• Crunch by Nuffnang

How To Understand Personal Finance And The Basics Of Investing

Updated: Sep 3, 2020

by Da Ruey |


Have you ever wondered about things such as personal finance and investments? In this new series on #MoneyMatters, Crunch is partnering with StashAway Malaysia the digital wealth management platform powered by a data-driven investment framework — to teach you how to understand and manage your personal finance and achieve your financial goals.

Have you heard of the term, “personal finance” either in news articles, social media, or over conversations? Or perhaps you’ve heard your peers talking about investing, and you have no idea what they are talking about? Well, do not worry as we have got you covered in this article.


With there being little to no financial education in primary and secondary schools, the concept of “personal finance” might be one that is very foreign to you. According to Investopedia, “personal finance is a term that covers managing your money as well as saving and investing.”


It is essential to know and understand this concept as it enables you to make wiser financial decisions. This article aims to give you a framework and basic understanding of personal finance that you can continue building on as you learn more about it. Listed below are a few steps you can take to understand your personal finance better.


Step 1: Take inventory of all your financial assets and liabilities

List down the different assets and liabilities that you currently own. Examples of financial assets are properties, cars, and savings, while examples of liabilities are property and student loans and also credit card debts. After listing these down, you will be able to calculate your net worth by using the following formula:


Net worth = Assets - Liabilities


When you understand your current net worth, which is how valuable you are in the present moment, it will help you to plan and take actionable steps towards achieving your target net worth.


Step 2: Identify and Quantify Your Financial Goals

After understanding your current net worth, you should identify your financial goals. For example, you might want to be able to retire comfortably and be able to self-sustain even at an old age. Your financial goal should be realistic, specific, and quantifiable.


Having identified your financial goals, you might be thinking, “how do I prioritise them?”. Well, you should focus on paying off your debts and expenses first, building up your safety net, and then use the rest according to your discernment, whether it is to invest, save, or simply enjoy spending it.


The function of your safety net is to provide for you during emergencies or when you need a sum of money in a short time. Your safety net should be about 6 to 12 months of your salary and built up over time.


Investing Basics

Having understood your net worth, savings, and financial goals, you can move on to learn about some of the basics of investing:


1. What your financial portfolio should look like

A financial portfolio is a collection of financial investments or products that a person owns, such as bonds, stocks, and gold. When planning how your financial portfolio should look like, it is essential to understand what each financial product is, the purpose of it and its advantages and disadvantages.


You can list down all the current financial instruments you currently own then research and try to understand what each one does in more detail. By understanding the products more, it will help you to understand the amount of risk you are taking based on your financial portfolio and make decisions such as whether to keep the product or to remove it from your portfolio.


2. An introduction to asset classes

An asset class is a grouping of investments that exhibit similar characteristics (Investopedia). When investing, you will be using financial products or investments which are from one or more of the different asset classes. Something you should keep in mind is not to have all your net worth in one asset class and always to diversify.

  • Stocks

Investing in stocks can seem speculative if you do not have a structured and informed method to pick which shares you purchase. There are various ways in which you can do this, and the important thing is to research, find a method that suits you and stick with it.

  • Real estate

Investing in real estate might seem like a lucrative idea, but ensure that you do not overborrow and own too many properties. This is because the interest you will have to pay will be a substantial amount and might stress you out, especially if you are not earning rent from the properties.

  • Gold

Gold tends to have a stable rate of return each year and does exceptionally well in times of uncertainty. There should be about 5 to 15% of your financial portfolio invested in gold, as it is a safe investment to protect your net worth in times of inflation and uncertainty.

  • Bonds

Bonds are less volatile than stocks and do well in times of recession as the government and companies that give out bonds have to pay you back. Bonds serve the purpose of ensuring your net worth is not too volatile.


At the end of the day, it’s not about investing in one particular and best asset class to get the best returns and banking on it but to have a good portfolio of a few. It's important to keep researching and to learn more about what's the best for you, your lifestyle and goals to make the most of your money, invest, and hopefully achieve your financial goals!


If you'd like to know more about investment and the basics of it, stay tuned for our upcoming articles with StashAway Malaysia!

If you’re looking to start investing your wealth at a low-cost with risk-managed portfolios and ETFs, you could start with StashAway Malaysia. We have a special offer just for Crunch readers too! Sign up with this personal invitation and you’ll get a 50% deduction of fees for your first RM100,000 invested for 6 months!

You can learn more about the writer on Instagram.

  • Facebook - White Circle
  • Instagram - White Circle
Copyright © 2007-2021 Nuffnang Sdn. Bhd. (762669-K) Kuala Lumpur, Malaysia