Financial management a vital life skill today, says BNM

by TMR / pic by RAZAK GHAZALI 

MANAGING finances well is an important life skill nowadays to ensure one will not be plagued with money issues in the future, Bank Negara Malaysia (BNM) said.

“For example, if we want to retire comfortably, we need to save, not overspend and manage our finances accordingly. This will require planning for the long term and discipline in making the necessary lifestyle adjustments.

“A good guide of sufficient buffer is to have savings of between three and six months of monthly expenses. As with most habits, it is important to start small and be consistent in saving. Perseverance is key,” BNM said in its Annual Report 2020.

Part of managing finances may include borrowing prudently to fund large purchases such as a home, car and motorcycle or to expand businesses.

In doing so, one should not only be aware of how borrowings work (for example how interest is calculated), the terms and conditions, but also the rights that consumers have.

As a good guide, the total monthly debt repayment should not be more than 60% of a borrower’s net income, after taking into account statutory deduction for taxation, contribution to the Employees Provident Fund and the Social Security Organisation.

“By taking control, we can avoid considerable difficulties and challenges in life. Taking control of our finances can improve our lives by giving us more freedom and peace of mind,” the central bank said.

BNM said an informed consumer will also be able to differentiate between genuine investments and financial scams.

This comes from understanding that risks are inherent in financial activities, and promises of high returns without risk are more often than not, a warning sign.

“Among the key features of financial scams to look out for are high or unrealistic return for a small amount of investment, guarantee of easy and risk-free investment, and unsolicited or unexpected calls that come with offers that seem ‘too good to be true’.

“It is important to keep all personal data, financial information, password, PIN and TAC details secured. Do not reveal these details easily even if some one claims to be from enforcement authorities,” it added.