When you are in your twenties, you just came out from the university or college. Are you supposed to work for others or build a business?
Building a business without any financial backup can be a challenge. So, if you want to build a business, you need to be mentally prepared. In order to do this successfully, you need to upgrade your business skills very fast. These include your networking skill, your leadership skill and selling skills. If you are not able to do this fast enough, your earning capability can be affected. You won’t have enough earning to sustain or even you can sustain, your saving can be limited. Make sure you have the skills and mentor to guide you to build a successful business.
Another way is to work for others. Working for others can ensure you have stable income every month. You can start building the skills that you need to manage your finance and building a business at the later stage.
Hence, personally, it is better to work for others or working as freelancer to prepare your financial backup before you start to build your business. This can ensure you can sustain during the early phase.
Let’s say you’ve got a steady job and have some savings every month as your commitment is not high. What should you do on your finance?
First is to look at wealth protection when you start out in the career. When there is not much net worth, the most valuable thing is your ability to earn income. When one suffers from critical illness, one’s ability to earn income will lose. It also takes more money to pay for the medical bills. Hence, it is always important to ensure you have the medical and critical illness insurance plans. Medical plan will prevent you from spending huge money on medical bills when you are sick and the critical illness plan is to replace your income when you suffer from critical illness. The rule of thumb is to not spend more than 10% of the income on the insurance plans. Ideally, you need to have around 5 years’ income as the critical illness coverage. If you are earning RM 40,000 a year, then your critical illness coverage shall be RM 200,000. Make sure you are getting reasonable coverage at affordable price. Never spend too much on insurance plans so that you have reasonable saving left for investment.
Second, set up 3 to 6 months of expenses as emergency fund for your rainy days.
Third is to look for investment plan after emergency fund is set up. Inflation risk is definite. Our money is losing its value every day. To hedge it, investment is needed. You shall set up 2 investment accounts, one is for long term goal and another one is for medium term goals such as purchasing a new house or new car.
It is always better to start investment before any commitment like purchasing a big car or big house. If you need a car, you can buy a second-hand car, and this can help you to save more money and channel the extra money to investment. Buying a big car or big house during the early stage of life will increase loan commitment and reduce monthly saving. It will be harder to reverse this situation after the decision to have loan commitments. It is recommended to have some investment assets, i.e. stocks, properties to fund the own stayed house loan commitment.
Fourth is to apply for a credit card to build good credit history. Credit history requires time to build. You can use your credit card to pay for utility bills or insurances and always ensure the payment is made on time. Doing it for a few years will help you to build good credit history for mortgage at a better rate in the future.
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