I am frequently asked a common question that plagues many young professionals today. After much contemplation, I have decided to address this important topic.
This article delves into the timeless principles of personal finance while also offering insights into the future and drawing lessons from the past.
If you fall into any of the following categories, this article is tailored for you, and I sincerely hope you find it beneficial:
- Recent graduates
- Individuals in their early twenties
- Students on the brink of entering the workforce
(And to our more seasoned readers, feel free to review my words and share your thoughts. Do you agree with my insights, or do you have financial wisdom of your own to impart?)
Challenges Faced by Young Professionals:
Every individual faces their own set of challenges, but yours possess unique characteristics. Let’s navigate through them step by step:
- Financial Literacy
The vast majority of adults I encounter exhibit only a superficial understanding of financial matters, a trend unfortunately prevalent among individuals of your age group as well. For those eager to gauge their financial acumen, why not test your knowledge with a brief financial literacy quiz?
This quiz comprises just five succinct questions and provides an opportunity to ascertain whether you possess greater financial savvy than the two-thirds of the global population who fall short.
Why isn’t personal finance a compulsory subject in schools and universities? The answer eludes me, yet it stands as a glaring deficiency within our educational system. Consequently, young individuals are left to glean financial wisdom from websites, guest speakers, and yes, even acquaintances and family members.
It’s not that self-directed learning is undesirable. However, well-intentioned friends and parents may inadvertently pass on poor financial habits. Let’s not forget those “friends” who purport to educate but are truly seeking financial gain from you.
Thus, your predominant issue lies in the absence of formal financial education. Even if someone did offer guidance, were they steering you in the right direction?
- Evolving Employment Landscape
During your formative years, you likely received counsel similar to that which was bestowed upon me by our elders: “Devote yourself to studies, excel academically, and a secure job shall be yours.”
However, the contemporary world substantially deviates from the era of our forebears. Presently, the notion of stable employment is shrouded in uncertainty. Lifetime job security is a relic of the past, and with the rapid advancements in robotics and artificial intelligence, the employment landscape is poised for continued transformation. While such prospects instill trepidation in me, experts prognosticate a marked decrease in traditional job opportunities in the foreseeable future.
Consequently, you find yourself navigating an unreliable job market against the backdrop of an increasingly nebulous future. Securing a stable income is becoming progressively challenging.
- Cost of Living and Inflation
Presuming you are Malaysian, I shall furnish a pertinent example from Malaysia. In the 1980s, one could likely purchase a two-story house in KL for approximately RM60,000 while commencing employment with a salary hovering around RM1,000.
Fast forward to today – envisage purchasing a RM500,000 (USD112,000) apartment with an initial salary of RM2,100.
According to the World Bank, housing affordability is a crucial factor. Ideally, the cost of your residence should not exceed three times your annual household income. For instance, if your annual household income tallies up to RM54,600 (RM2,100 monthly salary x 13 months x 2 individuals), an “affordable” home ought to cost RM163,800 or below.
Conversely, that RM500,000 apartment translates to nine times your annual household income. The World Bank would denounce it as “severely unaffordable.”
Such exorbitant costs prompt indignation. Amidst escalating expenses and stagnant salaries – particularly for recent graduates – discontent is not unwarranted.
- Student Debt
The majority of young individuals bear the weight of student loans. Thankfully, Malaysia – for better or for worse – adopts a lenient stance on debt repayment.
I do not advocate for evading repayment of your PTPTN education loan under the guise of seeking absolution from immigration officials at KLIA before your annual vacation. However, should you possess the resolve to discharge your obligations, prevailing circumstances render the process more manageable. An array of discount schemes exists, and when was the last instance of an individual being incarcerated for missing an education loan payment?
Nevertheless, student debt remains a pressing issue. Planning for the future becomes arduous when burdened by a substantial financial liability hanging overhead. I, too, have traversed similar circumstances, and empathize with the distress it begets.
Amidst these challenges, let’s examine the silver lining and dissect the advantages poised to benefit young individuals:
Advantages for Young Professionals:
- Accessibility and Technology
Reflecting upon my early days post-graduation, I reminisce about the need to summon TM Streamyx technicians periodically to rectify issues stemming from my copper-wire DSL modem’s susceptibility to lightning strikes. Not only was my wired internet connection sluggish, but also prone to unreliability.
Presently, the most rudimentary data plan on your mobile device outpaces the velocity of my lightning-prone DSL connection from 2007 by a factor of five. Furthermore, the expanse of freely accessible knowledge on the internet continues to burgeon exponentially.
Consider this: you are privileged to reside in an era characterized by affordable technologies and unfettered access to information. Acquiring knowledge is no longer a conundrum. The ease with which you and I can access information is often overlooked; with the click of a mouse, you can delve into the historical prices of Malaysian vehicles in 1985 sans the need for vocal inquiry.
Armed with technology, you possess the wherewithal to glean insights from eminent figures across the globe, free of charge. To underscore this point, allow me to direct you to Professor Robert Shiller’s course on Financial Markets. Consequently, I implore you to seize this opportunity to broaden your knowledge from a Nobel laureate rather than enduring my discourse.
- The Gig Economy
During my upbringing, I lacked the acumen typical of street-smart individuals. While I excelled academically, the spirit of entrepreneurship eluded me. Perhaps the conventional trajectory of schooling followed by tertiary education and subsequently entry into corporate employment was deeply ingrained in my psyche.
Conversely, you exhibit superior intellect and audacity. Evidently, you have likely dabbled in part-time ventures during your collegiate years, leveraging your skills and networks to generate income.
This inclination towards entrepreneurship constitutes a commendable attribute. Are you aware that freelancers presently constitute 35% of the American workforce? While precise statistics within the Malaysian context are elusive, this trend reverberates globally. Notably, individuals such as you and me who prefer the solace of home-based employment are aptly suited for these roles.
Your adeptness at utilizing available resources and technology renders freelancing a viable avenue for income generation. Acquainted with the intricacies of the internet and social media, coupled with the dynamics of globalization, you possess the potential to secure lucrative earnings, especially through international transactions denominated in high-value currencies.
In essence, we are all entrepreneurs. Regretfully, I wish to have assimilated this realization earlier in life; however, for you, a burgeoning talent – the world beckons for your conquest.
- Time
Time constitutes your most invaluable asset. Consider the exemplar of Warren Buffett, a magnate renowned for his financial acumen and presently commanding an estimated worth of USD 73.9 billion.
Did you know that 99% of Warren Buffett’s wealth was amassed post his 50th birthday? Reflect upon this fact anew; even a luminary in the realm of investing charted the trajectory to billionaire status over a span of 45 years following initial forays at the age of 11.
However, this narrative fails to resonate with the contemporary narrative of instant gratification. In a world fixated on emulating the likes of Mark Zuckerberg, a youthful billionaire at the age of 23, the reality often diverges from these aspirations.
For the majority, catalyzing significant achievements in one’s career necessitates time. Moreover, harnessing the power of compound interest across extended durations enables one’s financial capital to flourish.
Allow me to furnish a hypothetical scenario: consider an income of RM2,200 and the minimum contribution towards your EPF retirement fund. Presuming consistent contributions over 41 years until retirement, the denouement reveals a sum in excess of RM1 million:
And this calculation remains bereft of prospective promotions and increases in income.
Embrace your youth; time is your ally. Yet, do you harbor the patience requisite to realize these endeavors?
Guidance for Young Professionals:
- Budgeting and Automation
If I were to encapsulate personal finance within a single axiom, it would be this: spend less than you earn, and allocate the remainder towards investment.
This adage resonates profoundly. However, the allure of the latest iPhone models or irresistible holiday offers from AirAsia often beckon. Thus, the need for a meticulously crafted budget emerges. Neglecting to appraise your expenditures rigorously inexorably leads to insolvency.
Further insights on drafting a budget may be gleaned here; nonetheless, the crux of budgeting lies within its disciplinary function. Absent discipline, achieving financial prosperity remains elusive.
Here is a parting counsel on budgeting: Given our proclivity to succumb to impulse purchases, consider automating your savings and investments. Instruct your bank to automatically deduct a portion of your remuneration for investment immediately upon receipt, rendering these funds less accessible.
Accessible funds often precipitate impulsive expenditures – an indulgence that could culminate in the acquisition of that coveted iPhone.
- Vigilance in Expenditure
Analogous to enterprises striving for enhanced profitability via augmenting revenues or curtailing costs, young graduates, likewise, must scrutinize their expenses.
In most scenarios, assuming independence and non-reliance on your earnings for familial sustenance, there exists ample leeway for young professionals to trim expenditures.
“But my persona necessitates chic attire and visits to trendy cafes,” you posit. “Vacations abroad offer solace and contentment,” you contend.
I am not inclined to advocate relinquishing your penchant for overpriced Starbucks beverages or curtailing your globetrotting endeavors. Personal priorities are profoundly subjective. Yet, efficacious control of expenditures amidst contemporary economic exigencies mandates resolute decision-making.
Acknowledging life’s inherent trade-offs, be it temporal or pecuniary, is crucial. Allocate resources toward endeavors of paramount importance. Reserve a larger proportion of your budget for such undertakings while pruning extraneous expenses with zeal.
Reflect extensively; with age, you shall likely discern the insignificance of erstwhile priorities. Hence, choose judiciously.
- Mastery and Diversification
Upon optimizing your expenses to the fullest extent feasible, further reduction may yield insignificant returns. To scale greater heights, augmenting income emerges as the next logical progression.
Primarily, strive for excellence in your professional capacity. Alternatively, identify a profession wherein your skills flourish. Despite the shifting employment landscape, lucrative job opportunities still abound for those capable of delivering exceptional value.
A secondary avenue entails diversification – cultivating multiple income streams. Considering the burgeoning gig economy, a significant proportion of individuals boast side businesses (as per surveys, 44% of millennials aged 25-34 engage in secondary occupations, the highest among all demographics). This shift epitomizes a global trend favoring multiple revenue streams. Conceivably, these tertiary endeavors might eventually obviate the necessity of traditional employment.
Admittedly, transitioning into this realm may evoke trepidation, particularly if entrepreneurship does not come naturally. Acquiring indispensable competencies such as marketing, sales, and client interaction becomes imperative. Prowess in these domains proves beneficial, heralding personal growth and expanding horizons.
- Asset Acquisition
Numerous queries concerning financial matters intersect my purview, yet a perceptible dearth in proactive financial initiatives prevails. Perhaps apprehension surrounding financial losses underpins this reticence – thereby circumventing risk exposure. Alternately, individuals may default to familiar domains gleaned from conventional educational avenues.
Irrespective of the underlying rationale, knowledge bereft of application remains inert.
If your conception of investment entails entrusting funds to paternal oversight for oblivion, the onus rests with you to chart your fiscal course. Venturing beyond the confines of fixed deposits is warranted; eschew unwarranted complexities such as esoteric technical analysis in favor of exploring low-cost mutual funds, REITs, or the tried-and-tested Amanah Saham. However, real comprehension stems from the experiential domain. Venture forth with modest capital investments to imbibe invaluable lessons firsthand.
Embarking on tangible actions underscores a potent facet – fostering both knowledge acquisition and augmenting self-assurance.
- Self-Investment
Supreme among all investments is the commitment to self-enhancement. This imperatively encompasses allocation of resources towards personal welfare – be it through nutritious sustenance for the body, enriching literature for the intellect, or the procurement of enriching books.
Self-improvement transcends confines of personal finance, extending to holistic well-being. Nourish wholesome lifestyles, cultivate harmonious relationships, exhibit compassionate affability towards kin and kin, and extend benevolence to others. These endeavors not only benefit your psyche but manifest an altruistic gesture.
Failure to prioritize self-care today precludes savoring the fruits of labor in the future.
If you attended in anticipation of a formulaic strategy delineating a prescribed quantum of wealth by a designated age, or a purportedly infallible plan trumpeted on contemporary platforms, I offer my regret. Present realities in a boundlessly dynamic world replete with uncertainties and disruptions mandate resilience. While erstwhile recommendations akin to “Become a Property Millionaire by 30” might have thrived during the golden era of Kuala Lumpur’s property boom between 2009 and 2013, their relevance in the contemporary milieu is questionable.
Ephemeral tactics may furnish compelling narratives, yet sustained success ensues from solid foundational principles.
Conclusively, the onus rests with you to embark upon a journey delineating your financial destiny. Discard attributions of financial misfortune to external entities; eschew expressions of helplessness under the guise of ignorance.
Adopt an alternate perspective:
Perceive life as a riveting odyssey; a sojourn replete with twists leading to your destined terminus. Money functions as the vehicle steering you en route; its mismanagement portends a turbulent voyage. Adroit fiscal stewardship, contrariwise, smooths the sojourn – hastening progress towards your ultimate destination.
You are presently mid-stride along your expedition. Irrespective of antecedent occurrences, the prerogative to enhance your journey pervades your very being. The agency to fortify your course commences now.
Shall we commence?
