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TABLE OF CONTENTS
🏡Asset vs. Liability 101 🚗
Believe it or not, the secret to financial success is as simple as understanding the difference between assets and liabilities.
Assets provide you with income or capital appreciation. They are like a golden goose, laying precious eggs that fatten your wallet. E.g.:
- Stocks 📈
- Bonds
- Real estate (rental income/capital appreciation)
- Alternative asset (i.e. collectibles)
Got a big house with a spare room? Why not rent it out? Once that adorable couple moves in, you’ll be raking in RM600 every month. Cha-ching! 💰
Meanwhile, Liabilities steal money out of your pocket 🥷. They are the mosquitoes in the evening, sucking your financial blood without you knowing. E.g.:
- car loans
- personal loan
- credit card debt 💳
You buy a brand-new luxury car for RM300,000. Its value depreciates and you are stuck with monthly payments (loan + maintenance + insurance etc.). Yikes! You’ve got yourself a liability.
💡Pro-tip:
Start by listing down all your current assets and liabilities. Are you shocked by the amount of debt you have? Fear not; awareness is the first step towards change!
Tips to Boost Assets & Avoid Liabilities
1. Prioritize paying off high-interest debt:
High-interest debt will slowly eat you alive, especially credit cards! Pay off credit card debt while also saving a little for emergencies.
2. Save, save, save:
Aim to save at least 10% of your income every month.
I started with 10% as well (with a basic salary of RM 3,500), so about RM 400 a
month, not much for sure, but hey, even a little bit goes a long way!
3. Create multiple income streams 💰
You could have multiple jobs on hand – white collar worker, a content creator, and a business owner. Hear a bro out – a side hustle or a part-time gig can be a great way to earn extra cash.
Diversify your income like it’s a wardrobe – you can never have too many options!
I used to do gigs as social media manager, content creator and video editor on top of my day job. At peak I worked 19 hours a day.
Lucrative? Yes. Sustainable? No. But it makes me appreciate the hustle and my time when I looked back.
4. Start investing 📈
Unleash your inner Warren Buffett and look for investment opportunities that offer steady, long-term growth (e.g. stocks, bonds, ETFs).
US Stock market (S&P 500 Index) has grown by 9.81% annually on average from 1994 until today, you’ll be laughing all the way to the bank. 😎
Recall: What can you do?
- Pump up the asset (the more, the merrier! 🤑)
- Lower the liability
Having said that, not all liabilities are bad. A student loan can unlock higher-paying jobs, while your car loan may be essential to reach your workplace. Just be mindful of the trade-offs!
Here’s my previous thoughts on Good Debt vs Bad Debt.
Let’s join Team Asset and start that financial growth today! ✨
Word of the week: Debt-to-income ratio
Definition: This ratio compares your income against your fixed loan repayments such as housing and motor vehicle instalments as well as credit card repayments.
You can use the debt to income ratio to find out if you have too much debt, that is to say, you are overextended.
Your gross monthly income: RM5,000
Your fixed loan repayment: RM1,000
Debt to income ratio: RM1,000 / RM5,000 = 20%
If your income varies from month to month, use your average income in the calculation. Most banking institutions will look into your debt-to-income ratio (more accurately, your Debt Service Ratio) when considering your loan application.
The generally acceptable debt to income ratio is up to a maximum of 30%.
Key Economic Dates:
- 23rd May: Services PMI (May)
- 25th May: GDP (Q1)
- 26th May: Core PCE Price Index (Apr)
What I’ve been reading:
Here are the top stories that caught my eye:
- US CPI Inflation Declines to 4.9% in April
- Gmail’s Help Me Write: AI Crafts Emails for You
- Alphabet Stock Surges 5%: AI Announcements at I/O Conference
- Insights from Berkshire Meeting: Buffett & Munger’s Takeaways
You’re all caught up!
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Cheers,
Ziet
