Holding on to many credit cards mean excessive charges and fees.

SO you are burdened by debts and you are facing a bleak financial future. It is not the end of the world; furthermore you are definitely not alone.

Majority of us live on debt, for example, car loan, home mortgage, credit cards — without these modes of financing, you probably would not be enjoying your everyday requirements. The only people who are not in debt are retirees who had planned well for their golden years.

The first question you need to ask yourself is: what kind of debt are you laden with?

“Good” debt is quite a necessity for our living requirements as they are considered as investment debts that create value. Examples of these are home mortgages, business loans, student loans.

On the other hand, “bad” debt is known as consumer debt; for instance, credit card purchase of a new plasma television, that is, debt from a credit purchase of an item that goes down in value and has no potential to increase.
Understanding the nature of your debts would enable you to manage them better. Before you proceed further, your first step is to assess your current financial situation:

- Calculate your total debt to income ratio — if your repayment exceeds 30 per cent of your gross income, then you need to clear some of your liabilities, as you are considered highly “geared”.

- Examine your debt categories and split them into “good” and “bad” debts.

- List out your debts from the highest to the lowest interest rate charged.

Once you have assessed where you are, here are some relevant tips to manage these debts:

Set your debt management goals. As with any successful endeavour, you need to begin with a plan. Plan to pay off your “bad” debts within a period of time; decide when you would like to be free of these debts and then set a realistic repayment structure to achieve that time frame. Perhaps an achievable goal for you is to fully settle your credit card balances within six months.

Pay off the highest interest charged debt. Once you have prioritised your list of liabilities according to how costly they are, you can identify the ones to pay off first. More often than not, at 18 per cent per annum, your credit card would be the highest charged “bad” debt.

If you are someone with more than one or two credit cards, this would be a good time to consolidate them. Holding on to many cards mean excessive charges and fees you can definitely do without.

Pay off your credit card bills on time and in full. This sounds like an obvious tip, but many of us do not pay on time, hence unnecessarily incurring RM10 or RM20 on late penalties. If you cannot manage this, then try to pay off the highest interest bearing card in full and then pay off the monthly minimum balance on lower rate cards.

Restructure your debt. There are various facilities made available by banks and financial institutions to enable you to transfer balances from one borrowing facility to another. For instance:

- Some card companies will offer six months or even a year with a zero per cent annual percentage rate (APR);

- Some banks offer overdraft facilities on your current accounts which would save you from paying penalties on overdrawn balances, that is, an overdraft protection plan;

- You could keep some money in a savings account which accompanies your current account so that your bank can automatically draw upon it in case an overdraft situation occurs.

It is worth looking around to see which companies are offering competitive rates before you shuffle your debt around.

Restructure your home mortgage. If you need to reduce the monthly instalment payment or reduce the term of your home loan, consider restructuring your loan — interest rates change and financiers are always competing to offer new and more attractive housing loan packages.

Alternatively you could utilise Account 2 of your EPF balance to reduce a housing loan in your name and/or your spouse’s name. Of course, you need to be aware that your EPF is eventually required for your retirement and any withdrawal will have an impact on the availability of funds as a retiree later.

Set a monthly budget and stick to it. Once you have listed your monthly income and outgoings, you will be able to determine how much you can realistically afford to spend every month and not spend money you don’t have.

With determination and discipline, you could be in total control of your cash flow and have financial stability.

Don’t spend money you don’t have. Just because your next door neighbour bought a new car, this doesn’t mean you need to do the same. Since you should now know your own financial status, can your finances handle an additional car loan?

If you are the type to compete just to be seen with the latest products, then you need to wake up and turn a new leaf. It’s probably this spending streak that has caused you to be in your current debt-laden situation anyway.

Be more financial savvy. Studies in the United States have shown that 20 per cent of American teenagers do not even know that whenever we take out a loan, we need to pay it back with interest.

Being financially ignorant will not help us clear our burden, let alone manage our debt. There are many relevant literature and online means of education for us to learn about managing our finances, savings, investments or other areas of financial planning which will be essential once your debts are in control and you are on your way to a brighter future.

Agensi Kaunseling Dan Pengurusan Kredit (AKPK) is an agency set up by Bank Negara Malaysia to provide financial education, credit counselling and debt restructuring services to individuals. All services offered by AKPK are free of charge. For further information, please visit www.akpk.org.my or call toll free number 1-800-88-2575.

New Straits Times

HOW ambitious are you, financially? Most people face this dilemma when they have money in their hands — to save or to spend.

Saving or spending has always been the most talked about topic in the area of financial planning because this is a basic decision one has to make in order to achieve financial independence.

Saving money isn’t about sacrifice. It’s more of making small adjustments here and there.

No matter how much you make, you can still save. If you earn less, then start with a small amount. As long as you follow the rules of living within your means, you won’t go wrong.

Don’t wait until you have more money to start saving. Start immediately because saving money is one of the means of building wealth and the smartest way to prepare for your financial future.
All you need is to have financial discipline, which is controlling your spending and making sure you pay for the things that need to be paid.

What you need is to create a budget and implement it. If you cannot control your spending then no matter how much money you make it will never be enough. Control your wants, get only what you need, say no to impulse buying and follow your budget strictly, then you’ll be all right.

Once you have changed your spending habits, the rest will follow through smoothly.

A key part to financial success is learning the skill of discipline and spending wisely.

Once you are able to accomplish both of these objectives, you will be well on your way to saving more money. But, how do you stay disciplined? You can do the following:

- Set a goal

Make sure you set a goal that is SMART (Specific, Measurable, Attainable, Realistic, Timely). An example: you want to have RM15,000 in two years as a deposit for a house so you need to save RM625 every month. Setting goals is the first step to turning dreams, ideas, and wishes into reality.

- Use rewards and punishments

If you are able to maintain your budget or are able to reach your goals, then perhaps you can reward yourself with a treat.

But if you suddenly find yourself going over the budget, then as a punishment, you may have to forego some pleasurable activity.

- Automated savings

For those who feel that savings on regular basis is a chore, one option could be through forced saving, which is via salary deduction.

- Accountability

It is always good for you to share your goals with your spouse or a close friend. By doing so, you are accountable to them. They may from time to time ask you about your goals, and surely you want to show that you are competent enough to stick to your goal.

In conclusion, it doesn’t matter how much you save. What is important is that the earlier you start saving, the more time you’ll have to accumulate a large nest egg for the years ahead.

* Agensi Kaunseling Dan Pengurusan Kredit (AKPK) is an agency set up by Bank Negara Malaysia to provide financial education, credit counseling and debt restructuring services to individuals. All services are free of charge. For further details, visit www.akpk.org.my or call 1-800-88-2575

New Straits Times

YOU have inherited RM5 million! What would you do with all that money?

If you were the happy-go-lucky type, you would spend most (if not all) of it within a year without regret.

If you were the conscientious type, you would pay off all debts, spend one-third, and invest the rest with solid plans for the future. Or you may just give the cash away.

We all have different needs, motives and purposes in life. Thus, our behaviour is a reflection of our different perceptions, thoughts and beliefs.

Hippocrates (370 B.C.) told of Melancholic, Choleric, Phlegmatic and Sanguine temperaments.
A more recent profiling system classifies our characteristics as DISC — Dominance, Influence, Steadiness and Compliance.

We all have one primary characteristic, with its own package of strengths and weaknesses, directing our daily behaviour and… money patterns.

The Melancholic (Compliant) is a perfectionist, analytical, planner, worrier. He enjoys art and things of beauty; is indecisive, thoughtful, loyal, precise. They are mentors, counsellors (Mahatma Gandhi) and healers (Princess Diana). This detailed planner would make sure that all insurance and savings plans are in place for the future.

However, this worrier would take a long time to make decisions in, say, purchasing a home. He may be overly conservative with his investments.

The Choleric (Dominant) is determined, impatient, goal-oriented, insensitive, likes being in control, takes risks; is opinionated, practical, decisive. They are creators (Walt Disney) and leaders (Margaret Thatcher). The dominant Choleric would have his finances in top order. The self-sufficient Choleric would organise all matters himself.

The Phlegmatic (Steady) is laid back, peaceful, dependable, unmotivated, orderly, a saver, slow to decide, introverted and diplomatic. They are guardians (Mother Teresa) and providers (Martha Stewart).

The steady Phlegmatic would certainly live within his income; he is your bargain shopper. With his laid back attitude, however, he may end up with disconnected Astro services or electricity, as bills are always paid at the last minute, if not, late.

The Sanguine (Influential) is talkative, persuasive, impulsive, usually unorganised, fun loving, restless, can be late and enthusiastic. They are artisans (Ernest Hemingway) and entertainers (Madonna).

The influential Sanguine would be a natural “big spender” whose motto is “we only live once”.

So any of the above traits ring a bell? Our personalities are a combination of all four, with differing intensities.

You may be a Sanguine at home, but a Melancholic at work. For example, Datuk Siti Norhaliza entertains (Sanguine) with business acumen (Melancholic, Choleric).

The negative tendencies can be managed. But first, you need to admit this weakness. Secondly, be open to changes. Prepare personal financial statements to understand how your money is spent.

Come up with an income statement (showing your income and expenses) and a balance sheet (showing your assets and liabilities). Cholerics and Sanguines who feel budgeting and details are a waste of time, should just hire someone to do the details.

Manage Your Spending

Tendencies

Spending patterns need differing treatments, depending on your tendencies.

Understand Your Profile

Saving and investing is another area of behavioural concern. A professional could assist all temperaments, be it the overly conservative Melancholic, the laidback Phlegmatic or the short-term thinking Sanguine.

Cholerics need to trust someone else to look into their controlled domain.

Sanguines and Phlegmatics need to ensure they have sufficient insurance protection and retirement savings.

In conclusion, you can manage your temperament so long as you identify and understand your personal tendencies.

Agensi Kaunseling Dan Pengurusan Kredit (AKPK) is an agency set up by Bank Negara Malaysia to provide financial education, credit counselling and debt restructuring services to individuals. AKPK services are free of charge. For further details, please visit www.akpk.org.my or call toll-free1-800-88-2575

New Straits Times