The Best Personal Finance Summaries – 26 August 2019
If you've ever felt like insurance agents are taking advantage of you, then you will want to watch this. We talked to one of our partners who broke down how insurance products work, but more importantly, how you can reduce your premium by over 50%.
The video is less than 20 minutes, but it can easily save you and your family thousands each year.
The different types of investment options in Malaysia
Ever wondered what investment options you have here in Malaysia? Well, here is the most comprehensive list available for you!
We've finished adding all the content but it's still a little messy.
Which one do you want to learn more about?
Money in Daily Life
It’s crucial to have the correct insurances that fit your needs. However, with the plethora of insurance policies available, it’s not surprising that insurance is confusing for many individuals. What is the right type to buy? What about the amount? Am I adequately protected?
Types of Insurance Available – An Overview
We can all agree, insurance is essential. As a general overview, there are three types of insurance.
|Types of Insurance||Description||Examples|
|General Insurance||Protects stuff.||Motor insurance, personal accident & house owner insurance.|
|Medical & Health Insurance||Covers medical expenses.||Medical card, insurance for critical illnesses & disability income insurance.|
|Life Insurance||Protects family financials upon death.||Whole life insurance & term life insurance.|
Types of Insurance by Life Stages
As you go through different life stages, you may have different insurance coverage needs. Here is a general guide.
|Age Groups||Insurances Suggested||Justifications|
|Child – School-age||Medical insurance & education insurance.||Medical insurance is essential, but education insurance is perfect for those who want to save + protect.|
|Young Adult – Starting||Medical insurance, car insurance & life insurance.||Once again, medical insurance is a must. If you own a car, car insurance is compulsory. Life insurance is optional.|
|Newly Married without Children||Life insurance & house owner insurance.||Life insurance is crucial as now somebody is financially attached to you. As a first-time house buyer, adequate insurance coverage can be helpful.|
|Having a Family||Medical insurance & life insurance.||Medical insurance provides pregnancy and extensive coverage which could benefit you. Life insurance promises coverage to cater to your child’s future needs.|
|Retired||Long term care insurance, disability insurance & life insurance.||Long term care insurance is the most important one for you to cater to the high cost of care. In Malaysia, where the insurance is absent, a living trust serves as an alternative.|
There is no one size fits all. The key is to get only the right types and amounts of insurance at the right time.
Long-ago miscalculations by insurers have led to policyholders’ facing steep premium increases. However, there are ways to keep costs down.
The New York Times’s journalist, Tara Siegel Bernard published an interesting article on significant rate increases of long-term care insurance for nearly a decade.
Long-term care insurance is vital for retirees. It complements Medicare by generally paying out $150 for care at home, according to Bonnie Burns, the specialist at California Health Advocates. However, currently, the premiums are getting more expensive.
The author suggested that there were several contributors to this. However, almost all of them involved miscalculations by the insurers. Currently, new coverage is being sold by the insurers. For many existing policies, they are seeking rate increases.
Policyholders are now facing several options in between accepting a full rate increase and cancelling the policy. The author argued it could make sense to pay the higher rate simply because a similar plan is priced more costly nowadays.
However, many people won’t be able to absorb the full increase. According to this article, there were numerous suggestions.
- Few people need a policy that pays benefits more than five years, considers cut down the duration.
- If you’re in your 70s or 80s, consider reducing the inflation rate.
- If you’re in your 50s or 60s, consider reducing your daily benefit rate.
- Call your insurer to know if there are any other offered solutions.
- Convert your old policy to a new one that is worth the premiums you have paid.
- Contacting counsellor to re-evaluate your plan.
In the last few paragraphs, the author concluded that the biggest worry for policyholders is the price increase. Regulators’ task force should work with insurers to safeguard fellow policyholders.
Do check out the full article as well!
How do you evaluate the financial advice you get from other sources? Individually, how do you decide if some piece of advice is for you, or if you should discard some adjacent information? Is there an amount of pick-and-choose?
This critical article by J. D. Roth explored how one should evaluate financial advice from various sources.
How to Evaluate Financial Advice?
Inspired by How to Read a Book, the author formulated four principles* in evaluating financial advice.
1. Elementary evaluation
Find out whether if the financial advice makes any sense.
2. Inspectional evaluation
Try to understand its core argument.
3. Analytical evaluation
Examine the advice in detail and understand its motivation.
4. Synoptical evaluation
Do some comparative evaluation.
Does This Advice Mesh with Reality?
J. D. Roth mentioned that financial advice should be reality-based. He went on to call out the so-called information from The Secret as a bit of illogical advice.
Is This Person Qualified to Give This Advice?
The author explained that people who know the most about a subject are slowest to make suggestions, but they are full of caveats and qualifications. He then described how he would only listen to Dave Ramsey on debt reduction but not investment; and Warren Buffet for the other way round.
How Does This Person Profit from Their Advice?
People might offer financial advice with an ulterior motive. There are a lot of online credit card and bank reviews. The bloggers are not objective because ultimately, they want you to sign up for it. As the author said, “always ask yourself how the person giving advice stands to benefit from the advice they’re offering.”
What Are the Other Options?
To answer this particular question, the author brought out his motto “do what works for you!” If something isn’t adequate for you and your situation, abandon it.
Guidelines for Evaluating Financial Advice.
J. D. Roth shared his set of rules to help him better evaluate financial advice:
- If it sounds too good to be true, it probably is.
- Verify, verify, verify.
- Don’t throw the baby out with the bathwater (Always be open to others’ opinions).
- Favour simplicity.
- You don’t have to take every piece of good advice.
- Check certifications, when applicable.
Other exciting points are being made throughout the post too. Read it from the link above!
But, the question is: ‘Is being debt-free financially savvy?’
Here is my take. If you wish to remain in the middle-income group, I believe it is a decent move. However, if you want to be productive and financially free faster, I think, the idea of being debt-free is not helpful.
1. Debt is a Double-Edge Sword.
There are two types of debt, good debt and bad debt. The rich use good debt to generate cash flows from acquiring valuable assets; the rest consumes bad debt to buy things that depreciate.
2. If You Have Multiple Types of Debt …
Identify the priorities by considering the three key factors:
a) The Interest
Settle the debt with higher effective interest rates.
b) The Tenure
Longer tenure equals cheaper repayment amount. The money you pay today is worth more than that in shorter tenure due to inflation.
c) The Monthly Repayments
Longer tenure also ensures lower monthly commitment, which is helpful to plan your cash flow.
3. Debt-Service Ratio (DSR).
Debt-service ratio (DSR) can be obtained by dividing debt with your monthly income. It is advisable to maintain your DSR at max 30%; allocating 30% on living expenses and 40% for savings.
However, there is no fixed rule on DSR. Manage your DSR with relative comfort, which suits you the most.
4. Should I Withdraw My EPF to Pay off My Debt?
For the past few years, EPF paid out 6+% in dividends per annum. If your effective interest rate of the debt is higher than this specified percentage, it is worth it.
5. Age, Life Goals, and Purposes.
Always check out your purposes and do not afraid to question yourself on your choice. If you continue to remain clueless about how you should use the money, it is okay. Your money can serve as a buffer or reserve to service your debt payments for many months or years to come.
If you wish to be rich and attain financial freedom faster, one should:
- Use low-interest debt to buy assets that pay cash flow and grows in value.
- Avoid and Eliminate high-interest debt.
- Stretch debt repayments to longer tenure.
- Keep DSR at manageable levels.
- Boost income to reduce DSR instead of aiming to be ‘debt-free’.
Want To Have Your Money Accelerate Your Goals?
Grow Your Wealth (Investment Related)
No good articles this week. Let us know if you have a site you'd like us to look into for more summaries!
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.