The Best Personal Finance Summaries – 17 June 2019

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The different types of investment options in Malaysia
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Money in Daily Life

12 Tips to Make Money from Art

Be it as a collectible or an investment, the buy-and-sell transactions in artworks are growing faster than the other alternatives.

  1. Get as much information as possible and decide if this is your cup of tea

    • Learn what you are investing in. How?

      • Online – All the information needed about artwork movements, media, ideas, designs and artists is available online.
      • Art consultant – Get their advice to show the quality and importance of the artworks.
      • Visits to local art museums, galleries or buying an art magazine.
    • These activities will help you understand what you want before you start an art collection and whether this asset-class is or just is not suitable for you.

  2. Start an art collection

    • To start an art collection, follow the three principal guidelines below:

      1. Collect what you like
      2. If you can, only purchase originals
      3. Buy within your means
    • If possible, get a reliable art dealer to advise you.

  3. Budget for it

    • No budget is too little.

    • If you wish to dip your toes instead of immersing yourself in the art market, RM20,000 or less is all that needed.

  4. Where to buy art?

    • You can buy art in either the primary and secondary market. What are these?

    • Primary market (ie the release of the artwork for sale for the first time)

      • Most of the artists will advertise the sale of a new print on their website or gallery. They will send a notification to you if you’re on their email list.
    • Secondary market (the seller who bought the art earlier, now want to sell it).

      • Always ask the seller for a certificate of authenticity cause there is plenty of fakes around.
  5. Research the artist

    • Find out the general information about the artist such as:

      • Date of birth.
      • Where the artist was living and doing business.
      • What the artist was studying,
      • Which galleries, museums, organisations where he or she was exhibiting
  6. Research the artwork

    • As protection, get a certificate of authenticity from an expert in that artwork category or the artist.

    • Next, get an expert to appraise the art piece.

    • But whether it is worthwhile to do this (you need to pay for the appraiser’s service), you need to decide.

  7. Don’t follow others, make your own decision based on your preference

    • What’s everybody else likes is not relevant to you at the moment. An artwork is valuable if it’s appealing to you.

    • Don’t put too much time analyzing the market trends. Trends takes a backseat until you gain enough information to know who and what to pursue.

  8. Compare with other artists works

    • You may fancy the works of a particular artist. Before jumping into buying one of his/her artwork, review his other pieces. Compare also with the works of other similar artists.

    • If you lose sleep over a particular piece, then go for it. If still unsure, take your time to consider your options to make an informed decision.

  9. Trust your instinct

    • Often times you have in the moment of uncertainties, go along with your gut feeling.
  10. Learn to differentiate between an original, print, giclées, and reproduction

    • Original and unique art pieces are the most valued by investors and buyers. But, a print/copy can also be a profitable venture.

    • The difference between the originals vs. copies:

    • Originals – A unique piece of art favored and acquires by art enthusiasts or investors. Due to its originality, investors are willing to fork out a high price for it.

    • Prints – Artwork can be a copy or print which has a monetary value. It provides quality, clarity and visual impact compatible with the original.

    • Giclées – The best machine-print available is a kind of print called giclée (pronounced zhee-klay). A giclée’s image quality is much higher than other prints, and this fact is definitely shown in its price.

    • Posters/Reproductions – These are copies of the originals with unlimited printing. As an investment, it is not worth much. But great for beginners and art collector on a budget.

  11. Pricing of artwork

    • There is no standard method to value artwork. Many factors affect the price of a piece of art, which include:

    • The artist’s reputation – For the collectors, the artist’s reputation precedes the artwork no matter how good the art. Investing in emerging artists art are therefore much cheaper than an established artist.

    • Supply and demand – The more people who want a piece of art, the more determined they are to cough up the money.

  12. Hidden Costs

    • When budgeting, please take into account extra costs, such as insurance, shipping, framing and maintenance, that aren’t included in the sales price.

Two Magic Numbers for Comfortable Retirement

It is quite impossible for me to put a retirement figure because each of us will get there at a different time. But if you want to quantify this topic and put up some numbers so everybody can have a guideline, let me give you two figures to take away.

The First Magic Number: 30%

  • Regardless of whether you are making, if you can save 30% of your money, you will be able to retire and maintain your lifestyle.

  • Why 30%? If you are not one of the top 20% high-income earner, you will most likely end up without sufficient retirement nest egg if EPF is your only savings. For those who don’t contribute to EPF, you better strike for at least 30% saving rate.

  • The essential principle here is not about the amount of savings, but the habits of being able to delay gratification, live frugally and don’t spend your future money.

The Second Magic Number: 10%

  • It is about the investment return. You need to know how to invest with a double-digit return, 10% or more.

  • The earlier you know how to do this, you will have much better chance to retire early, with a good lifestyle.

  • The standard advice I hear from financial advisers is to stay conservative with your retirement fund. I think there is a flaw in this common advice because even for retirees, they are investing for the long term too.

  • Retirees do hope to have their money lasting as long as possible. So the investment horizon is also long term.

When Net Worth Calculation Fails You

Although I’m saving money and contributing to retirement, my net worth for the month goes down simply because I have quite a lot saved up compared to my monthly contributions.

  • In the early stage of investing, even if stock market drops by 10%, my net worth still go up after my monthly contribution comes in. That’s because I just started investing and the amount I’m investing each month is still a fairly large portion of my overall investment.

  • Now, let’s move five years down the road. Even though I was doing the right thing by saving much of my income, my net worth will drop when stock market drops by 10% even after adding my monthly contribution.

  • Here’s the important thing to remember: your net worth is a very useful number in many ways, but it’s not the only number that matters. So, are there better metrics than monthly net worth that take this into account? Here are four other things to measure that might provide more value:

    1. Year-by-year comparisons of net worth

      • For instance, you would compare your net worth for June to your net worth for June a year ago. Even a 10% drop in the stock market over the course of a month will likely be overshadowed by the savings contributions and growth over the course of a full year.
    2. Moving average of your net worth

      • Rather than worrying about your net worth right at this moment, you’re more concerned about your average net worth over the last year.

      • Add up your monthly net worth calculation for each month over the last year and divide by twelve.

      • Using a twelve month moving average allows you to see the overall trend in your efforts with a lot of the volatility in a single month muted.

    3. Focus on your monthly savings rate

      • To calculate your savings rate, simply add up the amount of money you saved this month for long term goals then divide that amount by your total income before taxes.

      • Ideally, you want this number to stay steady over time or, even better, creep upwards a little bit.

    4. Focus on your discretionary spending

      • Simply add up all of your spending that wasn’t used for basic needs. This is a really good number to use with a moving average, as described above, so you even out changes in your spending over the course of a year.

      • If your discretionary spending is consistently going up, particularly at a pace that’s greater than increases in your income, you’re probably slowly headed toward financial difficulties and hard choices.

Seven Things Not to Skimp on When Building Your Emergency Fund

While reducing household spending is a popular way to establish an emergency savings account, experts also say there are certain areas you should never cut back on in pursuit of accumulating savings — because doing so will likely cost you more in the long run.

  1. Health Insurance

    • Maintaining your health is the foundation upon which everything else is built. To that end, finance experts suggest not cutting corners in this area simply to put more money into your emergency fund.

    • While health insurance is expensive, it can also end up saving your livelihood in the long run, said Goldberg.

    • In addition to the direct, life-saving benefits of maintaining appropriate health insurance, knowing that you have adequate coverage provides peace of mind.

  2. Credit Card Payments

    • While making at least the minimum payment will keep your credit score from suffering, most experts say you should be trying to pay them off as aggressively as possible, even if that means it will take longer to build your e-fund.

    • It’s a good idea to build savings, but it’s more important to pay down debt that’s accruing at rates that exceed what any investment is doing.

  3. Vehicle Purchases, Maintenance, and Insurance

    • It’s important to make wise choices about automobile expenditures and not cut corners too much in critical areas. Buying a cheaper car can save money initially, but be careful not to get a junker that needs major repairs immediately or in the near future.

    • Similarly, while it’s a good idea to shop around and try to save money on your car insurance, that’s not necessarily the wisest approach. This amount of coverage will not be nearly enough to cover the cost of a major accident, and it will cost you far more than the additional dollars on your premium.

    • Don’t let your vehicle’s maintenance schedule slide, either. Skipping oil changes and tire rotations just to put an extra $40 in your emergency savings is simply penny wise and pound foolish.

  4. Retirement Savings

    • Scaling back on retirement contributions for just a short amount of time can help boost your emergency fund. But if you take this approach, be sure to set a clear timeline for when you plan to bump those contributions back up, and strive to max out the contribution limits each year to maximize your savings and tax breaks.
  5. Essential Home Repairs

    • Owning a house is an investment, you should not ignoring small issues, as they can often grow into bigger, more expensive problems.

    • For instance, Water can do a lot of damage to a house, so you should make sure that your gutters are working properly and not clogged and always replace roof tiles that are missing or damaged.

  6. Eating Healthy

    • Eating healthy is an area of your life you should never sacrifice to speed up savings.

    • While it’s tempting to constantly purchase cheaper food, this will also lead to health issues, which will most likely cost you more in the long run.

    • Eating healthy doesn’t have to bust your budget or your savings goals for that matter; it can actually be less expensive. For example, preparing meals at home can be both healthier and cheaper than eating out.

    • Prioritizing a healthy diet, however, should be approached with reason. It doesn’t mean it’s OK to spend $12 on a green juice every day while you make $15 minimum payments on high-interest credit cards.

How a Big Emergency Fund Can Lower Your Insurance Bill

If you’re able to sock away more money in an emergency savings account, it’s possible to save on your monthly insurance costs without taking on much more risk. This approach hinges on increasing your insurance deductible, which in turn should bring down the premiums you pay month after month.

The Logic at Work

  • By raising your insurance deductible, you’re agreeing to take on more of the financial risk in the event of a claim. In exchange for this increased risk, you’ll often pay lower monthly premiums for your coverage.

  • In the case of car insurance, in particular, a 2016 study found that increasing a deductible from $500 to $1,000 reduced premiums an average of 8.5%.

  • The key to making this shift without taking on too much risk is to build up your emergency savings account so you can easily cover the higher deductible.

Action Items: Laying the Groundwork

  • If you opt to increase your deductible to save money on insurance, it’s best to set aside the new deductible amount in an emergency savings or checking account.

  • Sometimes a person sees ‘savings’, but they don’t have enough money set aside for their deductible. So, increasing their deductible doesn’t make sense.

  • if you increase insurance deductibles it’s a good idea to stay up to date on routine maintenance, whether it’s a home or car.

Advantages of a Higher Deductible

  • The biggest advantage of increasing your deductible is the savings you’ll see over time.

  • As long as you have enough saved in your emergency savings account and are able to ‘self-insure’ up to a $1,000 deductible, then you can typically save in the 10% to 20% range on your annual premiums every single year.

Using This Tactic for Disability Insurance

  • Establishing an adequate emergency fund can also save consumers money on disability insurance. With such policies, the deductible is essentially time.

  • The typical disability insurance policy has a 90-day elimination or waiting period. However, one can normally select an option as short as 30 days or as long as 365 days.

  • Those with the resources to opt for a longer elimination period will see substantial savings on their policies over those who don’t.

12 Enemies of Good Spending Habits

We’re not always in a situation where we’re free of influences that can nudge us away from good spending choices. In fact, much of modern life is full of things that nudge us toward bad spending habits.

Sales

  • If you don’t need something or don’t strongly want it, spending money on that thing is a waste of your money, no matter how great the bargain is.

  • Sales exist to tempt you into buying things you don’t need and don’t really want. They show off big discounts to convince you that the item really is a bargain.

  • However, if you don’t have a genuine use for that item, the money is better off sitting in your bank account rather than in the pockets of that retailer.

  • A much better strategy is to maintain lists of things you need and things you really want.

Social Media

  • While social media can be really useful in some ways, it’s also an incredibly efficient tool for nudging you to spend more money.

  • It is very difficult to browse social media without a lot of companies, ad agencies, and “influencers” convincing you to buy stuff.

  • The strategy here is to take a social media break and then only restore what actually provides value to your life.

Online Message Boards

  • Advertisements are spliced right into the content, many of the anonymous people on there are actually marketers trying to sell you things.

  • The same strategy is useful here: take a break from such sites and message boards.

‘News’ Reports on Products

  • “News” stories seem to mostly exist to promote some new product that’s on store shelves. This new item will solve all your problems! This new item is amazing!

  • News stories like this try to create a “need” that doesn’t actually exist so that you’ll buy a product you don’t actually need.

  • How do you combat this? Spend less time with the news.

Spending Time in Stores, Online and Off

  • People are willingly putting themselves in situations where they’re giving their time and attention to a business whose primary goal is to use every trick in the book to extract cash from your pocket.

  • The solution here is simple: don’t go to stores without a specific purpose.

Shopping Without a List

  • It’s not a good idea to shop without the intention of buying something you genuinely need or want. Remember, stores are really good at convincing you to buy stuff – that’s what they’re designed to do.

  • There’s a simple solution here: whenever you do go shopping for anything, make up a list beforehand and stick to it when you’re in the store.

Your Friends

  • If our closest friends are avid shoppers and consumers, it’s very likely that this behavior influences us to be avid shoppers and consumers, too.

  • One solution is to seek new friendships with people who aren’t avid consumers and who don’t choose a lot of behaviors that encourage bad spending habits.

  • For most people, a better approach is to recognize what’s happening in the moment and steer conversations and social events away from shopping and spending money.

Short-Term Thinking

  • We overvalue the short-term benefit of buying something and undervalue the long term benefit and consequences of buying something.

  • It’s why people often get a sense of not knowing where their money is going.

  • Every time you think of spending a dime, consciously step back and consider what you will think of this purchase five years from now.

Procrastination

  • We have a tendency to put off important things until the last minute, and then we’re in panic mode, rushing around and doing things as quickly as possible, usually with inadequate planning.

  • For spending money, procrastination almost always bites us in the rear end. It means that we don’t have the time to do the best research. In the end, procrastination usually means paying full price for a suboptimal item.

  • What’s the solution? As soon as you’re even aware of an upcoming need, start shopping for it.

Lack of Self-Control

  • We all have that inner voice encourages us to do things on impulse that, when we’re thinking about it, we know we shouldn’t do, but we do it anyway.

  • It’s in those moments that we exhibit a lack of self control – we let our basic impulses, as bad as they are, run the show.

  • What’s that best strategy? Remove temptation and the ability to act on it from your life as much as possible.

Advertising and Marketing (Especially If You Think You’re Immune)

  • Advertising and marketing are pervasive. Sometimes they aim to be so subtle that you never notice the insertion into your subconsciousness, like a clever product placement in a program.

  • In fact, people who think that they’re immune to marketing often lower their guard against the more subtle forms of marketing, making them, in some ways, even easier to market to.

  • One good strategy is to spend less time with things once you realize they’re being used to market to you.

Programs with Lots of Product Placement

  • Product placement – where a particular product is placed into a scene in a program that has nothing whatsoever to do with the product, just so it’ll subtly slip into your consciousness a little more – is incredibly pervasive on television and Youtube.

  • There are brand name products in the background of many scenes and often featured in various ways without being too intrusive.

  • My solution for this is simple: watch less television.

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How to Spend Money to Become Richer?

I believe ‘spending money’ is a faster approach to richness than ‘saving money’, especially if your income is below RM 5,000 a month.

Thought #1: It Takes More than Saving Money to become Rich.

  • KC reckons us to save at least 30% of our monthly income if we wish to fund a comfortable retirement.

  • But, if your yearly income is RM60,000, would saving RM 18,000 a year be enough for you to retire rich in 10, 20 or even 30 years’ time?

  • The answer is ‘Nope’ and today, most people are aware of that.

Thought #2: Is Investing the Answer to Retiring Young and Rich?

  • There are three asset classes which you can get into to increase your wealth: Stocks, Real Estates, and Businesses.

    1. Stock to me is a reliable way of earning passive income on a quarterly / semi-annually basis while waiting for their share prices to rise in the future. It would be better for you to first acquire accounting and investing skills before investing in stocks.

    2. Presently, I believe, the better real estate deals are not in the primary market but in the secondary (subsale) and the auction market. If you don’t have RM 100,000 in cash-in-hand, I think, it is better for you to temporarily refrain yourself from property investments.

    3. Business is a good asset class to begin with because you can start a business with small amount of capital, with low risk and be creative with it. But, entrepreneurship, I believe, can be challenging and not suitable for all.

Thought #3: You May First Aim to be Financial Secure

  • The first good expenses that all of us should have is: ‘Insurance, both life and medical insurance.’ Do you have them and is your coverage sufficient?

  • I’m not going to write another 1000+ word article on the virtues of buying life insurance. Thus, I’ll leave you with: ‘Do not be Penny Wise and Pound Foolish. Get Sufficient Coverage.’

Thought #4: Expenses that Could Double or Triple Your Income

  • If you earn RM 5,000 per month, I believe it would be helpful for you to aim for an increment in income to RM 10,000 per month.

  • Your income, to some extent, is not dependent on your labour, time and physical effort placed on your job or business. Instead, it can be ideas, insights, technical know-how, network and influence that could actually double, triple or even quadruple one’s income.

  • There are courses and certifications to enhance your knowledge and abilities in your field or expertise and thus, positioning yourself towards higher income.

Thought #5: Proper Financial Education

  • Investing involves a lot of study, research, and homework. Investors who put in more preparation would have a better chance to attain better ROI figures.

  • If this deters you, it is best for you not to invest in anything and just put your money in fixed deposit.

  • if you wish to be a profitable investor, I suggest you to start by getting true financial education.

So, How You Can Spend Money to Become Richer?

  1. Recognise that there are ‘Good Expenses’ and ‘Bad Expenses’.
  2. The Rich spends more on good expenses and thus, become richer.
  3. Good expenses are expenses that make you financially richer.
  4. They are expenses either to protect your wealth or to build them.

Cool Opportunities

BigPay – The Best Travel Credit Card for Malaysians?
If you ever travel out of Malaysia and use your credit card, then this is BIG (pun intended). AirAsia has released BigPay, a prepaid mastercard that you can easily top up through the BigPay app and be able to use instantly.

But more importantly, BigPay charges you at the real exchange rate (which means they charge no fees). This is something you won’t get if you were to go to your bank or some exchange counter.

In fact, I've already saved over RM 10,000 using this card (you can read about it in our BigPay Review)

Anyway, if you don’t have one yet, you can sign up for free and get RM10 free when you use referral code B7D3YNZPGO.

A way for females to get free insurance
We were talking to our super humble financial advisor friend one day and she started talking about some insurance product for females that provides coverage for all these female related illnesses. But more importantly, the contract also states that all the premiums will be returned at the end of the contract.

Seriously something for all females to consider!

Building a financial roadmap
For those who are lost when it comes to tracking your net worth and using it as a way to create the ideal life, this is something you should check out.

We have worked with a financial advisor to lead you through building your own financial roadmap by yourself online.

And if you want them to do it for you (at a huge discount), you can make the request as well.

Check it out here!

Talking to an Independent Financial Adviser
A big issue when you work with someone who calls themself a financial advisor is you do not know if they really have your best interest at heart. That’s one of the main reasons why I never work with any (the other one is that most of them get trained to say what the company wants and thus, do not know of all the other cool opportunities out there).

However, I’ve been talking to an independent financial adviser the last few months and I do believe that not only is she knowledgeable, but also super open to sharing her knowledge.

If you’re interested in talking to her, join our facebook group and ask your questions. She will definitely find time to pop by and answer them.