This is Part 2 of a continuing 12-part series on financial planning. In the last issue, we saw how our friend Adam managed his finances from a part time job as a bank teller while waiting for his STPM results. This week, we are going to journey with Adam through his college years.
Adam collected his result and to his utter joy – he scored straight ‘As’! He celebrated his achievement with his friends and blew his budget of RM10 per day for food but it was well-justified!
He and his friend Daniel managed to secure a place in Universiti Malaya to pursue an accountancy course. Despite receiving an offer from a top university in the United Kingdom, Adam decided to do it locally due to the more affordable cost.
He applied for a study loan under the National Higher Education Fund (PTPTN). The loan amounted to RM6500 per year for a four-year programme which should be sufficient to cover his fees, accommodation and food which amounted to RM3500 per year, that is, if he stayed in the on-campus hostel. He learnt about the power of compound interest and the concept of ‘dollar-cost-averaging’ while working in the bank. He immediately started his first unit trust investment with an initial investment of RM1000 from his savings and contributed RM100 per month towards a regular savings plan. He estimated that he would be able to save about RM7000 by the time he graduates if his unit trust investment gives him an average return of 8% per annum. “I can use this for the down payment of my first car,” he thought.
On the first day of lectures, he learned one of the most fundamental concept of accounting – Prudence. It states: Profits are not recognised until a sale has been completed. In addition, a cautious view is taken for future problems and costs of the business. It can also be applied to individuals. We should not spend our future income (which is not guaranteed) to support our current lifestyle. Additionally, we should always be prepared for the worst by providing for an emergency buffer.
Adam revised his monthly budget as follows:
Balance of Study Loan (RM3000 per annum)
Clothing & Entertainment
Gift to Parents
Oops! Adam realised that he will be short of RM300 every month. He wanted to remain committed to the budget above. In order to balance his accounts, he gave private tuition to earn extra pocket money. He tutored three primary school children at a rate of RM30 per hour, for a total of 12 hours per month. After covering for the additional transportation costs to his students’ homes, he took home RM300 net. Mission accomplished!
Adam was a very smart, hardworking young man – he studied smart and was a dedicated tutor. Occasionally, he went out for supper at the mamak stalls, watched a movie or simply hung out but he always kept his spending within his budget. That was until he met someone ‘special’.
To be continued…
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