You might not consider yourself a big spender but financial milestones like buying your first home, paying for university fees or even getting married are situations that most Malaysians will encounter in their lifetime.
These expenses can easily burn an elephant size hole in your pocket. Big ticket purchases tend to scare us as the stakes are higher. One wrong move and you can end up hundreds of thousands poorer overnight.
Here are some of the scary realities that come with making the wrong judgments with the following five purchases that are sure to keep you wide awake all night!
1. Buying a property
For many, getting a home is most probably the most expensive purchase that they will ever make, so it can be daunting if something were to go wrong with it. If you are aware of those issues ahead of time, you can protect yourself from costly potential pitfalls and shop with confidence.
What can go wrong?
a. Not knowing what you can really afford
What the bank says you can afford based on your salary and what you can actually afford may not necessarily be the same. You can end up losing your home if you are unable to pay your monthly mortgage payments, which obviously you want to avoid. The wiser way to do this will be to make a list of all your monthly and annual expenses – exclude your house or room rentals. Subtract this total from your net pay and you will know how much you can spend on the instalment of your new home each month. This will allow you to know what type or size of home that you can truly afford before you even start looking.
b. Not knowing your credit score
Then again, what you think you can afford and what the bank is willing to lend you may not match up either, if you have poor credit score or unstable income. That is why it is equally important to get your credit score checked ahead before purchasing a home. Things can turn out ugly if you sign a Sales and Purchase Agreement (S&P), only to discover later that the bank would not lend you what you need. If you have a low credit score and therefore unable to secure a housing loan, there are many ways you can work on to improve it. Besides, you can also take advantage of the home ownership scheme under PR1MA, the affordable housing project established by the government under the PR1MA Act 2012.
c. Fail to consider additional expenses
If you own a home, you will also be entitled to additional expenses on top of your monthly repayment, such as quit rent, assessment, home insurance, mortgage insurance and house maintenance or renovation. If you live in a non-landed property, you will have to pay a fixed maintenance fee monthly regardless of whether anything needs fixing. While, some guarded land property also may impose security fees. You will need to have some savings stashed away for these added costs.
d. Neglecting to inspect
Before you decide to buy a home, you need to ensure that the exterior and interior of the property is intact. You don’t want to be burdened with large added costs to repair or renovate the place. Keeping your feelings in check until you have a full picture of the house’s physical condition and the soundness of your potential investment will help you avoid making a serious financial mistake.
e. Not considering the future
While it is impossible to predict the future of your chosen neighbourhood, you can take into account the information that is available to you now to make sound decisions. This will save you from having unpleasant surprises down the road. Some questions you should ask about your potential neighbourhood include:
- What kind of development plans are in the works for this neighbourhood?
- What’s the rate of appreciation for the properties in the neighbourhood?
- Is this neighbour prone to natural disasters, such as landslide and flash floods?
2. Paying for tertiary education
A college or university degree is one of the most valuable things you can buy — for yourself or for your child. If you do not do it right, it can become one of your biggest regrets. Funding a tertiary education can be costly especially in a local private university or a university overseas.
What can go wrong?
a. Degree gone unrecognised
Your local or foreign degree can go unrecognised if it is not accredited by Malaysian Qualifications Agency (MQA). If it is not, you will need to take up some qualifying exams or courses, which is only going to incur you further expenses. While some private companies may no longer consider this as a criteria, it is still valid for job opportunities in the public sector. Besides that, if you are taking up courses such as Accounting, Engineering or Medicine, then you have to ensure it is recognised by the Professional Bodies such as Association of Chartered Certified Accountants (ACCA), Board of Engineers Malaysia (BEM), Malaysian Medical Association (MMA) and others.
b. Drowning in debt
Funding a tertiary education can be costly especially in a local private university or a university overseas. Without a proper financial planning to afford a university education, one can drown in student loan debts.
3. Starting a business franchise
When starting a franchise business, you need to pay a large upfront franchise fee, take up a business loan, and rent an office or retail space. With so much cash going into a business before it even opens, some get worried they made a poor choice in the franchise they purchased and will lose their money. Once the franchise takes off, there are other costs such as monthly payroll and lease payment that the business must support. Always plan ahead and have a plan B to keep your emotions and money protected.
What can go wrong?
a. Mismatch of skills
With mismatched skills, the franchise business may not go as planned and eventually you will have to let it go. One way to prevent the mistake of choosing the wrong franchise business is to ensure your professional skills, personality traits and budget are aligned with the franchise you are interested in purchasing.
b. Customer pool
Often, when a new franchise opens, customers swamp the shiny new franchise location. Later, the excitement wears off and slower business days follow. This is perfectly normal as any business has both high and low days. To overcome the panic that ensues, have some emergency funds set aside to meet your expenses. That way it would not be as scary when there is a business slowdown where you do not have much customers walking in through that door.
4. Planning a wedding
From the ring to the cake, and everything else in between, the average Malaysian wedding costs nothing less than RM50,000. That is five figures spent on one day of your life. With so many different things to decide on, many things can go wrong to ruin your big day, which includes not only the following:
What can go wrong?
a. Wedding planner
One of the most important persons whenever a wedding is in progress is the wedding planner. While using the services of a one-stop wedding planner means you can easily manage your wedding preparations, it is also risky if they fail to deliver. That is why it is important to ensure you have an experienced reliable one, which would not cause any confusion and puts everything in proper order.
Food plays a pivotal role in any wedding, as such having a credible caterer is important. The Asian culture believes that by serving guests with good food, they will bless the newly wed abundantly. So, it is important to ensure the quality is just and the quantity is right. However, remember, quality comes with a price. Though it is important to keep your wedding budget in mind, it is also crucial to remember, there is no free lunch in this world. If the price is too good to be true, it probably is.
c. Wedding costume
It’s great to get a custom-made wedding gown for keepsake. However, it can also be costly and risky. By going to an inexperienced designer or seamstress for the most important gown of your life, you can risk losing thousands of Ringgit on a dress that you don’t love. It’s fine to get a customised gown but always ask for recommendations and see the seamstress’ previous works.
5. Investing your money
While losing money in an investment can happen as the market is known for its volatility, losing money in a fraudulent investment deal should not happen to any investors. Most investment scams have recurring tell-tale signs, such as these:
a. Returns are guaranteed
Investments returns are rarely guaranteed and can be volatile with losses and gains take turns. On the contrary, we can see investment scammers always guarantee returns that are typically much higher than market rates.
b. Easily spotted and vulnerable
Investment scams of selling a product or promoting the opportunity are often promoted by those in your social circles. You are less likely to perform due diligence because you trust the person.
c. Business practices are suspicious
Investment scam businesses tend to have unusual business practices, deceptive advertisements, and minor law violations that indicate that something is wrong.
d. Individuals who do not invest are “cowards”
Investment scammers often attempt to pressure prospective investors. Because the investment is expected to have high and guaranteed returns, those failing to invest are made to feel like a “coward” for letting go of such a golden opportunity. Special seminars are often used to promote the investment opportunity to the potential crowd. True professionals don’t label unwilling investors as cowards as they too are aware of the downsides to investment opportunities. Never rush or feel pressured to make an investment.
Learn to make sound investment judgments and conduct your due diligence by researching about the company, reading promotional materials and visiting the company’s operations, to verify the accuracy of information provided to you. Also, verify if the individual has the credentials and identity they claim to have.
These big ticket purchases are major financial and emotional leap for many. Decisions taken in a hurry without proper rationalisation can leave you to be hundreds of thousands poorer and turn into your scariest purchases. Every single cent is your hard earned money, and it would not be right to let it go to waste unjustly. We can protect ourselves by doing sufficient initial research, thoroughly exploring our options, and staying alert for the tell-tale signs that we’re being tricked.
Written by Emmanuel Surendra