Earning T20, but living a B40’s life

How would you normally picture a life of a rich person? Many will imagine a peaceful and easy life. Breakfast by the pool, dinner facing KLCC in the skyline, vacations with family in Europe, driving luxury cars and living in an 8-bedroom bungalow.

That is the stereotypical portrayal of rich people in television dramas and social media. It is a life free from any form of financial issues.

Sadly, the reality is not all that beautiful. There are plenty out there who only appear to be rich but are actually not. There are those who live surrounded by debt. Hence, they go around saying, “My income is T20, but my life is like a B40’s.” Why do they say that?

This is because they live from paycheck to paycheck. Little to none is left after subtracting expenses and monthly commitments.

Yes, we admit that the cost of living keeps rising. But if we begin looking into this issue, it is most likely a problem of managing personal finances. Perhaps, diving even deeper, it’s a problem of managing wants and desires.

Eligibility vs Capability

If one earns a T20 income yet feels as if it isn’t enough money, there’s a high likelihood they have a high commitment of debts.

Mortgage for a home already takes up 70% of their monthly income. They are confused between eligibility and capability.

Individuals who are eligible to borrow RM800,000 to purchase a home are not yet capable to purchase the home. Home ownership involves other costs besides the monthly instalments such as your assessment rates (cukai pintu), maintenance costs, as well as water and electric bills. The general rule of thumb to home-buying is that your monthly instalments should not exceed 30% of your income to ensure you’re not frazzled from month to month.

The same goes with cars. If you’re eligible to request a RM100,000 car loan, you don’t necessarily have the capability to purchase that car. There are also other hidden costs that need to be taken into consideration such as maintenance costs, car Takaful, as well as fuel and toll costs.

An easy guide to know if you’re capable of car ownership is to multiply your monthly car instalments by 2. For example, if your monthly instalment is RM500, assume that you would need to spare RM1,000 a month for car-related expenses. If you’re not able to afford it, choose a less costly car.

Money making skills vs Money management skills

Many are not aware that money making and money management are two different skills. They are those who think that with a high income or salary, all financial problems can be solved.

If it was true that high income could solve all financial problems, why are there still so many popular artistes and athletes that live such tough lives after their glory days?

When football player Ronaldinho played in AC Milan, his monthly income was £480,000 monthly. That’s an amount unimaginable to most people. However, in 2018, he was reported to have only £5 left in his bank account and racked up debt that amounted to £1.75 million. He was technically bankrupt.

Having a high income does not guarantee us financial success. Earning a higher income is great, but beware that our expenses don’t also increase at the same rate as our income. No amount of money can ever be sufficient if we fail to control our wants and desires.

The formula to money management is actually simple:

1. Increase income,

2. Reduce expenses,

3. Invest your excess income.

To increase income, you can earn yourself new skills, expanding your skillsets by taking professional certification, changing your career, work part-time or start a business. To reduce your expenses, you can review your expenses and categorise them according to needs and wants.

Controlling your expenses does not mean you cannot spend at all on your happiness like travels and shopping; just at a reasonable pace. Remember that true success in financial management means achieving financial freedom and being debt-free. Life is not meaningful if you earn a T20 income but living a B40 life.