General Money Tips

3 top financial ratios to determine your financial fitness

One recent article on CNBC (read here) mentioned that financial planning can improve health. Financial fitness does affect physical health. So, how do you know you are financially fit? I’m going to share with you 3 important financial ratios to determine your financial fitness.

Debt / asset ratio: Debt ÷ asset x 100%

This is the ratio determining whether your debt level is healthy. The benchmark for this should be less than 50%. When the ratio is higher than 50%, it means that you are leveraging too much. Exceeding 100% indicates you are borrowing more than what you own. It does not mean it is good to be 0. Good debt can help you to grow your wealth faster. However, extreme debt will expose you to unnecessary borrowing risk. You could be exposed to insolvency if you are not carefully managing the borrowing risk.

Saving ratio: Total monthly saving ÷ gross income x 100%

This ratio determines whether your saving habit is good. The benchmark for this ratio is 20%. The higher the percentage, the better it is. Generally, one should save at least 20% of their gross income. If your saving ratio is less than 20%, it is time for you to relook at your monthly expenses to make sure you cut some to maintain the minimum 20% saving rate. The lesser saving rate you have indicated you need to take more time to achieve financial freedom.

Liquidity ratio: cash available ÷ total monthly expenses

This ratio shows how long your available cash can sustain if you do not have any future income. The recommended benchmark is 6 months. It means your cash can last you 6 months if you stop working. Low liquidity is not good because it means your sustainability towards job loss or revenue drop is low. You will easily feel stress if your number for this ratio is low. High number does not necessarily mean good because it indicates you are keeping too much cash which you can use for investment for wealth growth.

If you are still unsure about how you can calculate the financial freedom, do contact me via Facebook to ask for financial health check.

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Should you opt for further loan extension after 30 September if you are eligible to apply for the extension?

The automatic moratorium programme which started on 1 April 2020 to assist Malaysians affected by COVID-19 will come to an end on 30 September 2020. Prime Minister Tan Sri Muhyiddin Yassin announced on 29 July 2020 that banks will offer a three-month loan moratorium extension and assistance to targeted groups in view of the current tough economic times. Individuals who have lost their jobs in 2020 and remain jobless are eligible for the targeted moratorium extension of three months.

The question now is, if you are eligible, should you opt for further loan extension? It depends on your current finance situation. If you are capable to repay the loan with your extra saving and have your emergency fund in place, you should not opt for further extension. Loan extension may incur more interest. While you have your extra saving (not your emergency fund) which does not attract high interest in view of the low interest environment, it is better to be used for loan repayment. In addition, allowing yourself not paying the loan payment for longer time might set yourself up for bad habit which will hurt your finances in the long run.

Having said that, if your cash flow is tight, then the loan extension can help to ease your financial burden temporarily. However, while applying for the extension, you shall also consider the following:-

Reducing your expenses to save more money in the near future to avoid the same issue again after the end of extension period.
Restructuring your debt. It is a good time to consider perform loan consolidation while the interest rate is low.
Refinance your existing properties to ease the cash flow problem.

Remember, the applying for the loan extension is only a temporary measure. There will be an end to this, the best thing to do now is to get prepared financially and save up more cash to ease the cash flow issue.

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5 things you should do if strict MCO is to be imposed again

Health director-general Dr Noor Hisham Abdullah advised the public to stay at home following a surge in the number of Covid-19 cases in the past week. If the Covid-19 cases kept increasing, there is a chance that the strict MCO is to be imposed again.

The followings are the 5 things you should do for your finances if this happens:-

Make sure you have at least 6 to 8 months emergency fund – economy is going to get worse if the lock down happens again. Jobs and businesses will be hit again. Therefore, larger emergency fund is required to cater for the unexpected events.
Postpone all big purchases – if you are thinking to upgrade your car or house, please re-consider the big decision. Even though the interest is low at the moment, things might happen that can reduce or stop your future income streams. Assess your finances well before any big purchase.
Track and reduce expenses – cash is king during the pandemic period. The more cash you have, the more secure you will be. While being lock down at home, you shall start tracking and reduce your expenses to save more cash.
Look out for good investment opportunities – if the strict MCO is to be imposed again, the share market will most likely drop drastically too. Look out for good fundamental stocks / unit trust funds to invest during the market crash. Property market may lag compared to share market, hence the property price movement may come later.
Upskill – the workforce / business market is going to be competitive during tough time. Hence, it is important to equip yourself with more knowledge and skill so that you can sustain better. Take the chance to learn some new skills if you are forced to stay at home again.

In conclusion, prepare more cash in hand for better investment opportunities and for security. Stay safe always during the difficult period.

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Saving insurance plan: is the return of saving insurance plan good?

Recently, I received a call from a bank mentioning a saving product which can offer me 20% guaranteed payout for the initial years if I save with them. No doubt, this is the feature of the insurance saving plan. Does the 20% payout (interest) sound too good to be true?

Well, a lot of people do not understand how saving insurance plan works. Let me illustrate using one of the sample from X company.

The above is a 5 years’ insurance saving plan. The client will need to pay RM 6,000 premium every year for continuous for 5 years (total premium paid is RM 30,000). The guaranteed cash payment from year 1 to year 10 will be RM 660 yearly (11% of the annual premium) while the guaranteed cash payment from year 11 to 20 will be RM 1,200 (20% of the annual premium).

Many insurance agents used the 11% and the 20% Guaranteed Cash Payment as the motivation for the clients to buy the saving plan as the “interest” is much more higher than the current fixed deposit. However, the truth is – the 11% or the 20% is based on the yearly premium of RM 6,000. At the end of year 5, the client would have already paid RM 30,000 (RM6,000 x 5 years). Hence the “interest” is not 11% (RM 660 / RM 6,000) but 2.2% (RM660 / RM 30,000). In addition, if the clients are receiving the guaranteed cash payment every year, at the end of maturity (after 20 years), the client will receive RM11,970 – RM 30,897 as the maturity benefit. Why it is a range and not the exact RM30,000 total payment paid? Because the final amount depends on the performance of the fund. Normally the insurance companies will invest the amount into largely bond funds for higher return than fixed deposit. Hence, at the end of maturity, the client is not guaranteed to get back the total payment paid, if he chooses to withdraw the guaranteed cash payment every year.

What if the client does not withdraw every year? Well, based on past record, the return would be roughly about 3% to 5% per year. It might be higher than fixed deposit considering the low interest rate currently. However, there is no liquidity of the premium paid. Client will definitely suffer loss if early surrender of the policy, i.e. before maturity date.

So, in term of return, saving plan is not something that generate high return. It might be worst than fixed deposit considering the paid premium cannot be withdrawn easily (without loss) before maturity.

In conclusion, one may ask – what is the benefit of this plan?

Saving plan provides liquidity of fund in case the death of the life assured. The saving plan is an insurance plan, hence, it will trigger immediate payout on life assured’s death to the nominee(s). Fixed deposit is not liquid upon the death of the owner. The amount saved in fixed deposit will be frozen until the grant of probate issued in this event. So, it is a plan to be considered in lieu of fixed deposit when one needs to pass down some money to the next generation without the need of will.
Saving plan is a forced saving effort which is good for retirement saving effort. Based on research, more than 50% of Malaysians have insufficient retirement saving. As early withdrawal will incur early surrender penalty, the money is not easily assessible to the payer. Hence, the payer is more likely to continue paying the premium and not easily withdraw the saving. The saving becomes part of retirement saving after 20 years.

So, with the above, understand your reason of buying. If you need liquidity during your lifetime, saving plan is not something that provides that. If return is important for you, you might consider investment instruments rather than insurance plans.

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Are you saving enough?

Saving is very important for financial planning. Expert recommends one should save at least 10% to 15% of his / her salary. This is why in Malaysia, there is a compulsory EPF saving (Employee Provident Fund) which forces the employees to save at least 11% for their retirement. Thank you for EPF authority who forces the employers to contribute another 12% of one salary to the retirement pots.

However, is it really enough? According to EPF, 70% of Malaysians who withdrew their savings at age 55 used it up in less than 10 years. Our life expectancy is also steadily increasing to about 75 years . Hence it shows that it is important to build enough savings to last our retirement years. If contributing over 20% is also not enough, then how much is enough? Many do not realize the sufficiency of the saving actually depends on the following:-

How long you work (how long you contribute to EPF)?
How long is your retirement life?
Your retirement lifestyle

The rule of thumb is you need to save 30% of your saving for 40 years to pay for your 20 years’ retirement life, considering your expenses during your retirement life is only 60% of what it costs during your working life.

So if you want to save less every month:-

You need to save longer / work longer (delaying your retirement is a need if you want to save less)
Reduce your spending during retirement life
You need to invest so that your saving grows

The next question is “Are you ready to work more and reduce your current lifestyle during retirement?”. If the answer is “no”, investment becomes a necessity if you wish to save less.

Don’t know how to start investment? Feel free to contact me via telegram or Facebook.

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One simple tool on Maybank website that can help you save money

Many people are having the problem of saving. They want to save and they know the importance of saving but in reality, they could not save. I once learn this from a motivation guru that if we want to change, we must target to change our action, then our behaviour and our attitude will change eventually. In order to start saving, don’t think about how hard it is. Start with the simple step. Once you start action, you will no longer think that it is hard. This is how our action changes our attitude and behaviour.

One tool that is available on Maybank website is “Goal Saving”. I found out this from one of my friends 2 years back and I have since been using this tool to automatic save the money that I won’t normally save. It looks something like this.

I hardly save money for leisure, hence I created a goal called “Play Jar” so that I will use the money for my holiday plans. I have another goal called “FFA” which stands for Financial Freedom Account. Once the small goal is reached, the money will be removed and transferred to my investment account. New goal will then be created again. The process will repeat.

To create goal, you just need to click the top right hand corner of “create goal” button, then the following box will pop up.

Select the type of goal and how you want to achieve it, either using a fixed amount every month or a fixed duration (which means your goal amount divide by the duration you set). Remember, the goal is to start the saving habit, once you have it, you will continue it. Happy saving!

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If you have lost your job, can you claim any unemployment benefits?

You shall check whether you are eligible to claim the benefit under Employment Insurance System (EIS)! If you have contributed to EIS, you might be eligible for recent job loss.

What is EIS?

The Employee Insurance Scheme (EIS), administered by the Social Security Organisation (SOCSO), seeks to provide temporary financial assistance for up to six months to employees who are retrenched or have had some form of loss of income.

How to check eligibility?

You must be a contributor! Check your pay slip. If you are contributing, you shall have EIS as one of the salary deduction together with EPF, SOSCO up to RM7.90 per month.
You must have paid contribution for a minimum number of months within a specified period
Be unemployed under the definition of Loss of Employment (LOE):
1. Normal retrenchment and redundancy
1. VSS/MSS (Voluntary/Mutual Separation Scheme)
1. Closure of the company due to natural disasters
1. Bankruptcy or closure of the company
1. Constructive dismissal
1. Resignation due to sexual harassment or threats made in the workplace
1. Resignation after being ordered to perform dangerous duties that are not within the job scope

What is not considered as loss of employment?

Dismissal due to employee misconduct
Voluntary resignation
Retirement
The expiry of a fixed-term contract

What are the benefits?

Job Search Allowance (JSA) or Reduced Income Allowance – will be paid based on assumed monthly wage (cap at max RM3950), which is 80% for the first month, 50% for second month, 40% for the third and fourth month and 30% for the fifth and sixth months.
Training Fee – paid-for vocational training of up to six months.
Training Allowance – incentives for you to attend and finish your training.
Early Re-Employment Allowance – for JSA recipients to get back into the workforce.
Re-Employment Placement Programme – job search assisted by SOCSO.
Career counselling – job search assisted by SOCSO.

To apply, The EIS application can be made online

https://eis.perkeso.gov.my/eisport…/insured/appl/instruction or go to the nearest SOCSO office throughout the country including Sabah and Sarawak

For more information, please visit https://www.perkeso.gov.my/in…/…/employment-insurance-system. ************************************************************************

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7 Tips to Overcome Insecured Feeling of Losing Job

It is a few months into the COVID-19 pandemic. Because of the lock down, economy is slowing down, many businesses could not sustain and eventually shut down. This leads to job lost. In the coming months, more job loss is expected. If you are employed, the following tips might be applicable for you if you feel insecure of your job:-

Tips #1: Reduce insecurity by having more clarity in your cash flow projection

People feel insecure because they are unsure how long their cash flow can sustain if they lose their job. Hence, to reduce the insecurity feeling, one must project the upcoming cash flow with 2 scenarios, i.e. job lose in near future and pay cut in near future.

Find out exactly how long your cash flow can sustain, when cash flow will turn negative with different scenario. Once you have the clarity, you can then find the solution.

Tips #2: Adjustment to your emergency fund

If you have done proper financial planning, you shall have at least 3 to 6 months emergency fund. It is now time to make sure your emergency fund is adequate for 8 to 12 months to cater for this bad economy situation. It is time to look at your standby assets, i.e. your investments (either stocks or unit trust) to find extra monies for emergency fund. Make adjustment to these investment assets, make sure they are liquid for withdrawal if required.

Tips #3: Cut down unnecessary expenses

After your cash flow projection, if the negative cash flow comes too fast, you need to look at the outflow. Identify 3 to 5 top expense items. Cut down big expenses, spend only on necessary items, avoid buying luxurious items at this time unless you have big positive cash flow. Postpone any big item purchase.

Tips #4: Re-look at the loan commitments

Loan commitments shall be one of the big expenses. Before things are turning bad, take the chance to refinance some of the loan commitments so that the upcoming financial burden is lessen. Once your job is lost, it is hard to refinance anymore. Start doing this now if your cash flow is not stable.

Tips #5: Restructure your insurance premium

If your cash flow is projected to be negative very soon, call you insurance agent to enquire about the cash value of your investment-linked policies. Check whether your policies can sustain without paying for few months or 1 year. It is important to make sure your insurance policies are kept enforce during this different period to protect your family for any unforeseen circumstances.

If you have saving plan, you can consider using the unwithdrawn guaranteed cash payments as your emergency fund.

Tips #6: Up your skills

During MCO period, there are a lot of e-courses available online. Check out which one relevant to your job and take up some courses to up your skills. When you are better skilled, the chance of being made redundant is lesser. Even you lost your job, with better skills, you can find a job easier.

Tips #7: Getting 2^nd income stream

You are feeling insecure because you are dependent on single source of income. You shall start to find 2^nd income stream via doing some freelance jobs utilizing the same skills that you have. The upcoming trend for companies is to engage freelance rather than permanent employees to lower down the fixed cost. You can also seek opportunities to sell items online. For example, if you like to make up, you can consider selling make up (something that you know a lot and like using). In short, you must first have clarity on your cash flow. When you know you have enough to sustain for upcoming few months, you will feel more secure. When you have clarity, you know what the next step is, either to cut cost or increase income. You are then able to act accordingly!

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Do we really need to be wealthy?

When I shared about what should we do to increase our net worth, there will be people that strongly dislike my idea. It makes me realize that there are still a group of people believe rich people are bad people and having a lot of money is actually a sin.

Personally, I don’t feel there is anything wrong with wealth accumulation. Being wealthy allow us to enjoy the life we want, do the things we like to do. Having money is not a sin, but using money to do bad things will be a sin.

Technically, we don’t need the money but we need what money can offer us. Money is power, it helps you to be able to do more, see more, learn more, own more and give money than if you don’t have the money. More money simply provides more choices.

Some people say it is our right to increase our wealth. If you do not pursue the right, you are remaining in the poverty. Having some money is simply not enough, it merely enables you to continue to live. To live the fullest, you need to have more money.

I’m more inclined to agree that acquiring wealth is our obligation rather than right. The fact remains that it is not possible to live a really complete or successful life without money. When you have money, you automatically have the choice to contribute and give back to the society. How would you be able to do it when you don’t even have enough for you own and your family? Hence, for all reasons, for our family, society, etc., we always need to make sure we do our best to be wealthy to reduce social problems and to help the society to become a better one.

What is the best financial decision I’ve made so far?

I was asked this question during my recent training session. As I was thinking about the answer of the question, lots of memories flashed through my mind, and I remembered my investment journey with my husband.

My husband and I came from a middle-class family. We were not poor but we did not have extra cash to buy luxurious things. We only had enough to survive. Those who know us think we are thrifty. Sometimes, people just feel that we are too careful in spending. Yes, this is our nature and probably it is partly due to our profession as Quantity Surveyor. We are sensitive to cost and money as we do cost control in our job. We don’t spend on things that are unnecessary and do not give value or return.

I first came across the word “investment” when I was 16 years old from Robert Kiyosaki’s book – “Rich Dad Poor Dad”. In fact, the book belongs to my mum and had been kept on shelves for sometime until I was asked by my English tuition teacher to read various types of English books to improve vocabulary. I can still remember that I chose “Rich Dad Poor Dad” simply because it was the only book with big font, which I thought it would be easier to read and faster to finish reading. Haha! However, I did not finish reading the book. Through the first few chapters, I got the idea that I need investment to grow rich!

Unfortunately, even though I knew investment is important for wealth growth, I only started my first investment in year 2006 with Public Mutual.

As I continue with my journey of wealth accumulation, I started to equip myself with other investment information. I started to explore other options explained by Robert Kiyosaki, i.e. properties and shares. I bought my first property (for own stay) in year 2008 and my first share in the same year.

Now nearly 10 years has passed, my husband and I have already accumulated quite a number of paper assets and properties. Although not all our properties make money, most of the paper assets are in gain. With our consistent and structured way of investment, we are able to balance out our risks and make consistent long term return.

Our net worth has grown unconsciously through these investments. Let’s look at my unit trust funds as an example. I started off with only RM 1,000. With forced regular savings and returns over the years, the account has now grown to RM 80,000++ without much effort.

With the RM 80K+ in the unit trust, we are now looking for ways to increase its current return so that it can grow to RM 1 million in 20 years time. This money will be the education fund for our kids. We are consistently looking for other opportunities to diversify and grow our wealth.

If we did not realize how important structured investment is in wealth growth, we would never have started the investment journey. Thanks to Robert Kiyosaki who taught me this.

What is the best financial decision I’ve made so far? It is to have started investing in my early twenties and I’m so glad I’ve explored various investment vehicles all these years. as I started investment earlier, I’ve got the chance to encounter failures and problems that enabled me to rectify / change strategies earlier before it is too late.

I know it comes with risk and a lot of people have warned me about the risk. I’m afraid of risks too. However, what I learned so far is that investing requires disciplines and diversification. With the correct strategies and discipline, it can generate long term return.

“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”

Warren Buffet

I’m sure everybody needs to know about investment to achieve their financial goal. If you have not started any investment, do it as soon as possible as late investment comes with opportunity cost.

I’m happy to connect with people who are interested in investing topics. Connect with me via facebook and text me “Happy Investing!”.

Happy investing!

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