How to get along with your money

A Malaysian’s perspective on spending and saving money

General disclaimer: I am not a financial advisor and hence this should not be taken as financial advice. I do hope this gives another perspective to people who want to learn more about gaining more control of their money.

Money doesn’t have to be frustrating.

Money is one aspect of life. Health, work, and relationships are other life aspects. And like the other aspects, we have some control over them. If we choose to improve our health, we can choose to eat more healthily or pick up strength training.

Similarly, we can decide how you want to manage our money. It’s a conscious act of making economic decisions with our future self.

If you are early on the personal finance journey, welcome! I want you to know it’s not too late! You’re not missing out if you start now. We all start somewhere.

There is an abundance of resources about side incomes but very few talk about managing finances. What do you do after you’ve gotten money from your side hustles?

Here, I’ll talk about saving and spending money in 3 parts:

1. Knowing how much you spend
2. Creating a plan
3. Sticking to the plan

Part 1: Knowing how much you spend

Ramit Sethi, a personal finance advisor advocates for people to define their “rich life”.

If money isn’t a constraint, what would your ideal day look like?

My rich life consists of specific scenarios.

I would wake up at 8.30am. Meetings would have to be in 30 minute blocks and only from 10am — 12pm. Business class is a must if the flight is more than 3 hours. Omakase in Kyoto every month. Having an unlimited budget for books and games.

It sounds ridiculous to define your rich life but it is essential because it helps you to prioritize what you really want to spend on in life and mercilessly cut on things that don’t matter.

I don’t mind spending a lot of money on books and games but I would think thrice when buying other things like clothes, shoes, and sugary drinks.

Savings doesn’t have to mean penny pinching on every purchase.

You can enjoy life AND save at the same time by simply spending on what you genuinely like and cutting on things you don’t care about.

Here’s how to get started on your rich life.

Step 1 is to find out what you are spending on and how much.
Track your expenses for 1 month! Track everything you spend on food, car, bills, clothes etc. Track them all for 1 full month.

Once you’ve tracked your spending, the next step is to be at ease with your current spending. Accepting this allows you to work towards optimizing your spending.

I think of my spending in terms of 3 buckets:

1. Fixed bills — things I need to pay that are constant each month, like rent
2. Savings — money put into savings and/or investment
3. Daily spending — things I need to buy on a daily basis that are more unpredictable, like food

Here are some examples for each category:

1. Fixed bills: car, bills, subscriptions, rent, petrol, insurance
2. Savings: money to save/invest this month
3. Daily spending: food, bubble tea, movie, unplanned gifts, clothes

For an example, if you earn a take home pay of RM3000, your breakdown may look like this

1. Fixed bills: RM1500
2. Savings: RM300
3. Daily spending: RM1200

Whatever the breakdown is for you currently, that is okay. Now that you know exactly what you’ve spent on in the last month, it’s time to be critical of that spending.

What are the things in your daily spend or fixed bills that absolutely do not align with your rich life? What are the things you can cut down on?

Part 2: Creating a plan

Once you’ve taken a hard look at your spending, you can start to reallocate your buckets. This time, it might look like this.

1. Fixed bills: RM1500
2. Savings: RM500
3. Daily spending: RM1000 (spending on basic necessities + things I love + remove all unnecessary spending that doesn’t align with my rich life)

Again, whatever the allocation is, that’s okay. Obviously you’d want to strive for more savings and less daily spend on things that don’t matter. But the idea is once you have created this ratio, be sure to keep to this ratio as strictly as possible.

Things should be paid from top to bottom too.

Whenever you get your salary, pay your fixed bills first. Then transfer savings to a “savings pot”, and the leftover is your daily spending.

As your income increases, your fixed bills and daily spending should stay relatively the same, while at the same time, increase your savings pot.

Let’s assume you got a raise and your take home pay(income after tax) is now RM4000.

1. Fixed bills: RM1500
2. Savings: RM1500 (increased by RM1000 from previously)
3. Daily spending: RM1000

Here, your savings bucket increased by RM1000 while your daily spending and fixed bill remain the same. More money allocated in the savings bucket generally means the faster you get to live your full rich life.

A common question is how much percentage of my salary should I allocate to my savings?

A popular framework is the 50:30:20. That is, 50% for bills, 30% for wants, 20% for savings.

But I think this needs to be more nuanced. A person supporting several dependents may not be able to allocate 20% for savings or if you have no big financial commitments, you should strive to save more than 20%.

Instead, I prefer to determine my savings by using the 3 buckets method. First by identifying my fixed bills and roughly how much I need to spend on a daily basis to live comfortably while below my means.

If you have no big financial commitments, it’s possible to save 50% -70% of your salary each month.

Part 3: Sticking to your plan

Okay let’s imagine you have now determined your 3 buckets. Where do you transfer your savings pot to each month?

I manage this by separating my savings account with my daily spend account. I used to use a Maybank2u savers account on top of my regular Maybank account that is used for my daily spend.

This is convenient because whenever I get paid, I would transfer my savings to the savers account so that my savings and daily spend are kept separated and will not mix.

However, I have since moved my savings to OCBC’s FRANK account which offers a higher interest rate, while still maintaining Maybank as my daily spend account. At the end of the day, use whichever bank that works for you as long both savings and spend buckets are kept separated.

Here’s a visual overview 😂

An overview of how money flows from monthly salary to the 3 pots

Savings pot

I mentioned savings pot a lot but what exactly is a savings pot for? What am I saving for? A good practice is to save up for an emergency stash.

An emergency stash is money you need to survive for a few months just in case you lose your job tomorrow.

There’s a few ways to determine this number. Some go by monthly expenses. For example, in 1 month, my fixed bills and daily spending is RM2000. That means I need a minimum of RM2000 to survive decently for 1 month.

But is 1 month enough for me to land a new job if I happen to lose my current one tomorrow? A more comfortable number is to have between 6–12 months of expense. Hence, this emergency stash is enough for me to survive for at least 6 months jobless while still paying all my fixed bills and daily spending.

If we go by 6 months and RM2000 expenses a month, that means a total of RM12,000.

To be on the safe side, you can also plan for 1 year of emergency savings. (12 x RM2000 = RM24,000)

Having this cushion gives you the confidence to take on more financial risks (like investing or starting a business) while knowing you have something to fall back to.

If you have a family depending on you, this number for emergency savings should be increased accordingly and it’s better to be on the safer side.

Let’s explore the savings pot a little further.

Say you want to save for marriage, what would the breakdown look like?

You can still stick with the 3 pot framework. But now you can subdivide the savings pot into emergency fund and marriage.

1. Fixed bills
2. Savings for emergency fund
3. Savings for marriage
4. Daily spending

And you can decide how much the breakdown should be for these pots.

Let’s assume Ali receives RM3000 as his take home pay. His breakdown may look like this today.

1. Fixed bills: RM1500
2. Savings for emergency fund: RM1000
3. Savings for marriage: RM0
4. Daily spending: RM500

When Ali decides to start saving up for marriage for the next 6 months, he can adjust his savings breakdown like this:

1. Fixed bills: RM1500
2. Savings for emergency fund: RM400
3. Savings for marriage: RM600
4. Daily spending: RM500

Here, Ali is not forgoing his monthly contribution towards his emergency fund savings. Additionally, he can also reduce his daily spending to put more into the marriage/emergency pot.

How might one put these managing money tips into practice?

I’ll go through 2 hypothetical scenarios and what I would do if I were in that scenario.

Scenario 1:
No emergency fund, most of my salary is spent on daily spending. However, I am able to reduce my daily spending and set aside some money into a dedicated savings pot.

I would track my daily spending for 1 month. Then decide how much I can realistically survive decently on for a month by prioritizing things I want to spend on and cutting down on things that don’t matter to me. I’ll create the allocation for my 3 pots — Fixed bills, savings and daily spending. Pay fixed bills and transfer out the savings first. Leftover money will be my daily spending.

Here, it’s more important for me to build the habit of allocating money for spending and savings instead of worrying if I have enough money to save.

I would start small and work my way up. (by slowly reducing my daily spending or find ways to increase my income)

Scenario 2:
I have some savings but not enough to cover 6–12 months of expenses. The money I saved up never seems to increase.

Like scenario 1, I would start by defining how much I will put into my 3 pots. Because I already have some savings, I would assume I’m already on the right track to managing money.

What’s left is strictly following my monthly allocation. I would aim to continue saving until I have at least 6 months of expenses as my emergency fund.

What’s next?

If you already have 6 months expenses saved up, you should probably think about investing. I’d argue that investing is less about worrying how much you have before you can invest. Instead, like savings, investing is all about having the mindset of investing, creating a plan and sticking to it. There’s a lot more to cover on investing and I’ll probably share it in a separate article.

If you’ve made it all the way this far, I thank you for your time. I genuinely hope these perspectives on spending and sharing money serve you well. Now, go get along with your money!