The Best Personal Finance Summaries – 21 October 2019
We're excited to introduce a new part to More Money Malaysia and that is a weekly video.
This will be a test that will run the rest of this year but each week we will introduce a video. These videos will be summaries of some of the best personal finance books. So instead of having to read them yourself, we've broken it down for you.
[VIDEO] Book Summary: Rich Dad Poor Dad
One of the classics that many people have attributed their success to. Watch this video to find out what the difference is between the rich people and everyone else. And how you can start becoming one of those rich people.
Reply to this email to let us know what you think or what you would like us to summarise in the future!
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Money in Daily Life
Retirement isn’t just about setting aside of lump sum of wealth.
It turns out the post-retirement phase does not necessarily equate to worry-free life. Here are some tips for you to plan for retirement financially:
1. Discuss Everything with Your Life Partner:
Consult your partner to decide on post-retirement investment plan. Agree on the lifestyle which you both plan to maintain.
2. Fix a Current Budget:
Plan your budget to gauge your current financial standing. After that, you can decide the amount to invest, use and reserve (for emergency) respectively.
3. Estimate Future Budget Properly:
Estimate correctly about the money you needed to save before retirement. Consider your post-retirement lifestyle, healthcare preferences, investment attitude and life expectancy.
4. Set Shorter More Achievable Goals:
Set periodic goals instead of a huge lump sum of the probable financial figure. Consider a reasonable amount for monthly savings towards the target.
5. Try to Pick up a Part-time Profession:
Part-time jobs can sustain parts of your post-retirement lifestyle. There are many easy approachable gigs which one could do after retiring from his or her work.
6. Take Practical Scenarios Under Consideration:
Consider some real-life scenarios which could impact your financial plan; such as inflation.
7. Do Not Have Any Liabilities:
Make sure you do not have any liabilities because it would be difficult for you to repay once you don’t have a fixed income after retirement.
8. Cut Down on Your Daily Expenses:
To save money is like earning it. Stay away from extravagant lifestyle and never lead a life beyond your means.
If we wish to reminisce about how this financial independence movement started, we got to discuss a little about history. From what I know, this can be broken up into a few “Eras”.
Jacob Lund Fisker then started writing his thoughts on his philosophy in life at his blog Early Retirement Extreme (ERE). His site managed to influence a lot of people in his multidisciplinary thinking
Through a brief history review by Kyith from the Investment Moats, the concept of Early Retirement Extreme (ERE) founded by Jacob Lund Fisker is being dissected. Jacob is a trained physicist. He became financially independent when he was 30 years old. He was famous for only spending US$7,000+- a year (not a month, a year).
How Jacob became Financially Independent
Jacob is famous for taking just 5 years to be financial independence and having an annual expense of less than US$7,000+- a year.
During his path to financial independence, he did not earn a six-figure income.
To achieve this, he optimised his expenses very well. Also, he saved up to 90% of his graduate school paychecks.
How Jacob developed a Motivation to be All-in on Saving for Financial Independence
Jacob came from a place where stock investing is known more like a gambling den. But his trigger point was when he wondered: What will happen if he can step up his rate of return from 1.5% in his savings accounts to something higher?
He then created a program to predict his net worth. In the program, he calculated his assets, ROR of his assets and monthly contribution; then postulate his net worth. This created a clear picture when he will reach these milestones (financial independence at a 4% withdrawal rate, first million, etc.) if things do not change.
The author took a little time to digest his findings so far, and he found out what Jacob did similar to him, and his friends could be summarised below:
- We were mostly rather frugal or didn’t have an inadequate income versus expense ratio
- Keep track of our income or expenses.
- We played around with spreadsheets a lot. It made us ask a lot of “what-ifs”. And then we model those “what-ifs.”
- Those “what-ifs” made us searched for answers to these “what-ifs.”
- When we find a possible solution, we learn enough of these solutions, build conviction and tested them out
- When we see that these investment solutions are working, it gives us the motivation that what we observed in those spreadsheets could add up
In the subsequent sections, the author also discussed how much Jacob has saved by keeping track of his expenses by following his designated withdrawal rate strictly. Besides, Kyith also talked about how spending money is a failure of solving problems smartly. To become financially independent, we have to be well-equipped with financial knowledge to optimise our actions.
Do check out the original article to know more about the whole discussion!
Almost every big goal goes through at least three key phases: a “honeymoon,” when it’s new, and you’re exploring and discovering, and it’s exciting; a “boring middle,” where you just have to keep chugging toward the end; and the conclusion, where you often rush to the finish and enjoy the success. As I noted in that article, many goals fall apart during that transition from the “honeymoon” to the “boring middle,”…
Each day, evaluate one specific little element of your life. What steps do you go through to wash a load of clothes? To dry a load of clothes? To clean several dishes? To drive to work? To eat lunch? To take a shower? Anything you do on a daily (or near-daily) basis that consumes some resources – time, money, electricity, soap, whatever – can be evaluated.
Are you doing the best way? Are you doing it most efficiently? By evaluation, you could know how you could adjust your routines and move you towards your big goals.
Habit #2 – Think Ahead When You Run Low on Something
Make a list for things which are running low. By doing so, you never have to make any last-minute runs to the grocery store or Wal-Mart for something you could have easily had in the closet. Besides, you could save fuel and time as well as avoid making unplanned incidental purchases!
Habit #3 – Look for Something Free to Do First
Filter out things that would cost extra money. Stick to free options. Be open to what you find in the end. Be it the unread books or games which you have yet to play, and there are plenty of alternatives for you to indulge in without spending money.
Habit #4 – Eat Almost Entirely at Home and Save Takeout and Restaurants for a Special Occasion
Eating at home should be your default mode. It could save money and is good for your health. Bad at cooking? No problem, you have to get better with practice. Start with simple stuff then advance slowly.
Habit #5 – When You Make Some Foods, Make a Double or Triple Batch and Freeze the Extras
Prepare extra portions of food when you are making a massive batch of meals. This means you could save time preparing the food and money too as you could buy ingredients in quantity!
Aside from these 5 habits, there are 5 more being listed by the author in the article as well, namely:
- Habit #6 – Review Credit Card Bills and Bank Statements When They Come In
- Habit #7 – Tell Yourself “No” a Lot
- Habit #8 – Put in the Work at Your Job and Career
- Habit #9 – Love What You Have
- Habit #10 – Make As Much of Your Finances Run on Autopilot as Possible
Are you interested in reading more about the remaining tips? Be sure to access the article via the link above!
Time and time again, we have heard that Malaysians are insufficiently prepared for retirement. Yet when we want to do it, we frequently get bombarded by friends and family with familiar cliches that discourage us!
However, do not give up. Let us review 7 common misconceptions about saving for retirement and uncover the truth behind them. The truth will set you free to pursue your retirement plans.
“Time is on my side. I am only 24 and just started working!”
As a young person, retirement appears to be a far distance away. Perhaps you think or have been ill-advised by friends to “play first” and plan later. Sounds good, right? But it is not. By starting early, the power of compounding interest can grow your retirement fund even more!
“I’m too old, why would anyone my age want even to try”
It is never too late to start. Yes, you may have to invest more money to make up for the shortfall, but remember the more you save, the more you can spend in your golden years.
“I already secure my retirement funds in bank savings accounts and FD.”
Your money is saved, but you are losing to inflation. Allocate funds to invest in shares, gold, real estate or other investment vehicles to better prepare yourself for retirement.
“I’ve got EPF. It will take care of my retirement needs.”
Based on historical data, money in EPF is unlikely to be enough to support your golden years. At average savings in EPF of RM210,000, it can barely sustain your life for 5 years if you spend RM4,000 per month!
“I worked hard to earn my money. I want to enjoy my money, now”
It is not wrong to splurge, but you should set your budget well. Use “50/20/30” rule for funding your needs, savings and wants respectively!
“Settling my child education fund takes priority over my retirement fund”
Remember: college is a luxury when money is short; your basic needs during retirement is a necessity. Take care of your retirement fund first, then work your way up financially to save for kid education.
“I need to study the ins and outs of investing first”
You need not become an investment guru to invest. Start small by saving early and consistently. Speak to a financial advisor who can assist you in finding the right investment mix based on your current financial capabilities, life goals, and risk appetite. Conduct regular monitoring and review of your investment, whether it requires changes perhaps because of life events.
Can’t catch a break under the crushing weight of credit card debt, student loans and living expenses? You’re not alone. Almost 50% of youth in Malaysia are deep in debt as of 2018.
Here are 6 tips for you to combat your debt!
*1. Track your expenses
Know exactly where all your money is going. Identify them then eliminate the unnecessary expenses.
2. Adapt to a low-cost lifestyle
You are sacrificing luxuries and some level of comfort. Have as much disposable income is vital to start paying off your debt. You could start a cheap diet, limit entertainment costs, cancel memberships and so on.
3. Renegotiate your payment plan
Visit your loan branches to discuss extending payment period by lowering minimum monthly commitment. Also, you could obtain advice on debt management and renegotiate your repayment options.
4. Sell your stuff online
Consider an online platform to sell your unused stuff.
5. Get a part-time job
Getting additional income is a smart and quick way to pay off your debts.
6. Start paying off your most significant debt first
High-interest rates hurt you in the long run. Therefore, start by settling debts with the highest interest rate.
Highlights from Malaysia’s Budget 2020 related to your business and personal finances.
Recently, Malaysia’s Budget 2020 has been announced. Here are some critical summaries were done by MyPF.
Theme: Driving Growth And Equitable Outcomes Towards Shared Prosperity.
Shared Prosperity Vision 2030 – 4 Thrusts and 15 Strategies
|1. Driving Economic Growth in the New Economy and Digital Eras||Making Malaysia the preferred destination for investment, accelerating the digital economy, strengthening access to financing for businesses and strengthening economic diversity.|
|2. Levelling up Human Capital||Enhancing job opportunities for Malaysians. Modernising the labour market. Investing in education and talent.|
|3. Creating a United, Inclusive and Equitable Society||Inclusive development. Towards better health services. Enhancing the transportation ecosystem. Promoting access to housing. Unity through sports. Promoting environmental sustainability.|
|4. The revitalisation of Public Institutions and Finances||Commitment to fiscal consolidation. Strengthening institutions, governance & integrity.|
In the budget, the Malaysia government also announced some schemes and introduced some changes which would impact household ownership in Malaysia. Do check out the full article via the link above!
Want To Have Your Money Accelerate Your Goals?
Grow Your Wealth
An Investment-Linked Policy (ILP) is a hybrid product consisting of two different components: insurance products and unit trust funds. It is gaining popularity as customers can mix-and-match different types of insurance products that offer a sum assured for death, disability, illness, accident, hospitalisation etc. with the life insurer’s range of unit trust funds to create their ideal insurance policies.
Investment-Linked Policy (ILP) has various terms and technicalities which are not necessarily the easiest thing to understand for most people. In this article, Ian Tai from KCLau.com shared about 5 essential things we may not know about ILP.
#1: Your Premium is Fixed But Not Your Insurance Charges.
For ILP, its premiums are fixed but actual insurance costs are not. The actual insurance cost fluctuates according to your age. For instance, when you are younger, your insurance cost is lower – therefore, more money would be channelled towards your investments to build up value over time. However, when you grow older, higher insurance cost would be covered by the sum accumulated throughout the years.
#2: What if My Unit Trust Funds have been Fully Exhausted?
First of all, it is possible if your unit trust funds have an unfortunate investment result. In most cases, a top-up in premium would be requested. However, if you do not agree with the notion; you could terminate it.
#3: Minimum Allocation Ratio (MAR)
Valid on 1 July 2019, BNM has implemented new changes to ILPs in regards to its Minimum Allocation Ratio (MAR). MAR is the minimum proportion allocated premiums for you to pay the actual insurance costs and build up your unit trust funds. In general, it has increased – therefore, there are the proportion of unallocated premiums (which are used to pay agent’s commission and expenses of life insurers) is lower. This results in higher overall ILPs prices.
#4: Another Option to Increase Your Sum Assured
If you hold ILP before 1 July 2019, to increase your sum assured; you could:
- Buy a brand new ILP.
- Increase in amount ensured to the existing sum assured of your existing ILP.
#5: How to Get the Highest Sum Assured at the Lowest Possible Premiums?
There are 2 ways to get the best insurance deal:
- Increase the sum assured.
- If your intended amount is fixed, ask to reduce proposed premiums.
This is one of the reasons why we created the video to show you how to reduce your premiums by 50%+ (which you can watch here).
Earlier this year, I sent my wife a text message: “On a scale of 1 to 10, how freaked out would you be if I quit my job this afternoon?”
Another interesting article from Get Rich Slowly discussing the golden question on whether one should stay at or leave his or her career. Mike Maciel, a reader of the blog, contributed this piece of opinion.
Mike has wanted to quit his job, but his wife does not necessarily support his actions. Hence, Mike has been trying to reason with himself regarding the decision he made.
First of all, the author explained that there are two types of people in the world, namely the dreamers and the doers. Financial independence is a dream for sure, but for the author, thoughts remain dreams without doing.
Then, Mike thought back to one crucial question – what does money mean to you?. For him, money meant security. If he were to leap, he would have to risk his relationship, reliable income and work experience, great benefits, the day-to-day purpose of a job and opportunity to create generational wealth. In short, resigning means a lot of things for Mike.
In the subsequent sections of the article, Mike also contemplated on his current lifestyle and argued with what he wanted to do to make better use of his limited time on this planet. But ultimately, he realised he has worked in his careers only to achieve freedom via money. Therefore, he has finally quit his work.
The entire article is fascinating in terms of following the journey of the author in deciding his next step in life. Check it out if you have time!
Isn’t it amazing that you can use your money to buy more time?
The realisation that money can be used to purchase time also forever changed my attitude towards money. Despite being obsessed with personal finance, I no longer glorify cash in itself. What’s the point of having money if I have to work all the time? What’s the point of having money if I can’t spend time with loved ones, or make them happy?
|Ways to Buy More Time||How?|
|Paying to avoid the queue or long drives||Prefer paying the RM1 ATM fee or tolls at less-congested highways. Paying parking fees using a Touch ‘n Go card. Take a flight instead of driving. Opt for valet parking which sometimes offers the same price as a regular one.|
|#2 – Paying for deliveries||Buy from online platforms. Hire runners for work and personal errands. Pay for IKEA delivery.|
|#3 – Paying for ad-free entertainment||Pay for premium services – make life convenient.|
|#4 – Paying for services||Pay for e-hailing services, domestic helpers, car wash, online bill-paying and childcare services. Pay IKEA to install the furniture. Pay for technical expertise.|
|#5 – Paying for good-quality tools||Buy a premium item to save time. Purchase cleaning robot to save trouble.|
Whether you’re running your own business or working for someone else, specific metrics are crucial to understanding how you’re doing financially. Net income and gross income are two numbers that can help you evaluate your business or personal finances.
What is Gross Income?
Gross income is the total amount of income that’s achieved by an individual or business in a certain period, usually one year. For individuals, gross income includes wages, salaries, pensions, interest, dividends, and rental income. For businesses, it involves revenue from all sources—basically anything found on the income statement.
To find gross income, use the following equation:
Sales revenue – the cost of goods sold (COGS) = gross income
|Business||Subtract the specific costs that are directly related to creating your product or delivering your service—but not all expenses. The cost of raw materials should be deducted. Overhead costs, though, including wages that aren’t directly related to the goods or services are not deducted.|
|Individual||Add your wages (including any bonuses and tips you receive) to income from properties, shares, alimony, pensions, and taxable benefits. You can find the amount you’re taxed on by subtracting any above-the-line deductions such as student loan interest.|
What is Net Income?
Net income, also called net profit, is the income remaining after expenses are deducted from the total revenue. In other words, net income is the amount you make after factoring in all of your costs. Like gross income, net income can be calculated for your finances or business.
To find net income, use the following equation:
Total revenue – Total expenses = net income
|Business||Compare the net income with competitor companies, along with other factors—such as price-to-earnings ratios and debt-to-equity ratio—to determine if you should invest. Review your operating costs and aim for the largest possible profit margin. If you can lower expenses, such as staffing costs, while maintaining the same gross income, your profit margin will be higher.|
|Individual||The income you’re left with after deductions for work-related expenses like health care premiums, taxes, and pre-tax retirement contributions. Your annual net income is the amount you take home in the year after subtracting the costs associated with earning that money. Be aware of deductions you might be eligible for when preparing your taxes, such as travel and office costs.|
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.
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.