With the average starting salary for fresh graduates in Malaysia ranging between RM2,300 to RM2,500 combined with the rising cost of living, it comes as no surprise that there is a huge percentage of Gen Y who are now stuck in a rat race. Research studies have shown that millennials are earning less when compared to their parents at the same age.
Whitman Independent Advisors Sdn Bhd's Head of Business Development, Felix Neoh explained, "There is a lack of urgency in preparing a budget for expenses, income and savings by Gen Y which has led them into the habit of saving by chance rather than by choice.â€
Neoh noted that millennials should try not to escape from the responsibility of planning their own budget, regardless of any lifestyle changes they face or how tech-savvy they are. Education also plays a key role, but there is a vast difference between knowing about something and actually doing it.
Many of them are aware of the needs to invest in order to grow their networth. However, not many actually realise the fact that their lack of budgeting and saving plans are holding them back from investment.
Investments are a great option to consider especially if you want to optimise your hard-earned money. However, it can't be done without proper review of budget to ensure a sufficient amount of cash is reserved for investment. So if you want to start investing with only RM100, here's what you need to do first.
Name all your expenses and incomes Keeping a budget is essential for pretty much everyone if they want to avoid falling into the financial pit hole such as credit cards debt and bankruptcy.
"You cannot run away from the idea of having a budget. Keep track and name all the finances so that you can monitor the pattern and review the details to ensure continuous efficiency in financial planning. You want to make sure you are being realistic in your budget as well. Buy things you can afford and do not over rely on installment payment plan (IPP) by credit cards" Neoh said.
Jotting down all the expenses and income from various sources on a daily, monthly and yearly basis may sound like a lot of work, but essentially (eventually) you will find it easier as you turn it into a habit.
Automate your savings Next, you have to initiate automated savings on a monthly basis. Neoh believes that the money you don't see in the account is the money you don't spend. "Though you may feel the pinch every month but at least at the end of the day you will be able to see the result in a significant way" he said.
Once an individual complies with the simple rule of setting up an automated saving in either savings account, fixed deposit or even other investment vehicle, he or she must learn to be flexible in adjusting expenses for his or her lifestyle.
Many people tend to only save the amount that is left at the end of the month after deducting all expenses, yet the correct way should be to prioritise savings and investing first.
Start your investment with capital as low as RM100 After making sure you have a detailed budget and consistent savings, you will be able to monitor your cash flow and determine the amount of capital you have to initiate your investment. Between savings and investment, you can be flexible in deciding the proportion of both in your portfolio.
"What Gen Y and the younger generation have as an advantage is time. Compounding interest will only do them a favour if they invest early. In our line of business, we realise that those who are close to 40 years old wanting to initiate investment only do it at an older age. The fact is if you are already aware of the existence of compounding interest, it doesn't matter if the capital is low as long as you can create a habit of investing long term" he explained.
Over time, you will be calmer and not make reckless choices (decisions) of whether to invest or not when there are uncertainties. You will be able to look at the opportunities present during bad times and not overthink about the threats and risks as long as you spread your investment portfolio in different products, and a longer timeline will allow better risk diversion.
Investment vehicles suitable for Gen Y with capital as low as RM100 are:
Passive mode (does not require regular monitoring): 1. Unit trust 2. Amanah Saham Bumiputera (ASB) / Amanah Saham Nasional (ASN) 3. Investment-linked insurance
Active mode (requires regular monitoring and reviewing): 1.Stocks market 2. Exchange traded funds (ETFs)
For those who cannot afford the monthly payment, Neoh's advice is for them to set some money aside and to not withdraw it until they build enough capital to initiate their investment.
"If you can project or anticipate the salary increment next year and project them into the investment or savings, you can start this year and maintain your lifestyle spending over the next few years. This way, you can at least start your investment and saving journey in the early stage" he shared.
According to Whitman's formula for financial planning, the networth of an individual is always capitalizing on four factors as below:
1. Increase savings. 2. Increase return on investment (ROI). 3. Minimise cost. 4. Minimise risk.
Investment is like playing golf, you should start playing when you are young and you will be able to enjoy the game when you retire, instead of getting upset because you start learning at older age. As it is a life-long skill, the sooner you start, the better you will get.