Importance of Financial Planning: A Real-Life Guide

Understanding finances and investments is crucial, especially in this modern age. This is because some high earners still find themselves in significant debt due to poor personal financial planning.

So, in this guide, through a real-life example, we'll show you why it's essential to manage your finances before diving into investments or buying property in Malaysia.

Essential Financial Planning: Crucial Even for High Income Earners

1. En. Ali's Financial Situation

En. Ali is a 36-year-old engineer at an international oil and gas company. He earns nearly RM 20,000 per month. However, despite having a substantial income over the years, his financial situation is less than satisfactory. Here's a snapshot of his assets and liabilities:

Assets and Liabilities

Assets Liabilities
High-end apartment: RM 1,100,000 Housing Loan: RM 810,000
BMW car: RM 80,000 Car Loan: RM 50,000
Unit Trust Fund: RM 60,000 Credit Card: RM 120,000
Total Assets: RM1,240,000 Total Liabilities: RM980,000

Income and Expenditure

Income Expenditure
Net Salary: RM 14,100 Housing Loan Payment: RM 4,100
  Car Loan Payment: RM 2,100
  Min Credit Card Payment: RM 6,000
  Unit Trust Fund Savings: RM 400
  Other Expenses: RM 4,000
Total Income: RM14,100 Total Expenditure: RM16,600

En Ali's income and expenses result in a net deficit of RM -2,500. This forces him to rely on credit cards to cover the income shortfall, leading him into a cycle of bad debts.

Net Deficit: Relying on Credit Cards and Falling into Debt Cycle

2. Financial Analysis of En. Ali

En. Ali, despite his significant salary, is facing financial planning difficulties. A large initial down payment for his apartment depleted his savings, prompting him to resort to credit cards for RM 50,000 worth of renovations.

Over time, his cumulative credit card debt and monthly expenses surpassed his monthly income, leading to a continuous accumulation of debt.

FinDoc Recommendations for Managing Debt and Improving Finances

3. Recommendations by FinDoc

After assessing En. Ali's financial situation, the FinDoc Pro Advisory team proposes the following:

  1. Withdraw RM 60,000 from the Unit Trust Fund to address the credit card debt, given that the fund's return rate is less than the credit card's interest rate.
  2. Apply for a Mortgage Refinancing Top Up Loan. This will let En. Ali obtained RM 180,000 at a low-interest rate and reduced his monthly expenses.
  3. Use the loan for debt restructuring. This will allow him to pay off the remaining credit card and car loan debts.
  4. Put RM 70,000 into a Flexi Loan Current Account for emergency purposes and to save for mortgage interest for earlier loan settlement.

Revised Financial Status: Improved Stability and Reduced Debt

 

4. En. Ali's Revised Financial Status

Following these changes:

Assets Liabilities
High-end apartment: RM 1,100,000 Housing Loan: RM 990,000
BMW car: RM 80,000 Car Loan: RM 0
Flexi Current Account: RM 70,000 Credit Card: RM 0
Total Assets: RM1,250,000 Total Liabilities: RM990,000

Income and Expenditure

Income Expenditure
Net Salary: RM 14,100 Housing Loan Payment: RM 4,805
  Other Expenses: RM 4,000
Total Income: RM14,100 Total Expenditure: RM8,805

En. Ali now has reduced expenses and a net disposable income of RM5,295. He no longer needs to rely on credit to cover his income shortfall.

5. Conclusion

Before investing, proper financial management is essential. Without effective debt and income management, even multiple investments could lead to financial instability.

Visit FinDoc Pro Advisory for personalized financial advice, debt management, interest reduction, loan settlement guidance, and tailored bank product recommendations, along with the Pro Report.

 

Once you manage your finance correctly and are ready to get a property, you might want to check out Tips for Securing a Best Housing Loan Interest Rate.

 

Stay Informed with Findoctor.my

For the latest financial updates and more, follow us on Facebook @Findoctor.my