Estimated reading time: 9 minutes
Managing your first salary is crucial for building future wealth. It’s more than just money. It’s the foundation of your financial journey. This blog will guide you in making the most of your first paycheck.
TABLE OF CONTENTS
Where Did Your First Salary Go?
If you spend around RM30 every day on drinks, food, a daily mobile plan, and entertainment subscriptions, it will cost you approximately RM10,000 a year. Many people see their money disappear quickly after they get paid. I was one of them when I received my first salary.
Over 6 years ago in 2018, my first job’s gross salary of RM3,000 would almost completely run out every month. This continued for several months after I started my first job as a mechanical engineering graduate. Eventually, I discovered a way to manage my finances, which has brought me to where I am today.
First Things To Do When You Get Paid
You can start with a milestone purchase when you receive your first salary. It could be an item or an experience you’ve been looking forward to. It doesn’t need to be expensive, as long as it’s something you value and that fits within your budget. For me, I bought a ~RM500 Fossil watch, a meaningful reminder of the pride of my first paycheck.
Some families have a tradition of giving a portion of their first salary to their parents as a gesture of gratitude, but that is entirely up to you.
To kickstart your wealth-building journey, consider reading these recommended books. They provide a solid foundation for understanding the basics of money and the economy, which is essential for growing your wealth over time.
Why Should You Budget?
Every successful company and billionaire share one powerful trait, they manage their finances effectively. This simple yet transformative practice is known as budgeting.
Consider Ronaldinho, the Brazilian football legend. Despite earning 18 million USD annually at his peak and boasting a net worth of 90 million USD in 2015, poor financial decisions and legal troubles left him bankrupt in 2023 with only 5 euros in his account. Without proper budgeting, you risk losing everything.
The 50/30/20 Budgeting Rule
Here’s the popular 50/30/20 budgeting rule that divides your monthly expenses into three categories. 50% of your money is allocated for needs, 30% for wants, and 20% for savings and investments.
Savings & Investments (20%)
The 10% allocated to savings serves as your foundation for financial security. Start by building an emergency fund, aiming for three months of expenses as a realistic target for someone just beginning their career. If your net monthly salary is RM 2,600, save RM 260 each month.
With average monthly expenses around RM 2,000 based on EPF research, your target emergency fund would be RM 6,000. It may take up to 2 years to achieve this, but that’s okay, since you can adjust as your income grows. Keep these funds in a liquid savings account or consider high interest accounts for slightly better returns. Once the fund is complete, redirect part of your savings to options with higher growth potential.
The remaining 10% should be invested for long-term growth. Start by placing a portion into low risk assets like Money Market Funds (and digital banks), which can offer returns up to 4-5% annually. These funds are ideal for staying ahead of inflation without locking up your capital.
Another portion should be dedicated to self-investment. A gym membership, costing around RM 150 monthly, can improve health, reduce medical costs, and boost productivity. Similarly, subscribing to ad-free services like YouTube Premium (RM 7 per person in a family plan) can enhance learning.
Leverage platforms like YouTube to access educational content and podcasts, such as The School of Greatness by Lewis Howes or Diary of a CEO by Steven Bartlett. Even an hour a day spent on self-education can lead to substantial personal and professional growth over time.
Needs (50%)
As a start, you can allocate about half of your budget, or 50%, to essentials such as accommodation, transport, and food. These costs will depend on your location and lifestyle, so take time to research and plan wisely. If feasible, live close to work to save time and energy. Public transport, like the RM 50 unlimited LRT or MRT pass, is a cost-effective option that also frees up time for personal development.
For accommodation, start with something simple and affordable. You’d ideally want to minimize the time spent for commuting back and forth your workplace (i.e. <30 minutes a day). Renting a room in a shared condo near public transports might cost RM 600–750/month in areas like Cheras. Platforms like iProperty and iBilik still offer sub RM 1,000 options if you search carefully. Upgrade later when your finances allow, but stick to a budget that works for you.
If public transport isn’t practical, consider a car, starting with local brands like Proton or Perodua for their affordability and low maintenance. Ensure the car’s price doesn’t exceed your annual salary. For instance, with a RM 3,000 monthly salary, a Proton Saga or second-hand Myvi is ideal. Compare loan rates across different banks to avoid overpaying.
Wants (30%)
The 30% allocated for Wants covers non-essential expenses like outings and shopping, but it’s important to spend wisely. The key is to limit lifestyle inflation. If your income increases by 20%, restrict upgrades to less than half of that to maintain financial balance.
Instead of spending the full RM 800 monthly (on a RM 2,600 net salary), consider saving part of it in a “Sinking Fund” for larger expenses like vacations or weddings. Personally, I find spreading Wants expenses throughout the year helps maintain balance, avoiding impulse purchases while still enjoying life.
Key Drivers of Massive Income Growth
A 4–5% annual raise in your salary alone is unlikely to make you wealthy or help you achieve significant financial goals. To accelerate your income growth, here are 5 effective strategies:
1. Job Promotion: A promotion can increase your salary by 10-20%, but it takes time, typically 2-3 years. Focus on upskilling, solving problems, and being in the right position. If a promotion isn’t possible, consider requesting a raise after completing significant projects to enhance your chances.
2. Job Switching: Switching jobs can result in a 20% salary increase, depending on job market conditions. Use platforms like LinkedIn, Hiredly, and Jobstreet to find new roles. Avoid frequent job-hopping to maintain a strong resume while seeking opportunities that align with your career goals.
3. Side Hustle: Consider a side hustle to supplement your income. Calculate your hourly rate (e.g., RM 3,000 per month divided by 9 hours/day over 20 working days equals RM 17/hour). Find gigs that complement your career path or simply add financial flexibility for better budgeting and planning. Start with platforms like Lowyat Forum, Reddit, Fiverr and Upwork.
4. Supportive Partner: A supportive partner can boost productivity and financial stability. Personally, my wife’s encouragement during tough times has driven me to work harder and achieve more. A strong partnership fosters responsibility and motivation, leading to greater success.
5. Investing Knowledge: Lastly, building investing knowledge is key, though it takes time to show results. It’s not about how much you invest initially but understanding how to build assets and minimize liabilities to grow your net worth over time.
Do These In Your Near Future
While the tips above provide valuable guidance, here are a few essential steps to take over the next 12 months to enhance your financial journey.
1. Get a Credit Card: Start with a beginner-friendly credit card like the UOB One card or Maybank 2 card. These cards can help manage cash flow, offer cashback, and build your credit score. A good credit history is key to securing loans with lower interest rates, saving money over time.
2. Get a Medical Card: Invest in a basic medical card for hospitalization, such as one with a RM 1 million annual limit costing around RM 200 per month. Insurance minimizes financial risks, but avoid savings or investment-linked plans as they’re rarely worth it.
3. Read About Tax Reliefs: Familiarize yourself with tax reliefs to lower your overall tax payable during tax season, which typically occurs in March and April in Malaysia. Understanding and using these reliefs can save you a significant amount of money. Check out my videos on tax reliefs to maximize your savings.
Conclusion
Now you have the financial tools and knowledge to unlock new opportunities as a fresh graduate. With the right mindset and smart actions, you can set yourself on the path to financial success. Start your journey here with confidence, and best of luck on this exciting new chapter!
Checkout the YouTube videos for a visual guide to this blog!
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