In the face of looming predictions of a recession in 2023, financial experts have raised concerns about the state of financial preparedness among Malaysians. Nurhisham Hussein, the chief strategy officer of the Employees Provident Fund (EPF), has shed light on the alarming statistics that reveal a lack of financial readiness for retirement.
With merely 3% of Malaysians considered financially prepared for retirement, disregarding healthcare expenses, 71% of EPF members have savings below 50,000 ringgit, and a surprising 28% have less than 1,000 ringgit. Furthermore, research conducted by Ringgit Plus found that 57% of individuals under the age of 35 in Malaysia cannot sustain themselves financially for more than three months based solely on their savings.
Additionally, 24% of this demographic cannot rely on their savings for more than one month, while 45% either spend exactly or exceed their earnings.
The conjunction of a dire economic situation and poor financial decision-making underscores the pressing need for Malaysians to control their finances. This article explores the significance of financial literacy and offers practical steps to empower individuals to improve their financial health and habits.
In an era of increased digital adoption and a regulatory climate fostering the growth of digital banks, access to financial literacy resources has improved tremendously, providing an opportune environment for Malaysians to gain the necessary knowledge and skills for financial well-being. By taking charge of their finances and implementing sound financial practices, individuals can pave their way to a secure financial future.
1. Expense And Income Tracking
To gain a clear understanding of where your money is going, you can utilize various tools and methods. One effective solution is to use budgeting apps or financial management software that automatically categorizes your income and expenses.
This simplifies the process of tracking your cash flow and provides visual representations, such as charts or graphs, to help you analyze your spending habits. By consolidating your cash inflows and expenditures onto a single platform, such as a budgeting app, you can easily monitor and review your financial transactions in one place.
For example, apps, like Be U app, will allow you to track your expenses, providing updates and insights into your finances. Be U offer features such as expense categorization, a personal finance graph and a dashboard to help you stay on top of your finances.
By having a comprehensive overview of your income and expenses, you can identify areas where you can make adjustments, set savings goals, and ultimately improve your financial progress.
2. Differentiate Between Needs And Wants
Practising mindful spending requires conscious decision-making regarding distinguishing between essential needs and discretionary wants. Consider implementing a “pause and evaluate” approach to address discretionary wants.
Before making a non-essential purchase, give yourself a set period, such as 24 hours or a week, to assess whether it aligns with your long-term financial goals and values. This solution allows you to evaluate whether the item is a necessity or a want driven by emotions or spur of the moment.
By implementing this practice, you can avoid impulsive purchases and redirect your funds towards more meaningful goals, such as saving for a down payment on a home or investing for your future.
3. Start Saving Early
Recognizing the value of compounding returns emphasizes the importance of initiating saving habits as early as possible. One solution is to set up automatic transfers from your checking account to a designated savings account.
By automating your savings, a predetermined portion of your income is regularly deposited into your savings account without requiring constant manual effort. This solution ensures consistency and discipline in your saving habits.
For example, many of our customers enjoy using our NEST feature in our Be U app to save money. As the NEST feature allows users to set up automatic transfers to occur on a periodical basis, ensuring that saving becomes a priority before allocating funds towards discretionary spending.
Furthermore, users are allowed to set financial goals and track their financial progress. By utilizing this feature, users are able to track and achieve their financial goals more seamlessly.
4. Build An Emergency Fund
Establishing an emergency fund is crucial for financial stability and preparedness. One solution is to automate your savings by setting up regular transfers from your checking account to a separate savings account designated for emergencies. This ensures that a portion of your income goes directly into your emergency fund without requiring constant manual intervention.
For instance, you can set up a monthly or biweekly transfer that aligns with your financial capabilities and goals. By automating your savings, you remove the temptation to spend the allocated funds and ensure that you consistently contribute to your emergency fund. Over time, your emergency fund will grow, providing a financial safety net for unexpected expenses such as medical emergencies, car repairs, or job loss.
5. Take Care Of Your Belongings And Health
Opting for repairing instead of replacing items whenever possible is a practical solution to reduce unnecessary expenses. For example, if your electronic devices, appliances, or clothing require repairs, consider researching local repair services or DIY solutions before considering a replacement. Often, repairing items can be more cost-effective than buying new ones, especially for items that are still functional with minor issues.
Additionally, prioritizing preventive healthcare measures can lead to significant long-term savings. Regular exercise, maintaining a balanced diet, and practicing good hygiene are all examples of preventive measures that can help prevent costly health conditions. By investing time and effort in your physical and mental well-being, you reduce the likelihood of incurring high medical expenses related to chronic diseases or illnesses.
While these practical tips cannot solve all financial challenges, they serve as a starting point for developing positive financial habits and setting individuals on the path to financial well-being. It is crucial to make a plan with specific target amounts and deadlines, reducing the likelihood of overspending and ensuring progress towards financial goals.
With the increased availability of financial literacy resources and the rising adoption of digital tools, Malaysians have greater opportunities than ever before to enhance their financial knowledge and improve their financial health. By taking charge of their personal finances, individuals can gain a better understanding of financial concepts, assess their current financial situation, and make informed decisions to improve their overall financial well-being.
About CDX, Bank Islam
CDX has been established since 2020 and Centre of Digital Experience was developed under the purview of Bank Islam to explore experimental new businesses and technologies. Our vision is “Financial literacy for everyone”. Our Core Mission is to inculcate financial literacy, financial inclusion, financial independence to our customers and devising a sustainable charity model. CDX is building a challenger bank and mobile banking app known as Be U to serve the underserved and youth by providing next-level banking for modern consumers consisting of an app, a debit card and a financing facility proudly backed by Bank Islam, the leader in Islamic Banking since 1983. For any enquiries, do contact our customer service by email at beu.communitysupport@bankislam.com.my
