Live within your means

Need for financial planning: Develop a realistic budget that outlines your income, essential expenses, and debt repayment goals, says Rajendaran. — YAP CHEE HONG/The Star

Experts: Youngsters should manage their income, cut down debts

PETALING JAYA: With many young Malaysians straddled with debts, experts say it pays to “ignore the Joneses” and apply the golden rules of spending, which is to live within your means and save for rainy days.

FA Advisory Sdn Bhd financial consultant Dr Rajendaran Vairavan said while there is no one-size-fits-all approach, the 50/30/20 rule is a common guideline to manage one’s personal income.

It involves allocating 50% of salary for needs such as rent or mortgage payments, utilities, groceries, transportation and minimum debt payments, 30% for wants which includes discretionary spending such as dining out, entertainment, shopping, and non-essential purchases, and 20% for savings and debt repayment.

“This 20% category should prioritise savings for emergencies, retirement and other financial goals, as well as accelerating debt repayment beyond the minimum required payments,” he said.

However, Rajendaran said that for someone struggling with debt repayment, a more aggressive approach may be necessary.

In this case, he suggested splitting one’s income into 30% for debt repayment, 50% for essential expenses and 20% for savings.

“Adjustments to these proportions can be made based on individual circumstances, such as higher debt burdens, living expenses, or savings goals.

“It’s essential to regularly review and adjust your budget as your financial situation changes,” he said, adding that overcoming financial problems related to high debts such as credit card bills and car loans required proactive steps and disciplined financial management.

To break free from indebtedness, he said the first step should be to assess the situation to understand the full extent of one’s debt.

“Gather all your credit card statements, loan documents, and other financial records to determine the total amount owed, interest rates, and minimum monthly payments.

“Next, create a budget. Develop a realistic budget that outlines your income, essential expenses, and debt repayment goals,” he said.

The following step should be to prioritise debt repayment by focusing on paying off high-interest debts first, such as credit card bills, while making minimum payments on other debts, he said.

He also suggested considering using the debt snowball or avalanche method to accelerate repayment.

Negotiating with creditors to explore options for reducing interest rates, restructuring repayment terms, or negotiating settlements can also be done, said Rajendaran, adding that many financial institutions offer hardship programmes or debt consolidation options that can make repayment more manageable.

Another measure to consider is income-boosting ways such as taking on part-time work, freelancing, or selling unused items, he said.

Rajendaran also advised against accumulating additional debt while one is working towards debt repayment.

“Cut up credit cards or use them sparingly for essential purchases only. Avoid taking on new loans unless absolutely necessary,” he said.

He also suggested seeking financial guidance from financial professionals such as certified financial planners or credit counsellors.“Overcoming high debts requires time, discipline, and perseverance. Stay committed to your debt repayment plan.

“By taking proactive steps to address high debts and implementing sound financial habits, young Malaysians can overcome financial challenges, reduce stress, and build a solid foundation for a brighter financial future,” he said.

As for Rajendaran’s golden rule of finances that he thinks everyone should practise, he said it would be to live within one’s means and to prioritise saving and investing for the future.

Economics expert Prof Dr Chung Tin Fah of HELP University said discipline is important in managing one’s finances amidst marketing temptation to spend.

He recommended putting aside between 10% and 20% for savings as well as making lifestyle changes such as using public transport if one does not need to drive and preparing food at home instead of eating out.

“Many of the debt problems are due to the company we keep. There is a social pressure to keep up with the Joneses.

“Make savings the target and spending a residual which means that you only spend if you have savings.

“Make frugal living a lifestyle and ignore the Joneses,” he said.