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.
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?
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.
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.
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.
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:
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.
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.
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:
|Number of years||Total amount (at 6% annual return)|
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:
Choose the right product for yourself. Don't buy into rumours. Trust the professionals to manage your money.
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:
|Credit rating||Credit card, loan/financing|
|Emergency expenses||Credit card, savings, insurance/Takaful|
|Wealth building/protection||Investments, savings account, insurance/Takaful|
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:
*Deposit products are protected by PIDM up to RM250,000 for each depositor.
This article is adapted from iMoney's article.