After graduating from a foreign university 6 years ago, Mr. Robert worked as a web designer at a small local advertising firm. After few years of hard work, now he became a specialist. With the high salary, he bought a new house this year and started to develop an investment portfolio that works towards achieving his life goals which as follows:
i. A retirement fund that will give him RM10,000 a year until the age of 60
ii. Accumulate a business capital of RM300,000
While he is enjoying his high income, he had lost control of credit card spending. He found that he had the following liabilities:
The minimum repayment of all their debts forms 40% of his gross income. After going through his last 12 months credit card statements, he found the following scenarios:
i. Life insurance premium and medical expenditure of RM10,000, including bills for his mother’s medical care
ii. Major purchases such as a sofa, air-conditioner and refrigerator totaling RM12,000. These purchases were made under 0% 12 month installment payment plans. Although the small commitment might seem affordable when considered individually, collectively, he faces a big cash outflow every month.
iii. High finance charges on all credit card bills outstanding totaling RM2,000
The following are some of the strategies that I developed for him:
i. Use a lower interest rate credit facility to pay off loans with high interest rates
ii. Sell off unit trusts to settle outstanding debts
iii. Build an emergency fund for unforeseen circumstances such as medical care and house maintenance
However, it might take a long time to get out of debt. It requires discipline and patience. Many people are like Mr. Robert. When their income increases, their lifestyle will change. It’s important for them to be open and transparent with their financial planners, so that appropriate and holistic strategies can be developed before their finances reach a critical stage.