KUALA LUMPUR: Financial challenges are often attributed to low income, but the real issue may lie in how money is managed, according to a wealth management expert.
Speaking on the New Straits Times' Beyond the Headlines podcast, Dr Adam Zubir said disciplined financial management was crucial to preventing financial difficulties and building long-term wealth, regardless of one's earnings.
He said people who were serious about their financial health focused on tracking and growing their net worth rather than merely seeking to increase their income.
"Increased earnings often lead to unchecked spending, which can create financial instability. We need to move away from focusing on how much we earn and instead concentrate on building wealth over time."
He said one of the major debt traps today stemmed from social media and the prevalent "YOLO" (you only live once) mentality, which fuelled a desire for constant material consumption.
"People keep chasing the next object, the next gadget, the next holiday — and it's never enough."
The ease of accessing credit through schemes like 'buy now, pay later' is another issue that encourages overspending and increases financial risks, he said.
"In the past, you had to save money before making a purchase. Now, with just a click of a button, you can buy something even if you can't afford it. It's dangerous because it promotes spending beyond your means," Adam said.
He said this contributed to "lifestyle inflation", where increased earnings lead to unchecked spending. If not controlled, this could result in financial instability, even for those with higher incomes.
"Lifestyle inflation is when your expenses are directly proportionate to how much money you earn. If you don't have a system for managing your money, you'll fall into this trap."
To combat these financial pitfalls, Adam recommended adopting the "Three-Bank System", a simple strategy that divides income into three categories — needs, wants and savings.
You can better manage your finances and avoid rash decisions during emergencies by creating separate accounts for different financial goals.
"As soon as you receive your salary, allocate it into three different banks for specific purposes," Adam said.
He noted the importance of early financial literacy.
"I teach my children to manage their 'duit raya' by depositing it into separate savings and investment accounts.
"Today, we are often taught to save, but not taught why saving and investing are important."
For those with extra income or a salary hike, Adam advised using it wisely to pay off debts or invest.
While high-risk, high-return investments might seem appealing to those seeking quick financial gains, he warned that they could lead to significant losses without the right knowledge and skills.
"People want everything fast these days. Unfortunately, this same mentality has seeped into the way people approach investing," Adam said.
"Some expect that if they invest today, they will see returns tomorrow. But the reality with high-risk, high-return investments is that your returns are directly proportionate to your knowledge and skills.
"If you're simply putting your money into something and expecting a high return without any involvement, 99 per cent of the time, it's a scam."
Starting early with stable investment options like Amanah Saham Nasional Bhd (ASNB) offers valuable financial gains, Adam said.
"Investment should be seen as an excellent way to control spending and build wealth gradually. It locks your money in, appreciates in value and prevents impulse buying.
"The earlier you start, the better the returns over time."
To help Malaysians manage their money better, ASNB Academy (www.asnbacademy.com.my) provides articles on financial planning and investment, as well as useful tools like calculators.