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7 Tips to Manage Personal Finances as an Employee

By Nor Ellya Ezamal


For employees who have just joined the workforce, managing your monthly salary as part of your personal finances can be confusing with so many priorities to choose from. We explore some of the key points you do need to prioritize.

Personal finance is a process that involves all aspects of money management, including saving and investing. Budgeting, banking, insurance, mortgages, pensions, retirement planning, and tax and estate planning are all included in this area.


If you are new to the working world, or new to taking an interest in managing your money, it sometimes feels like there are too many things to consider when it comes to figuring out what to do to best handle your money. Should you consider this or that (or that or that)?!

#1. Plan a Budget


As an employee, most of you receive a largely fixed income every month. This makes it much easier for you to plan your budget compared to a business owner, entrepreneur or someone with high variable income.


A budget is needed to guide your spending choices. This is so you can live within your means while still investing enough to meet your long-term priorities.


If you don’t know where to begin with budget planning, consider starting with something as simple as the 50/30/20 Rule. When you set up your own household, you need to also start working together on budget-setting as a couple.


Aside from setting up a budget, you will need to track your spending. This is made easy with personal budgeting apps. Tracking your spending helps you identify whether you are able to stick to your budget or whether some adjustment is needed to your budget.

Do also plan as well for your bonuses (i.e. contractual bonus, performance bonus) to be allocated between spending and saving.

#2. Build Up an Emergency Fund


As an employee, although your income is more stable, there are still risks. We have seen in the last year how certain jobs faced pay cuts, reduced overtime work and allowances, or even job cuts!


It is important to “pay yourself first”. This means putting aside money to cover you should an unexpected event occur. While some may believe paying yourself first means spending on fun wants rather than parking money aside for the future, the truth is that when we are faced with sudden financial tragedy every sen counts; we will regret spending that RMX,XXX on that handbag or nice watch.


How much should your emergency fund hold? For many, three to six months worth of living expenses is a good number to start with.


How much of your income should be channeled to your emergency fund? Many financial experts suggest setting aside 20% of each salary each month until you reach your target amount.

#3. Reduce Your Debt


It seems easy enough: To avoid falling into debt, do not spend more than you gain.

Of course, most people must borrow from time to time, and going into debt can be beneficial in certain cases.


However, the risk is getting into so much debt that it becomes unmanageable. For example, imagine if you already have plenty of debt. Suddenly, you or a close relative face a medical emergency that drains your emergency fund and your personal savings. In a matter of days, you are unable to service your debt. Very quickly, the interest snowballs into a monster amount.


To avoid such a scenario, try to keep your debt (good or bad) as low as possible all the time, regardless how much you can afford to pay off regularly.


As an employee, it is easier to get loans (especially if you are in the civil service). Thus you may face temptation to borrow more than you can afford. The maximum amount you are eligible to loan is NOT the amount of loan you should be taking.

#4. Use Credit Cards Wisely


Credit cards can be big debt traps, but in today’s world, it’s impossible not to have one due to the convenience.


While it is very easy to own one, the ownership of a credit card is a big responsibility. The best way to be responsible is to only use your credit card up to an amount you can fully clear at the end of the month. Meaning, you need to stay disciplined to always pay your monthly bills in full.


Don’t get carried away with swiping your card increasingly more often to gain more rewards, whether cashback or in points. Also, look out for the temptation of charging big purchases on your credit card that you know you can’t pay for in one go. While yes the banks allow you to do so and in fact encourage you to do so, you need to stop yourself.


Credit cards charge high interest rates when you are unable to clear your monthly repayments. While oh so convenient to use, missing a payment whether on purpose or not is one of the quickest ways to destroy your credit score. This can have dire consequences on your money future as it will impact your ability to secure future loans when you really need them.

#5. Start Retirement Planning


Retirement may seem like a long time away, but it arrives much quicker than you’d expect!


As an employee, you will have regular contributions to EPF. However, your EPF contributions will likely be insufficient to cover your retirement funds required!

If you were to rely on EPF alone, you will at the minimum need to place RM3,800 monthly into EPF for 25 years. At a 23% EPF contribution rate (11% employee + 12% employer), this means will you need to earn at least RM17,000 monthly for the entire duration.

If you imagine retirement means the freedom to pursue anything you like with your time, then you must make sure you are on the right track with having enough money so that that dream can come true.