Saving

Can getting more income solve our financial issues and lead us to where we want to go?

These are the popular questions relating to personal finance: What are ways to have more money? Which stock can help me earn few thousands this month?

Em…why do we need to keep thinking how to get more income? I start to feel that it is a never-ending issue. We can have unlimited desire on wealth, how much money is actually enough for us?

To illustrate this, let me share with you a story. On one heavy rainy day, water came down from the ceiling. I put a bucket below the leaking place to hold the water so that it would not spill over to the floor. After 30 mins, the bucket was full, and I emptied the bucket and put the bucket back to the same place. However, thing was not getting better. In fact, thing was getting worse, and the bucket would be full after 20 mins. I changed the bucket to a bigger bucket. However, I realized that it didn’t solve my problem. I got to spend time emptying the bucket every now and then. If you were me, what would you do? You might be wondering why didn’t I call someone to find out what happen to the ceiling or roof and fix the problem.

Calling the roof specialist might be the permanent solution, right? This issue mostly happens to our personal finance as well. Every month, we are spending money. This is like roof leaking. We are finding ways to earn income to cover our expenses. Over the years, our expenses increase. We are finding better way to earn more money to cover our bigger expenses.

Do you realize that we keep finding ways to earn more money, similar to finding a bigger bucket to hold the water? This is similar scenario like finding a bigger bucket to hold the water. We are stuck, we are busy emptying the bucket and finding a bigger bucket.

How do we solve this problem? To stop this cycle, we should look for someone to help us to check the real issue. If we keep fixing the immediate issue without looking at the root cause, the issue can get more serious over time. It can turn into a financial disaster. However, if we can spend a little bit of time checking on the root cause, we will be avoiding the financial disaster. Why don’t we examine our spending habit that cause our expenses increase so much? Why don’t we invest to have multiple streams of income? This can help us to have automatic process to empty our bucket since we cant stop expenses anyway?

This concept is simple but it is not easily understood by many when it comes to finance issue. Not enough money, cannot save, having too many debts are the symptoms of the issue. We need to find the root cause. It is most likely our money mindset which are stopping us from achieving what we want to achieve. Start to look at the root cause to avoid financial disaster and stop just fixing the financial issues that kept appearing to us. Fixing the financial issues is just temporary measures, it won’t lead you to where you want to go.

I have compiled a video on this too. Watch the Youtube video here.

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The power of compounding interest

The effect of compounding is one of the greatest discoveries by Albert Einstein. Compounding interest is the interest calculated on the initial principal which also includes all the accumulated interest from the previous period.

Interest is what you can get when you lend the money to others and it is what you pay when you borrow money from others. When you are depositing money in the saving account in the banks, you are actually lending your money to the bank for them to borrow out. Hence, the power of compounding interest can work for you or work against you. If you are getting the interest, it is working for you. If you are paying the interest, it is working against you.

The compounding effect is magical. As a rule of thumb, a 7.2% interest means the principal will double in amount every 10 years. Imagine if you save and invest RM 24,000 lump sum at 7.2% per annum for 50 years (more extra saving in between period), it will turn into RM 768,000, 32 times the initial amount.

You might be amazed by how fast the initial amount can transform to via 50 years with only 7.2% interest. What if it is the expense and not the saving / investment? If your expense is RM 24,000 a year, it will also be translated to RM 768,000 / year after 50 years if the inflation is 7.2%. Never underestimate the power of compounding interest!

Another aspect people might not aware about the compounding effect is it needs time for the magical thing to happen. It starts really slow in the beginning years. Let’s use the above example, Year 1 amount is 24,000, Year 2 amount is 25,000+, Year 3 amount is 27,000+. It does not seem to be significant. However, in Year 40, 24,000 will turn to 387,000+, Year 45 will be 548,000+, Year 47 will be 630,000+. You can clearly see that the impact is greater after Year 40. In the nutshell, the compounding interest effect is silent and magical. If you are the one lending money to others, you will slowly and silently get the benefits from it. However, if you are borrowing money from others, you will soon find yourself paying more and more interest for the amount.

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Why personal financial skills are important?

Money is not everything but without money, our life will be a disaster. If you need a not-struggled life, you need to have personal financial skills. If you wish to live a healthy, happy and secured life, you need to master the financial skills, whether you like it or not. It is not a choice but a MUST.

Personal financial skills are the skills on budgeting, saving, debt and investing. Budgeting skill means the ability to allocate money for different needs and expenses. Saving skill means the ability to have positive monthly cash flow every month. Debt skill means the ability to control the debt level and not over-leveraging. Now, it also includes the ability to use debt to grow wealth. Investment skill means the ability to select and monitor the investment to meet our financial goals.

First reason why we need to have the skills is that the current world requires money for everything. We need money for our food, clothes and shelter for surviving. These are the basic living needs. There is no chance for us to say “I don’t have money, can you give me free house to stay?” With our children, our financial burden is even higher. Children education fee is increasing every year. Hence, we have no choice but need to have better ability to earn money and save money.

Second reason is personal finance is not a subject taught in school. This is the reason why many graduates are having huge student loans once they leave school. If the skill is not mastered, many will be stuck in the debt, using one debt to cover another debt. Budgeting skill is important to make sure we do know more on what we need.

Third reason is for our retirement. In general, we have only 657,000 hours in life, assuming our life span is 75 years. By the time we leave school, almost one third of time is gone. In the remaining 2/3 of our hours, do we want to spend on finding money to fund our retirement or we spend on enjoying our life? If we need early or on time retirement, we need to master our skill on saving and investment to grow our wealth so that we are able to fund our retirement even though we are not working. We need to master our skill on managing our debts so we do not need to work our life just to pay debts.

Fourth reason is for our emotional and physical health. Researches have shown that lack of money or increase of debt can increase our stress level. Stress is the number one killer to our health. If we are able to manage our personal finance better, definitely, it is very effective to maintain our health.

Fifth reason is to have more people to help you achieve what you want to achieve. If you are having better personal finance, you will have better credit score. Banks like people who have good credit score. With good credit score, it is likely to get bank loans to fund your favourite homes or businesses. The key is to be able to manage debts better, the better you manage your debts, the more money you can borrow but because of your personal finance skill, you will have more monies and not stuck in debts. I hope the above will motivate you to learn more about personal financial skill. You are the one who can control your wealth destiny, no one else!

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Does it take money to make money?

To answer the question above, we need to understand the few ways to make money. Most of the time, it does not take money to make money. The 4 ways of making money mentioned by Robert Kiyosaki are the followings:-

Being an employee: no money is required to make money. Employees trade their time for money. As long as you have time, you can earn money. There is hardly any volatility on the income as the salary is fixed when the employment contract is signed. However, the increment of the salary can be very slow.
Being a self-employed: in this category, the income earn can be higher or lower than the employee. People are choosing to be a self-employed due to the flexibility in working hours. The income they earn normally tied with how much time they spent to work and the expertise/skill of the person. This can be a part time in addition to the normal day job. This can help to increase the income easily.
Being a business owner: in this category, huge income can be earned. The level of income depends on how well the business solves the community’s problem. When people are struggling, with good business idea, great income can be generated. Business idea can also raise fund from the public, hence, you don’t actually need money to start any business if your business idea is good.
Being an investor: in this category, money is required to generate more money. An investor can grow money even better. The investors’ monies are normally channeled to the businesses on the 3^rd category above. Business owners contribute idea, investors fund the operation to get more passive income.

After understanding the above, you shall understand before you can invest, you shall have money. To get more money, you can either be an employee, be a self-employed or be a business owner. To earn more as an employee, you need to have more skill or work longer. To be a self-employed, your expertise is highly relevant to your income level. To earn more as business owner, your service/product must be able to solve a problem. The bigger problem you solve, the higher income you will get. Investors like solution to big problem and they will fund the great business ideas.

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Vaccine and vitamin for our wealth

Recently, corona virus cases are on the rise. People are buying many supplements to boost their immune system to protect their health. How about boosting wealth?

Full MCO is happening, some people are financially immune to this lock down regardless of how long it will take. These people are having multiple and consistent income sources despite lock down. However, there are some people cannot even sustain financially for a week of lock down.

What are the differences between these 2 groups of people? What the first group has done?

Do you know that statistics show that more than 53% of Malaysians are not prepared for retirement, many are still struggling financially when MCO is announced. How can you have vaccine to protect your wealth? Or even Vitamins to boost your wealth?

The number 1 reason why people cannot get the financial stability is because they do not save and invest at the same time. Some people fail to save, and so they have not had the financial stability. Some people only save but do not invest, so they could not grow their wealth.

Hence, saving is the vaccine, investment is the vitamin for wealth. How can you ensure that you can save? Well, theoretically there are 2 ways – you can either increase your income or reduce your expenses. You may have heard many people saying that do more side hustles, be more hardworking you shall have more income. You might come across many people asking you to venture into direct selling, e-commerce to earn more income. You might have more money doing these. But are you able to save? More income does not guarantee more saving. Hence, reducing expenses is the way to ensure more saving. When you have the habit to spend less, when you have more income, you will save more. So the vaccine is actually to look at your expenses, never spend more than what you can afford. If you are currently having debts, restructure your debt with lesser interest. Saving and cash flow is still the key to financial stability which gives you vaccine to protect your wealth.

Investment is the vitamin to boost your wealth. The number 1 enemy of wealth is inflation. If we only save our money in the bank at 2%, our wealth is decreasing in view of the higher inflation rate. This is why the longer we wait to invest our money, the worse our financial situation becomes. Our purchasing power is dropping without us realizing. Hence, investment is crucial to help us grow our wealth. To invest successfully, an investment plan is required, including understanding the risk tolerance, investment goal and investment yield required. The final goal of investment is to have more passive income. We want the money to work harder for us. When we are initially investing, we might only target capital gain because we want our money to grow to a certain stage so that it is sufficient to generate the passive income that we want. When we have investment income, we are better prepared for any emergency event when we are unable to work. Also, we are able to enjoy the freedom as we no longer need to worry about our job.

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How does inflation affect your personal finance?

At this fast-pace era, we cannot immune to inflation. See the inflation rate for Malaysia from official source of statista.com.

In 2020, due to pandemic, the inflation rate went to negative for the first time in past 30 years.

However, based on what you have experience as a consumer, do you feel the things are getting cheaper? If you are looking from the consumer’s perspective, you will only notice things are actually getting more expensive, especially our food. The real consumer inflation rate has not dropped but only rised. The food we are eating now is double in price compared to 10 years ago. If we consider the price of things will double in every 10 years, the real inflation rate is 7.2%.

How does this inflation rate affect our personal finance? Well, first of all our fixed deposit saving rate is at all times low, if our inflation is keep going up, our money saved in our fixed deposit will reduce in value over time which deteriorate our purchasing power. Because of the low fixed deposit rate, if we choose to save our money for our retirement, we have to work extra hard to get more income so that we can save even more to cope with the inflation.

Secondly, the investment vehicles that we deployed got to be higher risk than usual. Putting our money into bond might not be a good choice as most secured bonds have return less than 4% per annum. More proportion of investment in equities are required to balance out the inflation risk. Perhaps the investment portfolio needs to consider more growth element, e.g. technology sectors, emerging countries, rather than conventional stable equities like big banks, consumer discretionary sector.

Thirdly, we got to re-consider the withdrawal strategy during retirement stage. It is required now to reconsider slightly lower our lifestyle requirement during retirement stage as the living expenses are now higher than expected. We need more capital to generate return to help us go through the increased living cost during retirement. Either we need to have extra income during retirement or we need to lower down our retirement lifestyle to ensure adequacy of our retirement fund. In conclusion, inflation does have a lot to do on our personal finance planning. We need to start planning early to avoid the risk of inflation affecting our golden years at the later stage. When we have more time before retirement, we can let the time to do the magic of compounding interest. When we are too late to plan, we got to take even higher risk during our retirement.

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Is property investment good?

I have many clients asked me questions relating to properties because of my years of experience in property investment. They sometimes are amazed how I can accumulate a number of properties in my early 30s. They key is to keep accumulating the capital and keep investing.

However, talking about the property investment experience, I really need to admit that the experience is not really a very good one. When you are handling a few properties at the same time, perhaps you will feel the pressure.

First of all, not all properties can be easily rented out. If the property is a new project, you will face many of the vacant units in the same area. Finding a way to win the competition is not always easy. Things that we need to do will be to furnish the unit with better ID design to attract the tenant to rent out the unit faster. The downside of this is the huge capital outlay on the renovation cost after the vacant possession.

Secondly, the tenancy management is not as easy as it thought. There will be many types of tenants available. Some good tenants will pay the rental on time without asking. Some will drag the payment and eventually we need to find a way to kick the tenants out after many months’ outstanding rental. During MCO, many Malaysians are in fact struggling with pay cut, this is the time when tenants will be calling to ask for rental reduction. Once the rental is reduced, it will be hard to increase at the later stage. Loyal tenants always pay the same rental since the beginning of the tenancy agreement as we definitely do not wish to lose the good tenants. Raising the rental could trigger the good tenants to look for cheaper place to stay.

Thirdly, there are many unknown costs involved in property investment. It is not just the loan commitments. Other costs like maintenance fee, legal fees (loan agreement, Sale & Purchase agreement and Memorandum of Transfer), renovation cost, repair cost after each tenant leave the unit, quit rent, assessment fee can add up to a big amount too.

Considering the recent trend of property investment, it is not easy to find a property that can give net rental yield more than 4%. If you are really considering buying an investment property, do get prepared a larger sum of payment for renovation, legal fees. Instead spending huge amount buying a real property, you might consider looking in Real Estate Investment Trust which is much more hassle free. The risk is also lower as there is no loan involved.

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Mastering your inner game of wealth

“The number one reason most people don’t get what they want is that they don’t know what they want.”

~ T. Harv Eker, Secrets of the Millionaire Mind

The first step to wealth is to master the inner game of wealth. How we see the world and ourself can be a big part of what shapes our destiny. When we are examining why we are not as rich as we want, we often think that it is our environment, our skill or our ability that cause it. However, our current wealth is the result of who we are. It is our inner self that affects our action that results the wealth we are currently having. To get more wealth, the fastest and easiest way is to fix our inner self.

How do we know whether we are having the right inner self that can bring us more wealth? We will examine how we think about money and wealth. The view can be in 3 forms, i.e. negative, positive or neutral.

Negative views:-

We need to work very hard to get the money we want (this is why people are struggling with money. No hard work, no money!)
Money is the evil of all (this is why people will avoid wealth at all cost because having money is bad)
Rich people are not happy (this is why people will prefer to have less money so that they are happy)
Money is hard to manage (this is why people cannot seem to manage money well)
Investing is gambling (this is why people do not invest at all)
Investing is risky (this is why people are skeptical about investment)
Investment is for rich people (this is why the poor people do not invest)

Positive views:

Money brings opportunities (this is why people have unlimited opportunities)
Money brings joy (this is why rich people have joy)
Investing is the right vehicle to accelerate wealth creation
I want money to work hard for me
Money can help me to achieve my dreams

Neutral views:-

I have no feeling against money. (this is why people have no issue of money, people having this view will not work for money hence mostly maintaining their wealth)

Recheck your views about money. If you are still having negative views on wealth or money, as mentioned above, you are sabotaging yourself to get more money. Your wealth creation journey will be harder than those who are having neutral or positive views.

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Do you need more side hustles?

During the MCO period, I often heard people saying “We need to work harder now, find more side hustles so that we can get more income. Come! There is a new opportunity, let’s go and listen”.

Well, do you really need more side hustles? Personally, I’m a little bit against the idea of having more side hustles. Does it really work if we work harder, work longer? Will we actually get more income, have more relaxed life after we work hard?

That is the myth. No doubt, working harder and longer in fact give us more income. But, prolonged working hard and working longer will make our life harder and more unhealthy.

If one really needs more income to survive, is it more worthwhile to just stop for a short while, think and plan? If the issue is survival after living for so long, the issue might not be the pandemic. It is something beyond that. It might be something that has been done wrong for a long time. For example, it could be the way the money is being managed, the spending habit, the investment style, the saving pattern, the portfolio, etc.

If one is spending hugely every month with no saving left, when it comes to current pandemic which affects his job salary, the corrective action is not to look for more side hustles to increase income. He should look for ways to reduce his spending and look for suitable job with salary that can cover his expenses with some saving left. Having more income does not mean the spending will reduce. It might even cause the problem to worsen. Working harder and harder just to sustain the more expensive lifestyle? His finances will not be going any better with increased problems on health and relationship.

This current pandemic has forced us to think differently. I have discovered a better way to work, safer way to invest and also better way to live. If we do not understand the root cause of the problem, we can never able to solve the problem by adding more work to us.

Hence, stop, think and plan rather than jumping into another side hustles. When your friend invites you for another side hustle, think first! What is causing the problem?

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7 tips to save more money every month

As per the Ringgitplus Malaysia survey on Malaysian financial literacy, 21% of Malaysians didn’t save money at all. Here is the article to share with you some quick tips on how you can save more money every month:-

Do not order drink on your meal: A lot of us are eating outside during working hours. Drinks cost much more than you think. Saving the cost of the drink can help to accumulate more saving. You can also choose to downgrade your drink to plain water instead of ordering coffee, tea or carbonated drinks. Plain water definitely is healthier too.
Save money automatically: save your money every month through a system. Get your monthly auto-debit activated. When you don’t see the extra money, there is no chance for you to spend it. Read here for one effective tool that you can used to systemize your saving.
Unsubscribe for emails or shopping updates: If you are the one who always shop online, unsubscribe the promotion updates from the online shops, this can prevent you from buying unnecessary stuffs.
Pay off your credit card debts: credit card debt interest is sky high. If you are having unpaid amount on your credit card, your saving will be seriously affected. Pay off your credit card debts to save interest and you shall see more savings then.
Review your utility bills: many of the times, due to the market competitiveness, the telephone bills can be easily reduced. Check out the promotion of the few selected providers and find the most cost-effective phone subscription plans. For electricity, use energy saving electrical appliances to save electricity bills.
Have fixed budget for each categories of expenses: having a budget in place is like setting the ceiling on how much you can spend. Ideally, you can have x amount in x account for particular purpose so that your expenses do not exceed the budget set for a particular purpose. For example, all your cash are for food only, your touch and go balance is for your tolls. You can have debit card for shopping to limit spending.
Have shopping lists: sometimes, we tend to buy more than what we need. Having a shopping list can ensure we only buy what we have planned to buy.

Execute the above tips and see how much you can save per month!

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