6 Man Vs Money
First step to managing your finances
MANAGING your money can be
overwhelming if you do not know where to
start and this has caused many people to
simply ignore their finances. However,
proper financial management is essential if
you want to enjoy financial security, and
ultimately, financial freedom. If you are
among those who are unsure of how to
manage your finances, the following are
some ways to help get you started.
1. Spend within your means
Live within your means by not spending
more than what you make. You can achieve
this by establishing a monthly budget
which can help you prioritise your
spending on needs over wants. “Needs” are
things that we must have in order to
survive, while “Wants” are things that we
would like to have but are not necessary
for our survival. Sometimes, it is also good
to delay a purchase so that you can be sure
it is something that you really need and not
something that you simply want to buy on
impulse. By being careful with your money,
you can ensure that you will always have
enough for your needs without relying on a
credit card to make up for any shortfall.
2. Saving
Saving money is the cornerstone of
sound financial management. As such, you
should always pay yourself first each time
you receive your paycheck before you
spend the money on bills or purchases. A
good start is to save at least 10% of your
salary into a separate savings account.
Having enough money socked away is
especially useful when life throws financial
surprises your way. Aside from that,
savings can also help you achieve your
financial goals. To make saving a seamless
process, set a recurring deduction from
Sound financial management includes being clear about your needs and wants, while also
keeping an eye on your financial goals.
your salary account to your investment
account.
3. Avoid the debt trap
Avoiding the debt trap is important if you
want to be able to do what you want in life
as you would not need to worry about
paying down debt. As such, it would be wise
to avoid taking on personal loans or having a
credit card debt as the interest payment will
weigh you down if you cannot service the
debt. However, not all debts are bad debts.
Good debts can help you improve your
finances in the long run, such as taking a
loan to buy a house or going to university.
So, be mindful when you decide to take on
debt and be sure to service the debt on time
if you do.
4. Investing
The best way to build your wealth and be
on your way towards financial freedom is by
making your money work for you, even
while you are sleeping. This can be achieved
Three tips for effective
portfolio diversification
A FINANCIAL portfolio is an integral aspect
of an investment journey. Despite its
importance, however, many people still
make mistakes when it comes to creating a
good financial portfolio – which often results
in losses and disappointment. In order to
overcome this obstacle, and craft an effective
and low-risk financial portfolio, an investor
must understand the significance of
diversifying it.
Diversifying a portfolio – a risk
management strategy that uses a variety of
investments in a single portfolio – comes
with many benefits, such as reducing the
risks in a portfolio, offering higher returns in
the long run and granting a measure of
protection against market volatility. Here are
three simple tips to diversify a financial
portfolio effectively:
1. Use more than one type of
investment method
A good diversified portfolio contains many
types of investments. Look at what can be
added to a portfolio and spread the assets
accordingly. For company investments, it is
best to have a variety of firms specialising in
THE STAR, TUESDAY 8 DECEMBER 2020
Saving money is the
cornerstone of sound
financial management. As
such, you should always
pay yourself first each time
you receive your paycheck
before you spend the money
on bills or purchases. A good
start is to save at least 10%
of your salary into a separate
savings account.
by investing part of your money in
investment vehicles, such as a unit trust, to
increase its value over time. As time is of the
essence when it comes to investing, you
should start investing early and regularly,
and maintain a long-term investment
horizon to fully capitalise on the power of
compounding interest. You can invest easily
by automating your investment through
payroll deduction.
n For more information, visit publicmutual.
com.my
This article is prepared solely for
educational and awareness purposes and
should not be construed as an offer or a
solicitation of an offer to purchase or
subscribe to products offered by Public
Mutual. No representation or warranty is
made by Public Mutual, nor is there
acceptance of any responsibility or liability as
to the accuracy, completeness or correctness
of the information contained herein.
different industries. It should also be
noted that stocks aren’t the only type of
investment out there – people can also
dabble in commodities, funds and property
investments. Experienced investors
spread out across these asset classes,
choosing to place their money in those that
suit them best, depending on the style of
their investment.
2. Go global
It’s not just investment types that people
can investigate when expanding;
geographical locations also play a factor
when it comes to investments as stock
markets differ from country to country, and
some places may provide better
opportunities than others. Investing
internationally is considered a boon to
financial portfolios as it has the benefits of
spreading out risk and adding exposure to
the growth of other economies. However, the
risks are just as glaring – political changes in
other countries can affect a portfolio
negatively, and poorly regulated foreign
markets may lead investors into becoming
> SEE NEXT PAGE
THE STAR, TUESDAY 8 DECEMBER 2020
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Experienced investors spread out across multiple asset classes, choosing to place their
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No one-size-fits-all strategy
> FROM PREVIOUS PAGE
victims of manipulation or fraud.
Due to the risks involved, it’s advisable to
conduct adequate research into the stock
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overseas investments.
3. Don’t overdiversify
Diversifying a financial portfolio is all
well and good; however, there can also be
too much diversifying – which brings about
all kinds of issues. Overdiversification
happens when there are too many
investments in a portfolio for an investor to
manage, which leads to the overall losses
exceeding the returning benefits.
There are several ways of avoiding this,
thankfully. One way would be evaluating
risk tolerance, which is an investor’s
Man Vs Money 7
attitude towards risk. If an individual is
willing, he could try riskier methods and
get higher returns at the cost of a higher
risk. Another way would be to value the
quality of investments over the quantity –
instead of having many small investments
that give inconsequential returns, pay
attention to where the market ebbs and
flows, and invest in stocks that are least
affected by it.
It’s easy for new investors to make
mistakes. With a financial portfolio,
investors can both protect their
investments and grow their capital, as well
as streamline their investment approach
and gain flexibility in their methods. As a
financial portfolio is an integral aspect of
the investment journey, it’s crucial to
manage it properly and maximise the
benefits that come from having it. Bear in
mind, however, that every investor has his
own approaches and preferences when it
comes to making decisions in investing –
therefore, not all the advice given would be
applicable to his investment style.