Is your household debt under control?

Household debt is defined as financial liabilities that you and your spouse had agreed to get 'hooked' with financial institutions in order to sustain your family's lifestyle. It is almost an irony to live life without one to apply for financial assistance at the back of escalating cost of living in this era.

Malaysian's household debt currently stands at about 86% of GDP and this is definitely a case of "a noose around neck waiting to claim its victim". The high number of people defaulting in their rigid regular payment servicing debt instruments could be attributed to cheap money flowing into our economic system. Two of the  most highest loan among the debts are mortgage loans and hire-purchase loans. Inability to service the principal and interest had made the borrower be mercilessly declared as bankrupt! From there on, a misery life begins to take a toll on the household.

You can make the change and change is coming!

                                                                                                                                                                  
This is the time to start preparing for your future. For you to even think to be independent 
from life's financial trap, it is advisable to take some bold steps immediately. The awareness must come first in your mind and once you have that nailed concretely in your brain, then you need to follow few recommended steps as shown in the picture above. 

Define your financial goals.
To have an effective goal statement as guidance, it has to be written with dollar and cents.

Cut your debt
Debts can be categorized into  good debts and bad debts. As a rule of thumb, the ratio between debt to income shall not be more than 33%. Reduce your debt exposure if it exceeds that percentage.

Have a budget
Yes, it is a cumbersome task to construct a budget and to maintain it, but it will be a whole worthwhile activity. Monitor it on a regular basis and review it as and when your financial condition changes. Remember to run this task with your spouse sitting together with you. 

Spending wise
One good thing about monitoring your budget is that you will know specific areas of your expenses that has breached or almost nearing its maximum allowable level. With this data in hand, both you and your spouse will confidently spend money thriftily and of course, wisely too!

Priorities
Pay yourself first! Yes, you ought to pay all household bills, insurance premiums and fund for child's education  as prompt as you can. Do not procrastinate them. Don't delay these bills payment just because you have other self fulfilling priorities. Next , you need to set aside some money for contingency fund and retirement fund. All other things come later.

Educate yourself
Our age continues to move in one direction- UP! It is never a two way route. As it stretches gradually into future our interest to acquire knowledge diminishes against time. Forbid this from happening. Acquiring knowledge is a never ending task. Constantly cultivate reading and elevate your understanding in personal financial freedom to your benefit.

Save for contingency
This was briefly mentioned under 'priorities' above. We never know what lies in front of us down the road. Due to uncertainties that may strike us in unforeseen future and may erode our quality of life, we should begin allocating a portion of income for contingency.

A learned person will not only become an asset to his family but also will become one in nation building.