Millennials Guide To Healthy Financial Habits

If your age is between 25-40, congratulations, you are officially a millennial.
The millennial workforce in Malaysia is projected to rise to 75% in 2025. As this generation is soon to be the backbone of the economy, the economic impact from the Covid-19 pandemic for millennials is a cause for concern.
According to a paper released by the Khazanah Research Institute, the pandemic has affected Malaysia’s youth directly through the rise in unemployment and the wage gap. This situation is even more dire for those who had to endure wage cuts and retrenchments due to the pandemic.
Therefore, it is important for millennials to understand and focus on building their financial resilience when it comes to planning how they save and spend their money.
This concept of financial resilience is also advocated by Perbadanan Insurans Deposit Malaysia (PIDM), a member of the Financial Education Network (FEN).
In fact, it is everyone’s responsibility to build better financial resilience.

 How can millennials build financial resiliency?

From the age of 25 to 40, you are working hard to build your career, or busy looking after your family’s needs. However, while doing this, don’t forget to start building your financial resilience. Here are three ways to start.

1.  Set up an emergency fund

Emergency funds will be your financial safety net in case something unfortunate happens like a sudden job loss or an accident. Do you know that only 24% of Malaysians are able to support their living expenses for three months or more if they lose their income? Millennials are not spared as they are part of this statistic.
Ideally, millennials should prepare enough emergency funds to support their expenses and living costs such as rent, food, utilities, and transportation for at least 6 months. You can start an emergency fund with these 4 easy steps.
Having an emergency fund will provide you with peace of mind, knowing that you’re financially prepared if something unexpected happens.

2. Get insurance coverage

Even if we try to stay fit and healthy, we can still suffer from any number of illnesses without     warning. In fact, millennials are increasingly prone to non-communicable diseases, such as high blood pressure and depression.
In a worst-case scenario, you may not be able to continue working or generating an income, which will affect your ability to remain financially resilient.
This is why insurance protection can help you reduce your exposure to unexpected risk which helps you to build financial resilience.
Before choosing an insurance plan you also need to know the difference between the benefits and coverage of the plan so that it suits your needs. You can find detailed information on the various insurance plans available in the market here.
Insurance policy and takaful certificate owners are also protected from the loss of their eligible insurance or takaful benefits in the event a PIDM insurer member goes bankrupt. The protection is provided by PIDM automatically – no application and no payment are required. For more information, you can refer to this link.

3. Keep your debts under control

Keeping your debts under control is another important step to building financial resilience. If you are aware of how much debt you have, you will be in better control of your overall debt situation and know whether you can repay them based on your monthly income. One easy way to keep track of your debt is to calculate your debt service ratio.
Here’s an example of a debt service ratio calculation (DSR) to figure out your total debt commitments and what percentage of your income is needed to repay them. Financial institutions will normally look at your DSR to determine if you are eligible for a new loan or not, and how much you can apply for.
DSR = (Total monthly commitments ÷ net income) x 100%
Total monthly commitments RM700 car loan + RM200 PTPTN + RM200 credit card = RM1,100
Monthly income RM5,000
DSR = (RM1,100 ÷ RM5,000) x 100% = 22%
Usually, a debt-to-income ratio between 31% to 50% is seen as good.
Obviously, one of the best ways you can improve your DSR is by keeping up with your debt repayments. Other than that, you can also look for ways to increase your income by working part time in the gig economy or taking on freelance work.
Remember to keep your DSR healthy to ensure your remain credit-worthy to financial institutions. You can also calculate your DSR using PIDM’s credit score calculator through this link.
Financial resilience is a concept that requires constant effort. So, it helps to develop good habits that will continue strengthen your financial resilience.

3 healthy financial habits you should try

You can build your financial resilience by practicing healthy financial habits like the following:

1. Track and manage your expenses

The first step in managing your money is to track your income after paying taxes. If you have other income sources, remember to deduct the cost of taxes and business expenses before adding it to your income.
Next, you need to identify your fixed and discretionary monthly expenses, as well as your annual expenses. This can help you determine how much you need for your expenses every month and every year, and will let you know just how much you have left over after those expenses. This will help you plan your expenses more effectively.
Monthly expenses Yearly expenses
Fixed expenses:
  • Loan or mortgage repayments /rent
  • Utility bills
  • Credit card bills
Non-fixed expenses:
  • Daily meals
  • Transportation costs
  • Groceries
Additional monthly costs:
  • Entertainment subscriptions such as internet charges, Netflix, Spotify, and others
  • Gym membership
  • Mobile phone plans
  • Road tax and car insurance
  • Medical check-up, (including dental and eye check-up)
  • Home maintenance
  • Credit card annual fee
  • Annual membership fees (like those for clubs, retail stores)
By tracking your expenses, you can ensure that you’re living on a budget, and you can take steps to not overshoot your budget.

2. Grow or diversify your income sources

Besides managing your money better, you should also look at ways to grow your income. While most of us may have a primary source of income by being a salaried employee, you can also increase your income by looking for other income streams.
Some popular ways to increase your sources of revenue include:
  • Start an online business or store (e.g. selling homemade food, beverage or other products or services, drop shipping)
  • Create and sell digital content (e.g. e-books, templates, stock photography, online courses, music jingles, app designing)
  • Take on a remote job (e.g. virtual assistant, telesales, customer service, online tutor)
It may be easier if you start by looking at your hobby or things you love to do and look for ways to turn it into a money-making venture with minimal start-up cost. While the income you earn from these side jobs may be small at first, every little bit helps when it comes to building your financial resilience.

3. Take steps to improve your financial knowledge

Being financially literate is a big part of building and maintaining your financial resilience.
Here are simple ways you can start your financial education journey:  
You can also make use of sites like Financial Education Network, Agensi Kaunseling dan Pengurusan Kredit (AKPK) and PIDM's financial resilience campaign site here #SediaPayungKewangan
These financial habits are among the best ways to continue being financially resilient. Remember, it doesn’t matter if you’re a millennial, baby boomer, gen X or Z, your financial habits right now will help you determine your ability to be financially resilient when faced with uncertainties in the future.
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