Here's What You Need In Your Financial Toolbox

Financial products are not something you really think about until you need them. It’s a little bit like buying the necessary tools only when the need arises.

You open a savings account when you need to save or get a credit card when you decide to earn cashback. That said, just because this approach works for you doesn't mean that you can't do better.

The term ‘financial toolbox’ was recently used by a popular finance blogger to refer to financial services that helped him manage his money more efficiently. Similarly, putting together your own financial toolbox can help you to budget your money better.
 

What tools do you need?

If you look in your toolbox at home, there should be a hammer, a wrench, and many different types of screwdrivers. These tools should be enough for you to take on any minor DIY fixes at home. Similarly, your financial toolbox needs items that can cover most of your day-to-day financial needs.

Do you have any of these products in your financial toolbox?

• Savings account
• Insurance/Takaful
• Credit card
• Investments
• Loans/Financing

Getting the right financial tools is the first step. However, you need to know how they fit together to give you better financial security and stability.
 

A savings account that gives you more

Have you ever thought about how a savings account fits into your financial plan? What does it do for you aside from being a place to receive funds?

For a start, it can help you manage your finances. For example, if you're working on the 50/30/20 budgeting system – you can easily open three different accounts to manage them. One account for needs, one for wants, and a third for savings. This ensures you do not accidentally use money from one category for the wrong goal.

For your daily expenditure, ensure that you have a savings account linked to mobile banking. This will provide you with the convenience to consolidate all your payments and bills. For medium-term cash flow, look for an account that offers high flexibility and interest/profit rates. This helps to access your cash in a hurry if you need it. For long-term savings, do shop around for the best fixed deposit rates.
 

Insurance/Takaful that goes beyond protection

The Life Insurance Association of Malaysia reported that only half of Malaysians have a life insurance policy. Of the half that do have a policy, 90 percent lack sufficient coverage for themselves and their loved ones.

Insurance/Takaful is a backup financial plan for unfortunate events like a major illness or accident. You may not think that you need it now but ask anyone who has faced a major medical bill without insurance/Takaful, and you will think otherwise.

If you're looking for a reliable insurance/Takaful policy, bancassurance/bancatakaful is an excellent place to start. They offer long-term savings plans with protection for health, education, retirement, and even multi-generation savings products. Some bancassurance/bancatakaful products also provide a waiver of premium/contribution should anything unforeseen happen during the policy term.

As a result of the pandemic, more Malaysians have moved online for their daily transactions. At the same time, cyberspace attacks have also increased, thus heightening the need for us to protect ourselves online.

Did you know?

Insurance/Takaful can also protect you from the financial fallout of cybercrimes. They can protect you against online extortion, fraud, and identity theft and cover damage done to your computer by malware.
 

Find a credit card that rewards your lifestyle

Credit cards are one of the most flexible financial tools available. It's not just about buying things first and paying for them later. Credit cards can also help you manage emergency expenses.

Some of the main benefits of getting a credit card are as follows:

• Earn cashback through your everyday spending
• Earn bonus points; which can be exchanged for rewards
• Earn air miles for flight tickets and seat upgrades
• Gain access to discounts and promotions only available to cardholders
• The option to convert your spend into instalments with zero interest/profit
• Credit balance transfers that allow you to reduce your monthly commitments by saving on high interest/profit rates

Aside from choosing the right card to meet your needs, spend wisely and make your repayments/payment on time. Managing your credit card effectively helps you to improve your credit rating. A strong track record will improve your financial standing and shows financial institutions that you can pay your bills on time.

This is important if you plan to apply for more loans later, like buying a house or car. A better credit rating gives you more access to better loans with lower interest/profit rates.
 

Loans/Financings to make your plans come true

Getting a loan/financing is something that everyone ends up doing at some point in their life. Having a loan/financing enables you to preserve your cash in case of an emergency. It will also help boost your credit rating so you can enjoy better interest/profit rates should you need one.

There are many different types of loans/financing, e.g. car loans/financings, personal loans/financings and traditional mortgages. If you have paid off your housing loan/financing, you can still take on a second mortgage on your home to improve your cash flow or invest that money to further grow your wealth.

Some loans/financings allow you to consolidate all your loans/financing into one account. This means you only need to service one interest/profit rate instead of keeping track of different payment schedules and interest rates.

Ensure that you have a complete understanding of the type of loan/financing you need. Speak to the right specialist and choose a loan/financing which is suitable for you.
 

The right investments to grow money

So far, we've looked at financial products that save you money, offer protection or help you to afford significant expenses. In this respect, investments are different as it is a method for growing your wealth.

Most of us have an account at the Employee Provident Fund (EPF) as a form of savings, but that may not be enough. We need to consider an alternative source of funds for our retirement.

Many people often mistake wealth management to be for the affluent segment. This is a myth. You can start your investment journey with any amount, even from as little as RM100 per month!

Investments come in the form of stocks, bonds/sukuk, forex, commodity markets and cryptocurrencies. Your goal is to buy securities that will increase in value over time and then sell them when you reach your savings target or need the money. If the thought of stocks, bonds/sukuk and commodities sound intimidating, you can consider investing in a unit trust.

A unit trust is one of the best forms of investments for a non-financially savvy person. It is a form of investment where professional fund managers specialise in generating long-term returns through local and global stocks and bonds/sukuk. There are many types of investment themes for you to choose from.

By putting RM100 into an investment every month, it can snowball in the long run. Here's how much saving and investing RM100 each month with a 6% annual return rate can yield in 20 years:

Investment calculator example using www.calculator.net/investment-calculator.html.

The magic lies in compounding interest/profit on the money you save and invest. Saving RM100 a month will yield RM24,000 in 20 years. With investments, you can grow that amount to over RM45,000!

The important thing when starting your investment journey is to understand the following:

• Your goals
• Your risk profile
• Your timeline for investments

Choose the right product for yourself. Don't buy into rumours. Trust the professionals to manage your money.
 

Have a plan to equip your financial toolbox

All this information may not be new to you, especially if you already know what each of these financial products does. However, the way you put it together can benefit you.

The following table shows how the different financial products can be used to create a more robust financial platform for you:

Having multiple products for each category gives you options in every situation. Having a credit card, a savings account, and insurance/Takaful layers your levels of protection in an emergency. The same goes if you're planning on building and preserving your wealth.

Where can you start?

Alliance Bank and Alliance Islamic Bank understand that everyone is at different stages of their lives and has different financial needs. You can enjoy these benefits with Alliance Bank/Alliance Islamic Bank through these products:

• Get high savings rate with Alliance SavePlus Account*.
• Enjoy up to 8X Timeless Bonus Points with Alliance Visa Infinite Credit Card (yes, the reward points do not expire!) or up to 5% Cashback for all your retail purchases with Alliance Visa Signature Credit Card.
• Take advantage of affordable low interest rates as low as 3.99% p.a. with Alliance Personal Loan/Financing when you have a need for additional cash.
• Have peace of mind with a wide range of protection for your family and you to cushion any unforeseen life challenges such as hospitalisation, cybercrimes and damage to your car or home with Z-Alliance General Insurance.
• Start to invest with as low as RM100 in unit trusts and get professional advice from Alliance Bank's wealth management experts.

*Deposit products are protected by PIDM up to RM250,000 for each depositor.
 

This article is adapted from iMoney's article.