Money-Smart Mama Episode 4: A Busy Mum’s Guide to Creating a Family’s Savings Plan

With prices on the rise and the recent post-pandemic inflation putting a strain on everyone's wallets, parents are struggling to keep their family (and themselves) financially afloat. It can be challenging for mums to save more money without compromising their family's wellbeing and comfort in the process. Which is why it's all the more important in this day and age for mums to have a foolproof family savings plan. To avoid incurring more household debt, and to ensure that their kids are always taken care off, especially during those dreaded rainy days. In this episode of Money-Smart Mama, we are joined by Ritchie Lim, a financial planning & investment trainer from VI College, and father of one, who will help shed some light on essential money lessons for all the Malaysian mums out there, so that they can plan and manage their finances better. Q1: How can I start a saving plan for my family? So, in order to start a savings plan, it’s important to first figure out your 'financial outcome'. To use a very relatable example, I will use the GPS analogy. Before we plan our journey, we first need to decide on where we want to go. Once we identify our destination, we will be able to find the optimum route that will take us from our current location to our desired goal faster. So for example, if you want to achieve RM50,000 worth of savings in 5 years’ time, you are able to compare your future goal to your current financial situation. If you currently only have RM10,000 in your savings, that means you need to achieve a total of RM40,000 in fives years' time in order to reach your goal. With that in mind, you can start looking for different alternatives on what kind of saving plans or investment plans as well as help you calculate the exact amount that you need to save up every single month for you to achieve your savings goal. Once you have a clear goal, it’s easier now to work backwards and understand what kind of priorities you need to focus on to execute your savings plan. Priorities which include things like cash flow management, savings and expenses, as well as risk management. This is where those financial management tools come in handy—apps that let you track your budgeting and expenses. Q2: What makes a saving plan a priority for the family? A savings plan is actually crucial for a family, especially to cushion any unforeseen circumstances and emergencies such as sudden loss of income stream, unwanted illnesses, or accidents. That said, your fund size should ideally be able to help cover your family’s daily needs and expenses for at least 6 to 12 months in advance. And that’s the bare minimum. Apart from preparing emergency funds, you should also look into what kind of risk management. It's important to have an additional fund or reserve that we can activate to cover any additional expenses or costs that usually come from these kinds of unwanted circumstances. The most direct solution is to purchase insurance coverages to protect the family. These insurances include medical insurance, personal accident insurance and also liability insurance, so on and so forth. For parents with kids, the two most crucial types of insurances are medical insurance and personal accident insurance. In addition to that, you should also consider the need for a retirement plan. You know, as a parent, what’s the minimum saving that we need, right? At least for us to sustain the kind of lifestyle that we want, to enjoy during our retirement. And last but not least, an education fund to prepare for our next generation. Q3: In what way can I divide my money accordingly? Oh, I actually get this question a lot. But personally, I like this concept called 'The 6 Jars Concept' which I find very practical and very useful. So, The 6 Jars Concept is actually for us to segregate our net income into different categories. So, for me, I will split it into 6 different categories. The first one will be expenses, whereby half of it is allocated to deal with my daily needs. The second, 20%, will be allocated to my savings and also investment. So, the purpose of that is actually to help me accumulate my personal wealth in order for me to prepare for retirement as well. And then, the next 10%, I will put it into a category called personal development, which I will usually use to sign up for courses—to continue to brush up on my own skills in order for me to continue adding value to myself and also to the community around me. And the last two categories, I split that 10% for my children’s education fund and the remaining 10% I will split further in half where one of the first 5% is actually for self-reward. For example, for things that I want instead of what I need, like holidays. For us to spend some time with family and enjoy ourselves after working hard. Finally, the last 5% I dedicate to charity whereby I actually contribute some of it to the organisations that I think are in need. This method is flexible and you can actually adjust according to your own liking. But if you find that the 6 Jars method is too complicated to manage, you can actually apply the very simple 50-30-20 Rule. So, 50% of your net income can actually be set aside to deal with necessities. For example, daily needs, your rent, your mortgages, utilities, food, transportation, so on and so forth. And then, the 30% can be allocated to savings, investments, personal developments and also education funds. So, probably just lump them together. And then the last 20% will be parked under personal wants. Then probably someone can start off with the latter. And then, fine tune it like I've explained in The 6 Jars Concept. Q4: How can budgeting really save my expenses? I find there’s one magic formula for successful and sustainable saving habits. It is to take the income and then subtract the savings that we need to keep. Income - Savings Expenses. Whatever's left from our income after that, we consider as expenses. So, this kind of contradicts the mindset that we’ve been inculcated into many, many years ago. Whereby whatever's left over from spending will be considered your savings. But, at the end of the day this may not be a good way to reach your savings goal. So by putting away your savings first, and then spending only what's left over, your savings plan can be much more practical and efficient. In this context, we are actually putting savings as the utmost priority so we know where to focus on before spending any money. By using this concept of 'save first, spend later' you can actually avoid problems like over budgeting and overspending. Moreover, this method will actually ensure that we will always have a large amount of money for other productive applications like investment. Because once you’ve already set the desired savings amount aside, you can finally commit to planning your finances around the leftover amount. Making it easier to allocate your money and budget wisely. Q5: What advice would you give in order to motivate us to start saving for the family? Saving is actually, first of all, able to provide us a sense of financial security. With a very robust saving plan, you can actually have flexibility to make wiser choices in your life. Because I believe it's not just about making as much money as we can, but also about focusing on things that we care about the most. So, with this, I think we’re able to dedicate our time, energy, resources for things that we love the most. For example, our loved ones; our family members and all. With proper financial planning, you are able minimise all your financial worries and allow you to have a better life. https://www.youtube.com/watch?vP4qujlaQ1FI Saving Up for the Future Having a savings plan is important not only for your future, but for the future of your family. It allows you to maintain a comfortable, sustainable lifestyle, it protects you in the case of an emergency or accident, and it can also instill healthy financial habits in your kids. We see so many families fight and quarrel over their financial situation because they don't have a foolproof family savings plan. It can definitely cause a lot of unnecessary stress and worry for the future. That's why we should always look to experts like Ritchie so we can be financially smart and plan our finances properly. If you wish to know more on family financial management and money-saving tips from our group of experts, stay tuned to our next episode of Money-Smart Mama! Until then, have a great week ahead and start planning out your savings plan today! For more insightful stories and fun recipes, stay tuned to Motherhood Story!

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