For most Malaysians, debit may be inevitable but advising your clients to manage their finances and arrears effectively, they can move forward towards achieving financial freedom.
Debt is something that many Malaysian cannot avoid whether taking a loan for buying a house, for tertiary education or for buying a car etc. Nevertheless, accumulative debt when left unmanaged could wreak havoc on one’s journey to financial freedom. For instance, it is imperative that your clients consistently make their mortgage payments as failure to do so can lead to losing their home to the bank, as well as being blacklisted for future loans. Now they don’t want that to happen, do they?
To find out if your clients are knee-deep in debt, you can advise them to use the following ratio that compares their monthly income to their fixed housing loan/car loan/credit card repayment.
Basically a safe ratio level of debt is about 35% of one’s income, with 25% comprising one’s housing loan. Anything higher than that is a sign that they may need to reevaluate their finances.
To stay on top of their finances and debt, here are some tips that investors may find useful:
1. Borrow only as much as you can afford to pay
If they need to take loan, borrow only to the extent that they can afford to pay with their current level of income. Calculate additional costs, e.g, if they are planning to buy a car, add in the costs of petrol, maintenance, toll etc.
2. Don’t’ buy what you don’t need
Ask your clients to think it through before impulsively making a purchase. The rule of thumb is don’t buy something that you cannot afford.