benefit from it:

The 50/30/20 budgeting method
We can’t say it enough times: Don’t spend more than what you earn! And the best way to do that is to keep track of what you spend.

One simple way of keeping track of your money is through percentage budgeting. It is a simple and straightforward concept – instead of allocating fixed amount to every line item, you establish a target percentage for each expense category.

One guideline that we like to use for percentage budgeting is the 50/30/20.

Here’s the breakdown:

FIXED COSTS
50%

Bills and fixed expenses such as rent,
mortgage, and subscriptions FLEXIBLE SPENDING
30%

Flexible day-to-day expenses
such as food, groceries,
transportation, entertainment,
etc. FINANCIAL GOAL
20%


Trip to Europe

Down payment
for first home

Retirement

1. Fixed costs – 50%
Fixed costs mostly consist of essential expenses, and it makes up half of your income.

For an average 20-something, fixed expenses are usually made up of rent (if one is not staying with his/her parents), phone bill, Internet subscription, car loan (if one owns a car), monthly parking at work, insurance premium and more.

Fixed spending – 50%
Nett income RM3,500 a month
50% for fixed expenses RM1,750
• Room rental
RM600
• Mobile phone bill
RM98
• Internet subscription
RM178
• Car loan repayment
RM650
• Student loan repayment
RM200
Total fixed expenses
RM1,726
However, if you’ve listed down all your fixed costs and they come up to more than 50%, it’s time to take a hard look at your expenses. Perhaps you can downgrade your phone or Internet subscription, or even sell your car and turn to public transportation.

The beauty of a budget is, you will immediately identify where the problem areas are and you can make adjustments in your finances.

2. Flexible spending – 30%
Allocate no more than 30% of your take-home pay toward flexible spending.

These are day-to-day expenses that can vary from month to month, like eating out, groceries, shopping, hobbies, entertainment, or petrol.

To determine your flex-spending amount, first deduct your fixed costs and financial goal contributions from your income. This way, you’ll know that the balance for flexible spending is truly yours to spend however you want.

Flexible spending – 30%
Nett income RM3,500 a month
30% for flexible expenses RM1,050
• Eating out weekdays
RM200
• Eating out weekends
RM100
• Groceries
RM250
• Household items
RM100
• Petrol & toll
RM300
• Entertainment
RM100
Total fixed expenses
RM1,050
Flexible spending will require you to exercise discipline in order to be on track. If you have splurged on a nice dinner with your friends, then you will need to cut your spending elsewhere. Perhaps, by preparing your own lunch for the next few days, or forego paid entertainment for the month.

The key here is to ensure the overall spending allocated for flex-spending does not exceed 30% of your nett income.

3. Financial goals – 20%
Not sure what your financial goals are? Ask yourself what do you want in five, 10, 20, and 30 years down the line? How do you envision your retirement?

Financial goals are not set in stone, and should be reviewed every few years. However, having a rough goal will help you work towards achieving them.

If you allocate 20% of your income for your goals, you will ensure that your finances will be on track to reach your target.

Assuming you start with RM3,500 nett income per month, and on average you get a 5% salary increment every year. Here’s how 20% of your nett income makes a difference:

Year
Monthly salary
Total savings
Financial goals
1
RM3,500
RM8,400
You would have saved RM15,000 within 1.5 years for your Europe trip.
2
RM3,675
RM17,700
3
RM3,859
RM28,000
You would have saved about RM52,000 for the down payment of your first home (RM520,000)
4
RM4,052
RM39,400
5
RM4,254
RM52,000
23
RM10,750
RM692,000
You would have saved RM692,000 for your children’s college education.
35
RM19,306
RM1,978,600
You would have saved up a sizeable retirement fund to supplement your EPF savings.
* Assuming 6% per annum average returns.


Though this budgeting method sounds simple enough, it takes some discipline to stick to it. And it does not work like a miracle where your finances will improve and your debts will disappear overnight. You still need to work hard to make an sustainable impact on your finances.

The most important thing about budgeting is, it should be personalised to your lifestyle and spending habits. This budgeting rule serves as a guideline to lead you towards the right direction. Once you have an idea on how a balanced budget looks like, you can create your own budget to achieve your financial goals.

If this budgeting method doesn’t work for you, give this unconventional budgeting method a try.

Finance writer Michelle McGagh from London gave up spending for a whole year, aside from her mortgage and bills as well as £30 (RM167.15) a week for groceries and essential toiletries.

She said the frugal life made her happier, healthier and allowed her to overpay almost £23,000 on her mortgage.

Being spendthrift by nature, I decided I should give it a shot. I have always had problems reining in my finances and it’s about time I embarked on some plan to keep my money in check.

And as I am a little wiser – after my failed attempts to fulfil any New Year’s resolution – I decided instead of doing a McGagh, I would attempt to not spend for a week and see how much I’d save.

So, here’s how I did it:

Have a well-stocked pantry
As my wife cooks most of our meals at home, I already had canned food and other dried ingredients stored at home. If you are the proud owner of a skeletal pantry, stock up ahead of time.

I discovered that knowing that I have a well-stocked kitchen motivated me to stick to my no-spending approach. Why? Because I am less tempted to pick up take-out after spending a decent chunk of my salary to fill up those shelves.

Also, it gives me an idea to plan meals and also expect the unexpected. In moments where I need to dash off to work and have no time to cook, I just need to pop open that can of tuna and throw the meat into a Ziploc together with salad leaves – lunch is served.

Cheap ways to stock your pantry

Hold on to whole grains
Fill your pantry with whole-grain favourites such as brown rice, barley, rolled oats and whole-grain pasta. Stock up when you find a good sale or buy in bulk – bulk bins usually offer better unit prices than packaged grains.

Bet on beans
These are versatile sources of protein which you can add to soups and salads. They are cheap and lower in saturated fats. When buying canned, look for no-salt added or low-sodium.

Nosh on nuts
The dried variants might be expensive but it is good to have them around – great for snacks, breakfast and even salads.

Fill your pantry with flavour
Vinegars and other condiments such as Dijon mustard are great for quick, homemade salad dressings. Apple cider, rice and balsamic vinegars are all good options.

Spice things up
Speaking of flavour, keep the dried herbs and spices used often on hand. Use to add taste in place of extra salt or fat. The trick is to keep a few staples that you will use in most of your dishes, such as black pepper, oregano and thyme, which will go well with pasta.

Invest in healthy fats
Canola oil is a lower-cost healthy choice best used for cooking. Olive oil may be worth the extra cost when making dressings or vinaigrettes. By having different types of oil, you can choose to use the more expensive type of oil sparingly, and for certain types of dishes only. For example, you can use canola oil when you are deep frying, and use olive oil when you are pan-frying.

Buy basic baking items
Always have basic ingredients like flour, baking soda and baking powder stored completely in your pantry. They are great to turn one ingredient into a complete dish such as overripe apples or bananas? Make an Apple Crisp or Banana Crumble for a healthy dessert. Who says you need to throw away overripe fruits?

Don’t be shy of instant noodles
I am no healthy living evangelist and instant noodles have saved my life more than once. I don’t binge on them but once in a while, they serve as great comfort food. They have a long shelf life and cheap, too.

Pick the best week
The week doesn’t need to start on Monday or end of the weekend, but I am a traditionalist, so it had to start on a Monday and end on a Sunday.

The last week of June worked best as it was when I naturally had to stretch my ringgit and it so happened there was a company dinner – that took care of one meal.

It also allowed me time to plan and get my family in on it. Planning is crucial because you need to buy enough to last you for the week. It also has to be the week where you’d exercise the least amount of effort.

Plan, revise, repeat
I factored in unforeseen circumstances, such as toilet paper running low, and even that usual run to the hypermarket to buy baby’s milk. I took into consideration that the weekend also coincided with Hari Raya, a major festival.

I wrote all my weekly financial needs, saw what I could do without – and this bit is crucial because I had to let go of some expenses – and repeated the whole process until I knew how much I could comfortably set aside for groceries and necessities without exiling my entire family to frugal-land.

Some of the expenses that I had to say goodbye to during the no-spend week was, my usual morning coffee, lunch at work and the occasional indulgence of snacks.

Learn to adjust
That’s the toughest part: adjusting. Giving up that morning cup of Starbucks for free coffee from the office pantry was painful to say the least. I couldn’t have that Sub of the Day and had to settle for some egg sandwich, which was equally tasty.

There were days where I just wanted to spend, spend, and spend. I would even find a reason to spend when I didn’t need to.

As my colleagues knew about my valiant effort, I knew I couldn’t lose. So that provided some motivation.

Also, my wife helped me to cook the meals. If it were left to me, I would have just had bread and fried egg for most of my breakfast and lunch.

So teamwork is necessary, one way or the other.

So how much did I save?
This is how much I usually spend on any given week, including those family outings on weekends:

7-day spending
Coffee: RM84
Breakfast: RM100
Lunch: RM200
Tea/snacks: RM100
Dinner : RM200
Overall total: RM684
However, I only need RM250 for a week’s grocery for a family of three. So just by cutting down on food, and applying a no-spend week, I saved RM434! Stretch this over four weeks, and I can potentially save RM1,736!

With that amount, I can easily build an emergency fund or even invest that money in a unit trust and reap the rewards in the long run.

If doing it every week is too far-fetched, you can definitely do a monthly detox. The money saved over a year – that’s RM5,208 in savings – would bring you closer to your financial goals, or even your annual family vacation!

All you need is: to start
That was my problem. When I pushed forward the idea it was months before I attempted to try a no-spend week.

But once I got the ball rolling, it was manageable. As I am writing this, I didn’t spend on breakfast, lunch or dinner. That already amounted to some savings.

Of course, like all goals I did reward myself with a latte, and that felt good. However the exercise drives home an important point: no matter who you are or what you do, you can still exert some control on your finances.

Even though my no-spend week has come to an end, I still find myself packing my lunch to work every other day. The exercise has put in place a routine of preparing my meals from home, and it is a much welcomed routine for my wallet – and stomach!

5 tips to no-spend success

See what is going on in the week. Pick a week that isn’t going to be stressful. If your desired week is period where you’ll use a lot of money, don’t pick that week.
Decide what you want your surplus cash to go toward. The concept is saving money but a plan on what to do with the extras makes it easier to have that extra motivation.
Set a budget for groceries and necessities for the week. Take stock on anything you are running extremely low on, including toilet paper or shampoo. As for meal planning, pick local ingredients.
Get creative with entertainment. If you want to save on leisure, then the nearby park is a great way to unwind. Also, why not relax at home?
Track your progress. Use an app or even a spreadsheet to note your progress and how much money you’ve saved each day.

In a matter of weeks, Malaysians will mark the end of the fasting month and greet the Hari Raya festivities with the usual balik kampung sojourn.

It’s a time to catch up with family and friends, flash that baju raya and indulge in a hearty meal of lemang and rendang.

But it is also a time of heightened financial spending. Online sales are expected to surge upward by at least 50% throughout this year’s Raya month, according to digital marketplace 11street.my

Electronics, home gadgets and clothing are sought-after items while demand for car services and road safety-related items are expected to rise, it added.

Now, while we don’t mind a little splurging in the name of festivities, money is no respecter of times and seasons – you’ll just have to use it wisely.

Here are three things you should avoid doing this Raya at all costs:

1. Buying a new set of wheels
By this we don’t mean new tyres, which you should change if they are worn out or have past the expiry date.

For Malaysians a car is more than moving from Point A to Point B – it’s a status symbol. But there’s a more sobering reality: one of four bankruptcy cases in the country are due to the purchase of vehicles.

The Insolvency Department revealed that 27.94% or about 28,374 bankruptcy cases between 2011 and 2015 fell into this category.

Now we know that purchasing a car in Malaysia is easy: all you need is some basic documentation, a low down payment and approved hire purchase loan.

Heck, these days there are many financing programmes empowering consumers to own an upmarket auto through a seemingly reasonable monthly repayment.

But there are many financial pitfalls – from fuel to servicing to road tax and insurance – when it comes to car ownership and we are not just talking about depreciate rates and loan interest rates.

How this ruins your Raya

First, restricted cash flow. Since you would probably take out a loan for your car, monthly repayments kick in once you are handed the keys.

So you’ll probably have to cut back on a lot of things in the name of servicing that car loan.

Second, run the risk of having your car repossessed. This is a reality that comes with car ownership.

Festivities or not, the moment you draw out a loan, you are subject to paying the loan according to the agreed deadline between you and the bank. Not being able to do that because you blew your budget will not cut it.

The last thing you want is to recall a Raya where your car was repossessed and put up for auction.

2. Drawing out a personal loan
The World Bank last year discovered that only 36% of Malaysians are financially literate.

Such illiteracy is filled with dire consequences: bankruptcy. Actually besides car loans, many Malaysians are bankrupt due to personal loans.

Personal loans, just like credit cards, exist for a reason. With good intentions, you could finance a pet project or even consolidate and pay down debt.

But you can definitely use a personal loan for a wider range of intentions such as vacations, home renovations, weddings and even big ticket items such as a new surround sound system for your home.

If showboating is what you have in mind, think again. Under the revised bankruptcy laws, the threshold for debt has been increased to from RM30,000 to RM50,000.

Banks are offering personal loans these days up to RM150,000 and you could be swayed into drawing out a loan in the name of a Raya upgrade. But committing to those monthly repayments though…

How this ruins your Raya

First, tighter cash flow. Like a car loan, monthly repayment kicks in once you sign the agreement, meaning you’ll have less cash to use for Raya, worse if you have to hand out green packets of duit raya to friends and family members

Second, outstanding debt affects your credit score. This makes you a less desirable candidate when it comes to applying for a mortgage or car loan. You could be denied a loan or even get stuck with a less favourable interest rate – all these affect your finances in the long run.

Worse is if you have a family and children, which means you could potentially even financially neglect them just to pay off your debts.

Third, bankruptcy. All you need to do is have an outstanding of RM50,000 and above with a default period of at least 6 months to be declared bankrupt. Your assets will be administered by the Director General of Insolvency (DGI) to settle outstanding debts.

Yes, this means all your assets and properties and sell or dispose them to repay creditors. Also your passport will be held by the DGI, meaning you can’t leave Malaysia.

3. Maxing out your credit card
It being the festivities and all, splurging a little on that baju raya is okay. But swiping that plastic for a Prada tote bag or Jimmy Choo pumps or an iPhone? And don’t get us started with shelling out hundreds for jars of kuih raya.

The Asian Institute of Finance found that 47% of young Malaysians are engaged in expensive credit card borrowing.

It found their debt woes were the result of impulse-buying behaviour coupled with easy access to, well, personal loans and credit card financing.

A credit line is helpful if moments where you truly need cash and by this we mean more serious reasons than compulsive shopping.

When used properly, a credit card helps you save, whether it is in the form of cashbacks or discounts and privileges. Some credit cards even offer seasonal treats including festivities such as Hari Raya.

Not being prompt on your monthly payments or skipping payments altogether can lead to dire straits and you are looking at anywhere from incurring late payment charges to a black mark on your credit report to bankruptcy.

How this ruins your Raya

Straddled with long-term debt. If minimum monthly repayment is your MO, you are going to be straddled with debt for a few more Hari Rayas. Looking forward to future festivities is not going to be fun as you will greet each Hari Raya with tighter cash flow and debt.

Second, you’ll deplete your savings. Either by paying off debt or to manage your lifestyle. With the odds against us, from insufficient EPF funds to retrenchments, a decent amount of savings can help us survive such devastating outcomes.

Not having any savings would just leave us vulnerable. Then there’s the usual stuff that happens if you can’t service your debt – all that we’ve mentioned previously.

Keep things simple
Spend if you can afford to. The joy of Hari Raya or any festivity is to actually indulge in the company of others.

The customary duit raya handed to friends and family, particularly children, and the open houses all embrace the spirit of living in community.

In fact, you don’t need to sell your kidneys to look good during Raya – discounts aplenty and you can surely snag an affordable baju raya.

Financial prudence is timeless but so is debt. Remember that an abuse of credit has long-term consequences and if you are not prepared to promptly pay it down, not even your brand new baju raya can help you in that department.

sumber:https://www.imoney.my/articles/budget-50-30-20
             https://www.imoney.my/articles/no-spend-week
             https://www.imoney.my/articles/common-financial-mistakes-hari-raya

HALAMAN SELANJUTNYA:

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