Who doesn’t want to be their own boss? According to the Employees Provident Fund (EPF), about 50% of the Malaysian workforce ply their trade in informal sector, which encompasses a wide range of jobs, from pasar malam hawkers to freelance writers.
A survey conducted by INTI International University and College found that 68% of freelancers in Malaysia chose the freelance route despite the availability of the full-time jobs.
Some, such as the EPF, believe there is a level of distrust among Malaysians towards the formal institutions – in government and corporates – which could be partly fuelling that growth.
Regardless of the reasons, what’s certain is the Malaysian freelancing economy has grown by 31% and is the third largest freelancing market in the region, on the backdrop of digital platforms such as Freelancer.com and Upwork.
But the life of a hustler means fending for yourself and to do that, you need a financial safety net. The good news is, setting that up is easy and we’ll show you how to build it. Step by step.
Step 1: Build out your emergency fund
Also known as a “rainy day” fund, this amount of money stashed away in a liquid savings account is set aside for unexpected events that carry some financial impact. In the case of a freelancer that’s basically your reserves to carry you through during the lean times.
Some of the products you can consider to park your emergency money in are fixed deposit accounts, unit trust funds and Amanah Saham Bumiputera/Nasional, as these products offer higher interest rates than a regular savings account to protect your fund from being eroded by inflation, and yet still offer liquidity.
The objective is to have this money easily accessible during emergencies and help you and your family avoid high-interest credit card debt.
Some financial advisors suggest having enough to cover living expenses across three to six months. If you were a staffed employee, that would be an easy exercise to navigate and achieve.
But where do you start as a freelancer? One way to do this is set aside 45% of every pay cheque into savings. This allows you to do three things: earmark 30% for taxes, 5% for re-investing in your business, and 10% to build your proper emergency savings fund.
That 10% might be a small start but being realistic is the goal here. The key is to have some form of loose money to tide you over.
Step 2: Contribute to EPF monthly
Freelancers are not required under the EPF Act 1991 to mandatorily set aside a certain amount of their earnings for forced savings.
But voluntary participation is encouraged and for good reason: you need a retirement fund. Roughly three out four Malaysians can’t raise RM1,000 for a rainy day.
More than two-thirds of EPF members aged 54 have less than RM50,000 in EPF savings. It’s believed that with the household poverty line at RM930 monthly, that amount will only last you 4.5 years.
So it’s not that easy to rest on your laurels when you reach those golden years, and while things are much more challenging for a freelancer, you could certainly do yourself a favour by ensuring that you contribute monthly to EPF by being a member.
For freelancers, the minimum monthly payment is RM50 for every transaction, and a maximum of RM60,000 yearly.
If you put away RM10,000 every year in your EPF account, you would have accumulated RM150,200 in your EPF savings in 10 years. This is assuming a 6% annual dividend rate, with the contribution split equally over 12 months.
Also aside from retiring, your EPF funds, especially those in your Account 2, can come in handy in the event of an emergency, or if you want to further your studies but can’t afford a dent in your cash flow.
Step 3: Consider life insurance
This is a necessity if you have financial dependents, such as a spouse and children and it’s an altruistic effort on your part, the policyholder: in the event of your death or permanent disability, your family gets to move on without absorbing financial shocks.
The rule of thumb is to secure coverage that equals 10 times your annual income. But remember before signing up for one, educate yourself about the pros and cons of the policy and also do some research before committing to one.
And always avoid falling to the underinsured trap where you do pay for life insurance coverage, only to find that it is not sufficient to tide you over in the event something untoward happens to you.
Step 4: And maybe a critical illness plan
This is not the same as having a medical card which deals with hospitalisation and surgical coverage. A critical illness policy gives you a lump-sum benefit upon diagnosis of any of the 36 critical illnesses.
And how much do you need? Well since money is your ceiling, the rule of thumb for minimum coverage is at least three years’ worth your annual income, and your contribution should not exceed 10% of your annual income.
So for example, if you are earning RM60,000 a year, you should be contributing roughly RM6,000 per annum. And you should buy RM180,000 worth of critical illness coverage.
To put this in perspective, if you buy three years of your income coverage, you can afford to take some time off work for medical treatment. The lump sum from your critical illness policy should be able to cover some of your out-of-pocket expenses while you concentrate on recovery.
Given that 73% of deaths among Malaysians are caused by non-communicable diseases, a critical illness plan needs to be on your list, if not now, at least in the near future.
Step 5: File your taxes properly
Being in the informal sector doesn’t mean you could dodge taxes. Even Uber and Grab drivers are required to file in their taxes.
That said, there are a few ways to cushion yourself from paying the full amount: you have to know your tax exemptions and deductions.
The former reduces or entirely eliminates your obligation to pay tax; the latter is similar but a deduction reduces your chargeable income and is a result of gifts and donations.
For example, if your chargeable income is RM55,000, and you’ve donated RM2,500 to an approved charitable organisation, you are allowed to deduct 7% of your aggregate income to reduce your chargeable income.
The former reduces or entirely eliminates your obligation to pay tax; the latter is similar but a deduction reduces your chargeable income and is a result of gifts and donations.
For example, if your chargeable income is RM55,000, and you’ve donated RM2,500 to an approved charitable organisation, you are allowed to deduct 7% of your aggregate income to reduce your chargeable income.
So all these deductions will help you save and therefore increase your monthly cash flow.
Step 6: Aim for retainers
As its name suggests, freelance work is usually associated with being project-based, but it is not unheard of for independent these days to treat it more like a solo-run agency. If you are a freelance writer, for instance, you could ask your clients if they need to produce a whitepaper on a monthly basis.
But remember it’s all about empathising and communicating the benefits of this structure in the context of your clients’ own challenges.
Retainers can be much easier for clients to manage since they remove the need to have consultancy costs approved internally with each task and help build an ongoing support resource that can be budgeted over time.
Clients also need not worry about added costs involved in hiring a full-time employee, such as EPF contributions or insurance, granting them more savings.
For you, the freelancer, the benefit is obvious: a steady source of guaranteed income that can be contracted on a monthly basis.
Step 7: Plan and think ahead
The life of a freelancer is akin to managing your own business: the learning curve is steep with a 50-50 chance of failure and success. But that shouldn’t put a damper on your dreams.
Maybe the first thing to do is prove yourself: take up a few gigs while holding down your full-time job. That might be exhausting but it’s the safest way to hedge your bets in the event going independent does not bear fruit.
And while you are negotiating that, you might want to think about best practices for budgeting. You might also want to tweak your lifestyle and learn to be frugal as quickly as possible. Debt? That has to go, too.
And if you have those big-ticket items such as a mortgage, you might want to really take your time in transitioning to the freelance world. Defaulting on your home loan payments can bring serious consequences.
But the rewards of being your own boss is indescribable. No one said it was easy, but impossible? Not quite.
Despite retirement savings being the top financial priority amongst the majority of Malaysians, 49% of them are still not confident of having enough savings to live till the age of 80.
According to the 2017 Prudential Relationship Index (PRI) survey, more than half (59%) of the respondents said they are worried about not having enough funds saved for retirement.
The survey found that 83% of Malaysians contribute financially to their parents’ daily expenses, but only 31% expect their children to do the same in their old age.
Most of the respondents expect to be financially independent in their retirement, with 87% plan to live off their personal finances and assets, while 43% expect to continue working in their senior years.
Prudential Assurance chief brand officer Fiona Liao said, Malaysians should frequently review their finances.
“As a society, we don’t spend enough time thinking or doing financial planning. There are plenty of solutions out there, insurance is just one option. As circumstances change so do our needs. Malaysians tend to worry about these things but not enough action is taken on their part,” Liao added.
Malaysians should consider various financial planning services offered by banks and insurers, she suggested.
“Sometimes it really helps when there’s a third party sitting in the middle of you and your spouse to guide you on your finances. It helps take a burden off your back and your relationship even,” she said.
Most respondents in the survey agree with that sentiment, with 57% of couples agreeing that planning their finances with the help of a financial agent improves their relationships.
Family relationships are likely to improve for couples who make financial plans together (76%), compared to those who don’t plan together (42%). They are also more positive about their personal finances improving by 2020 (74%) compared with those who make plans separately (55%).
Financial planning has also become easier with the growth of technology in the country. About eight out of 10 Malaysians agree that technology has made planning finances easier and better.
On top of being concerned about their retirement planning, Malaysians are also worried about their children. Almost all parents in Malaysia (96%) are stressed about their children’s future. About 67% admit to worrying at least once a week, while half of them make supporting their children’s education as a top financial priority.
The financial state of the family if also one of the key financial concerns for more than a third of Malaysians. More than a quarter of the respondents believe their family would suffer financially and emotionally if anything were to happen to them. One in ten predicts the effects would range from serious to catastrophic.
The PRI is an exploratory study to understand the state of personal relationships in Asia. In Malaysia, 516 interviews were conducted through online sampling with adults aged between 25 and 55 years. Respondents were residents of Kuala Lumpur and Petaling Jaya with household incomes of at least RM4,000 per month, representing the top two-thirds of household incomes in the two cities.
How many times have you been guilty of setting the bar too high, and then failing miserably? Maybe that’s why most of us never stick to our New Year’s resolution.
But given that the start of every year ushers in hope, how about we be practical about this and look at what we can achieve by the end of the year?
Look, you don’t need to drive down debt to zero to make financial progress or land a five-figure job to have some semblance of social mobility.
Some simple twists and turns can help you make 2018 a much better year than the last. Here, we provide five easily attainable financial goals anyone can do:
Pay your bills right after receiving your salary
One common budgeting strategy you will hear all the time is to take care of monthly obligations before indulging in any personal – or dare we say, luxury – expenses.
The logic is simple: doing so gives you a better sense of what you can truly afford and what you can’t. It also helps you avoid having a late payment reported to the major credit bureaus, which is one of the easiest ways to damage your .
So how do you get on the prompt-payment bandwagon? By using that auto-debit function, of course. And we recommend setting up two automatic monthly payments: one right after payday and another a few days before your monthly due date.
This is best for regular bills of the same amount, such as your broadband and mobile bills.
This second round of payment helps you avoid interest due to late payments. But here’s where you have to do some work: If you don’t know when your billing cycle begins and ends, just check your monthly statement.
As for fees, banks provide this service free for customers.
Tip: You could also request to change it to whatever day of the month is best for you.
And the major difference between direct debit and standing orders is: With the former, a variable amount of money is taken from your account while the latter allows you to set up the amount of money to send every month.
Focus on getting physically healthy
There is a huge correlation between physical and financial health. It’s a fact that Malaysia ranks top for non-communicable diseases (NCD) such as obesity and diabetes.
The latter especially is an epidemic that costs national coffers a whopping RM1.6 billion last year to treat some 40,000 Malaysians.
These NCDs also have a way of forcing you to adjust your lifestyle. Say for example if you are diagnosed with diabetes, outpatient treatment will cost you around RM2,750 a year and expect to fork out an additional RM1,523.84 a year due to unpaid leaves taken whenever you make that trip to the doctor.
So in a year, as a diabetic, you will spend RM4,273.84.But a simple gym membership, say, at Chi Fitness only sets you back RM1,548. So just by exercising, you could potentially save RM2,725.84 a year!
Tip: Another incentive that can help put this in order is the lifestyle tax where you can claim, among others, gym membership and sports equipment amounting up to RM2,500.
If you want to be cheapskate about it, then jog at the park. How much does that cost? Nothing.
Also, cut down on eating out. Malaysians are notorious for that, spending 13.4% of their income on restaurants and hotels. While eating healthy may cost some time and money, always indulging in that mee goreng or roti canai will seriously burn a hole in your pocket, if you live to tell the tale.
Get a side gig
Malaysia may be heading to better economic conditions but we are not in the promise land yet. What we learned from last year is that the country is and has been susceptible to external shocks whether it’s the election of Donald Trump as US president or the global oil price movements.
There’s no better way to hedge yourself against these uncertainties but by generating some part-time income. There are many ways to do it. You could either go the usual route of working in an F&B outlet or you could also monetise your car and drive for a ride-hailing service.
Now, we are not advocating crazy hours but a side gig that’s worth your time and Uber and Grab offer those flexi hours, where you can make that trip back home count by cashing in on a trip.
Have a sizeable following on Facebook or Instagram? Then get your hands dirty with being an influencer.
The point is, a side hustle helps mitigate the risk of unemployment or unpaid bills should something untoward happen. It also increases your spending power and savings because of that extra income. Just remember to not take up something too taxing that your full-time job is affected: this is a part-time stint after all.
Repay 20% of your credit card debt
Malaysians owe way too much credit card debt. By the end of 2017, we are on the cusp of breaking past RM3 billion and that debt is extremely expensive, too.
Something eventually has to give and you’d much rather that be your outstanding balance paid down on your own terms, than your ability to afford monthly minimum payments and, in turn, your credit score. So get serious about getting out of credit card debt.
Now, we know owing zero is a tall order, let’s start with shaving 20% of your credit card debt. Steps to take include budgeting and automation. To optimise the entire process you could use a credit card payoff calculator to crunch the numbers and if you can afford higher payments, by all means make them.
The biggest, and also the most difficult part of paying down your credit card debt is to refrain from putting on more debts while you are paying it down. Keep your card at home for emergency, so you won’t be tempted to use it for unnecessary things.
Because the sooner you can reach debt freedom, the better off your wallet will be.
Tip: Consider credit card balance transfer facility to help you manage your credit card debt without incurring interest.
Add one month’s pay to your emergency fund
About 75% of Malaysians do not have a rainy day fund, according to Bank Negara Malaysia. Like someone without insurance, people who lack an emergency fund are tempting fate, putting themselves at risk of financial catastrophe in the event of unexpected unemployment or major medical expenses.
So building up some reserves should be one of the first orders of business for any financial makeover. While there’s no rule of thumb as to how much you need to build, some recommend a reserve of six months.
But it’s important to understand that won’t happen overnight. In other words, you don’t need to put the rest of your financial life on hold until your emergency fund is complete. Rather, chip away at it over time.
Tip: This is the best time to use auto-debit to transfer a set amount of your income every month to a high interest account for emergency fund.
Just remember to scale
The problem with all these New Year’s resolutions is that we set the bar unreasonably high. Now, it’s fine if you don’t meet your financial goals, but you have to at least attempt to work on them.
One way to do it is to set achievable goals such as trimming off 20% of your credit card debt. That is reasonable and doable and by the end of the year, achieving that will free up some money.
To make it more manageable, you can also split your target into quarterly, so you can have a review every quarter to see if you are on track.
If midway you get stuck or lapse into bad habits, quickly get back to it, rather than let your resolutions slide into oblivion. And should you face dire circumstances, always ask for help.
If that credit card debt becomes unsustainable, get in touch with your bank to negotiate repayment or freeze your card. If overall debt becomes unmanageable, get in touch with agencies such as Agensi Kaunseling & Pengurusan Kredit (AKPK) for professional help and guidance.
Regardless of where you are on the personal finance spectrum, remember to make 2018 count by working towards – and hopefully achieving – some positive financial goals.
sumber:https://www.imoney.my/articles/freelancer-safety-net
https://www.imoney.my/articles/retirement-savings-priority
https://www.imoney.my/articles/financial-resolutions-2018
