By Azmi Muslimin, Global Sadaqah Advisor, Former Associate Director, Temasek Holdings (Singapore)
Mr Azmi Muslimin is a private investor who manages his personal portfolio. He was an investment professional in a global investment company and was the Chairman of a local SME. Mr Azmi is a community leader with many years of experience serving as a board member of a local charity.
Census 2020 shows the Malay community in Singapore has made much progress financially over the past decade, with the median household income (from work) per member rising from S$1043 per month in 2010 to S$1594 per month in 2020. However, more can be done by the Malay community to improve their household finances further.
1) Upgrading our educational and occupational profiles
Two key contributing factors which determine a community’s household income are its educational achievements and occupational profiles. By upgrading our educational qualifications and skills, the Malay community should be able to get better-paying jobs, hence improving our median household income.
However, students and workers must upgrade themselves strategically. They should not upgrade just for the sake of upgrading. They need to analyse carefully the value of the qualifications after graduation to ensure that they can get better-paying jobs. They can look at employment surveys done by educational institutions that show graduates’ earning potential and the employability of graduates of various qualifications.
They can analyse industry trends to help determine which qualifications are likely to be in high demand. Promising growth sectors include Information Technology (IT), Artificial Intelligence (AI), Virtual Reality (VR), Cloud Computing, Internet of Things (IoT), Big Data Analytics, Robotics, Smart Mobility, Cyber Security, Renewable and Alternative Energy, Electric Vehicles (EV), Healthcare, Medical Technology, Financial Technology (FinTech), Early Childhood Development, etc. They can also network with experienced professionals to seek their advice and guidance.
There are Malay workers who are self-employed, work as independent contractors or are small business owners. Many work in the gig economy. They do not earn CPF contributions from employers. Many also do not contribute to their own Central Provident Fund Ordinary Account (OA) and Special Account (SA). This makes it challenging for them to own a home or prepare for their retirement. They should start contributing to their CPF OA and CPF SA to earn good risk-free annual returns of at least 2.5% for CPF OA and 4% for CPF SA.
2) Prudent financial management
Besides improving the household income, another key factor to better our Malay community’s finances is to practise prudent financial management.
No matter how much a family earns, without prudent financial management, the family will not likely be financially stable. Every household must do proper budgeting to ensure their annual household income exceeds their annual expenses; hence there are annual savings.
This savings can be accumulated to first build an emergency fund (6 months to one year of household expenses). Once the emergency fund is established, future savings can then be invested to build up funds for other future needs such as children’s tertiary education fund, a Haj fund and a retirement fund.
There are various opportunities for Malay families to earn extra income. For example, more Malay homemakers can be retrained to work full time or venture into home businesses such as baking cookies, sewing clothes, etc.
Also, renting out spare rooms can generate passive income, especially for retirees whose children have moved out. Furthermore, investments can also give additional income via dividends and distributions from stocks, REITs and Sukuk.
Besides maximising our household income potential, we need to manage our expenses well. There are 3 essential steps to reduce our household expenses. This can be done by:
1. Analysing every item on our expenses list.
2. Determine which items are needs and which are wants
3. Reduce or eliminate wants.
For instance, our expenditure on eating out. Are we spending too much? Can we instead prepare home-cooked meals which are cheaper and healthier? Can we reduce the consumption of expensive and unhealthy food and sweet drinks? If there are smokers in the family, can we encourage them to reduce or stop smoking? The smoking habit is not only an expensive habit but an unhealthy one.
Owning a private car in Singapore is not cheap. A detailed analysis is required before a family decides to buy a car. Petrol costs, car insurance, road tax, ERP costs, parking charges, maintenance and repair costs and the car’s yearly depreciation are key considerations. Even if owning a car is affordable and deemed necessary, whether to buy a brand new car or a used one needs careful thought.
A home is the most expensive commitment for a family. We should avoid making a hasty decision in buying a home. We need to determine whether the property is affordable based on our household income and mortgage limit. If we are taking a commercial bank loan, it is prudent to assume a higher mortgage rate in our financial calculations since current mortgage rates are very low and rates always can go higher in the future.
Managing the family’s income and expenses well is the first step towards financial success. The next step is to prepare the family’s balance sheet. List down all assets such as the home, CPF savings, cash savings, emergency fund and investments (such as stocks, REITs, Sukuk, mutual funds, ETFs, etc.) and all liabilities (such as home mortgage, renovation loan, car loan, personal loan, credit card debt, etc.).
Managing the family’s income and expenses well is the first step towards financial success.
The family balance sheet helps to determine the family’s net worth (assets minus liabilities). By monitoring the family’s income, expenses and balance sheet, any major potential purchases (e.g. upgrading to a more expensive home or buying a new car) can be simulated into a spreadsheet to help the family decide.
There are opportunity costs in every decision. For instance, using cash savings for the down payment of a new home would mean less liquidity, and if investments need to be liquidated for this purpose, this means a lost opportunity for the investments to grow further over the long term. The household balance sheet will also motivate families to grow their assets and to be debt-free.
In summary, our Malay community can improve our household finances by upgrading our educational and occupational profiles, looking for opportunities to earn extra income and practising prudent financial management.