10 Baby Steps To Financial Literacy

I have never been very good with maths and, naturally, money. I once believed that finance is something complicated meant to be dealt by experts like bankers and accountants… like my closest girlfriend who is an investment banker or my sister who is an accountant-turn-trader.

Despite surrounded by financially-savvy people all my life, my brain shut down every time they talk about money. “Oh, I’m not good with numbers!” I’d say. Whenever they talk about anything money related – shares, investments, fundings – I’ll listen without much interest or input. I was absolutely clueless and I happily did that for years.

Then one day, a friend who lived a rather comfortable lifestyle confided in me that she had only RM 100 left in her bank and her boss is letting her go. She was stressed and desperate for a job. Another friend who has a five-figure income is in credit card debt and hasn’t been happy for a while. On the surface, everyone thought that they are doing well in life.

Then I realise that no matter how well your financial status, making poor financial decisions could change or even ruin your life. That was when I decided to take an active role in managing my money. I wanted to be financially literate. This is what I did to turn myself from being financially ignorant to financially aware:

1. Know that everyone – including you – can understand money

No matter how bad you are at maths, you can – and should – understand how to handle money. Maybe you cannot understand stuff like mutual funds or have no idea how much you need to earn to pay the mortgage for a property.

But you can know how much you spend, how much you need to live, how much you earn, and how much you need to save. That’s simple math that most people can do.

What I did: I find out much assets I have, figure out how much I need to spend in a year, track my spending via an app and analyse my income. After knowing my true financial situation, then I made simple financial goal e.g have X amount of money in the bank by X years old, which encourages me to be prudent in my spending and find ways to increase my income.

2. Accept that money is your responsibility – whether you’re a woman or a man

As a cookbook author and cooking instructor, I always encourage people to cook nutritious food for themselves. We should not outsource our diet to food companies or our health to doctors. Our health is our responsibility.

Same goes to money: our money is our responsibility. I feel that is especially relevant to women in traditional societies. Finance seems to be the responsibility of a man. Many women will give up their career once they have a family and rely on their husband to take care of the bills (many of my girlfriends think and do so). But I strongly believe that even if you have Daddy or husband to support you – it is still very important to take responsibility of your finances.

What I did: My late father took care of everything when he was around, and my mother obediently listened. They were happy and for the longest time I thought that it the way marriage should be. While I am not married, I know that I eventually want to have a family. However, if/when that happens, I have decided to take an active role in my family’s earning, spending and financial planning.

I talk to my childhood friend Yasmine, an investment banker, about finance (amongst other things)

3. Money is not necessarily a taboo subject

Social grace demands that we do not talk about sensitive issues. So all my life I avoid talking about religion, politics, sex and money. However, money is too important a subject to not talk about.

The first step to financial literacy is overcoming that initial discomfort about money. I personally dislike it when someone ask me how much I earn or even where I get my income from.

But talking money doesn’t mean prying into other people’s bank accounts. It could be general discussion about frugality, minimalism, investments, etc. You still can be polite while talking about finances.

The general rule is never to ask about someone’s financial situation unless he/she readily reveal them to you. Many of my close friends tell me more than I intend to ask.

What I did: As I was never comfortable talking about money, I started with being more aware when people talk about money and ask relevant questions. But eventually I start bringing up the topic through general discussion of say minimalism and shopping. I also talk about financial disaster I’ve heard of (e.g  How I spend 200 k on my wedding and why I regret it), financial books and blogs. When I speak to friends who I am close enough, then I can go deeper e.g discussion on financial goals and plans.

Read: What to do when someone ask you about your salary

4. Talk to financially-savvy people

Now that you know that anyone can understand money, that money is your responsibility, and it is ok to talk about money – next is educating yourself about personal finance. The easiest way is to speak to financially-savvy people who you trust. They don’t have to be professionals – they can be a family member or friend who get their finances right.

I have a friend whose mother had a clerical job. Despite not being educated, she is a smart woman. She worked hard, spend prudently and saved from young. Eventually, not only was she able to send her kids for to study overseas but own a few properties. Now she lives off the rental and rather comfortably without the support of her kids. She is also the family’s financial planner and bought each kid an apartment.

What I did: I spoke to my childhood friend and sister about my intention to be financially-savvy (and eventually free!). They were more than willing to explain to me basic finances (e.g how to measure my financial health) and recommended a few financial websites that they often visit. 

5. Read financial blogs and books

There are plenty of financial blogs and books that one can read. While not all are relevant, for someone with very little knowledge in personal finance, I find that every article I read teaches me something.

Reading different people thoughts on money made me realise that there’s no one-size-fit all method. With my new-found knowledge, I am more confident to talk about money and able to make better financial decisions.

What I did: I like reading Mr.Stingy and Ringgit Oh Ringgit – they are Malaysians who are about my age and I can relate to what they write. I am also fascinated with Mr.Money Moustache views on money and have read a lot of his articles towards financial freedom. Do check out this podcast where Tim Ferris interview Mr. Money Moustache:

6. Track your spending

I have always thought I am a rather frugal girl…until I track my spending. Before this I don’t know where my money goes. Then I noticed it’s a culmination of little things e.g premium ice-cream, a few cute decor for my home, some washi tapes and calligraphy pens, and voila – I’ve spent a few hundred ringgit on things I don’t really need!

What I did: I bought Money Lover app for USD4.99 (RM 20) and started tracking my spending for the past few months. So I know exactly how much I spend and on what. But I think the most valuable habit from tracking my spending is noticing the value of things I pay for. The fact that I have to key in almost RM 30 for Starbucks’s signature chocolate and cheesecake, after buying a bowl of asam laksa worth RM 6 made me realise that my drink and dessert could buy me 5 meals!

Tracking my expenses and realise that the drink and cake from Starbucks could buy me five meals of delicious asam laksa.

7. Know the price and value of things

I have been following advise by my favourite author Oscar Wilde: “A cynic is a man who knows the price of everything but the value of nothing”. I used to measure things base purely on value –  how much utility they provide, how much enjoyment I derived from them, and how much happiness they give to others. It makes me buy things that makes me happy, but may not add to my wealth. But to know the price of nothing is foolish.

To be financially aware, one must know how much something cost (price) and the benefit that we gain from it (value). Then we make a decision to see whether the value we extract from the item is worth the price that we pay for it.

It’s not enough to only look at the price tags of things. A coding class that cost RM 2000 may give you more value than a dress that cost RM 200. If a class gives you new skills that will help with your work, it gives you far better value.

What I did: I have reduced shopping impulsively. Instead, whatever that I need to buy, I look at the price and ask myself “Is this worth my money?”. Having said that, while a cup of Starbucks Coffee drink in itself is not worth my money but the hours that I spend with a good friend catching up over it is. So I know that the price is not worth it, but the value is. In this sense, it’s a smart decision.

8. Know your assets and expenses

Knowing how much you have and how must you spend is very important. I did not know how, but I for the longest time I didn’t know how much I have and how much I spend. I’m not the only one. I learned that a lot of my friends are just coasting along without really scrutinising their bank account and credit card bills.

What I did: I have a few sources of assets/accounts which I put together in one file for easy tracking. Then, I check them monthly to know how I am faring. 

9. Have an emergency fund and financial goal

Now, it’s time to put the numbers that you’ve gathered into a plan. This is different for everyone. For a my friend who has a steady source of income but is in credit card debt, I advised her to calculate how much she need and pay off her debt first.

From what I gather, its best to have six month worth of your monthly spending in the event of emergency e.g losing your job, unable to work due to illness, etc. I think that’s a good start for someone who has no idea at all.

If that’s settled, have a financial goal. It can be as simple as wanting to have X amount of money by X age. When you have a goal, you will be more aware of how to spend your money and you will find more ways to make more.

What I did: I look at my financial situation and found that mine is rather healthy. However, I have bigger plans to grow it (at least not let it depreciate from inflation) and not leave it idle in the bank.

10. Keep learning

While I am more financially literate than before, hanging out with financial experts made me realise that there is no end to learning about finance. If you watch “The Big Short” nobody but a few people predicted the subprime mortage crisis. Even financial experts don’t know what they are doing sometimes.

So do not be discouraged if you don’t. Keep on learning.

What I did: I am continuously reading blogs and books. Recently, I read ‘The Choose Yourself Guide To Wealth’ by James Altucher and ‘The Rules of Wealth’ by Richard Templar. I keep my mind open to news ideas while taking them with a pinch of salt. I plan to continue reading and discuss about personal finance with like-minded friends.

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