Financial Health & You - Money Check Up Anyone?

Everyone has limited energy, which of course means that it would be impossible for us to carry on generating income by holding on to a job throughout our lifespan. When age of retirement comes knocking on the front door, many have no choice but to succumb to the fact that they need to leave the comforts of their workplace, even though they feel they still have the strength to carry on. As most people retire at the age of 55, we need to consider how to sustain the demands of our daily lives for another 20 years as most of us, God willing, will carry on to live till the ripe old age of 75 (based on certain reports that state that an average Malaysian can live up to the age of 75).

Now….what does this tell us? This tells us that we would have 20 more golden years to live. Have we really pondered on how we are going to manage living comfortable lives for another 20 years – after our EPF money has completely dried up after paying for our children’s education and settling our outstanding housing loan? Imagine a far worse scenario - we have very little left in our savings too, because we have just purchased the luxury sedan and the beautiful retirement home by the seaside that we have always dreamed about having all our working lives. What is needed here to address such a predicament is to start making our money grow to enable us to sustain comfortable lives after retirement.

Finding solutions to the above problem requires that we know where we stand now financially. It is of utmost importance that we know how to measure our financial health.

The following will help guide you through what we call your ‘Money Check Up”.

Lab 1 - Main Sources of Income Test

In order to know what your current financial position is, you need to review your inflow and outflow of money. You have to clearly identify your main sources of income, which are basically monies that go into your pocket, such as your salary, dividends, capital gains, rental income from your properties, distribution from business, interest from your bank savings and fixed deposits.

Your total income can be divided into three categories, namely earned income, passive income and portfolio income. Earned income is the money you take home as your salary. This is the hard earned money paid by your employer for the work you do. Normally, it is taxed at higher rate than any other forms of income.

Passive income is money received from property investment or distribution from business. This is a form of income that you should not work too much on, but it is still able to generate continuous stream without much effort on your part.

Portfolio income is money that you receive from the returns of your investment in financial assets, for example dividends from stocks, income from bonds as well as the returns from unit trusts. It is also another form of passive income whereby you would not have to actively be involved in generating the income.

Lab 2 - Main Sources of Expenses Test

An expense is the money that leaves your pocket. They are all expenses that you have to incur in order to maintain your lifestyle. Examples would include credit card payments, housing loan repayments, car loan repayments, utility payments, grocery bills, taxes, travel and entertainment and all other personal expenses.

In determining your financial position, you need to track all of your expenses. One of the main reasons that people discover that they do not have much saved up when they retire is because they never control their expenses. They lose track as to how they spend their money every month. The one pattern they constantly observe is that they always do not have enough money to support their lifestyles. As a result, they may have to incur additional debt to pay for their expenses as their earned income is insufficient to pay for all of their expenses.

One way to track your expenses is to write down every item that you spend on. JOT-IT-DOWN! - It is tedious but in the long run, a rewarding task, as you will be able to keep track of what your hard earned money is spent on. If you are unable to track all items, make sure that you at least aware of all payments made to purchase the more costly items. You will find it shocking to discover that a majority of you are genuinely surprised once you’ve discovered how much money you have spent on certain items. Please refer to the table below on how to build your financial statement.