retirement

5 quick ways to check your finance

When it comes to checking whether your finance is good, most people always judge by how much one is earning or what car he is driving. When you hear that someone is earning 5 or 6 figures a month, you will automatically think that he or she is rich. When you heard one has a big car, most people will think his finance situation is good too!

In fact, it is not always true. When it comes to finance, it is not how much money you earn that matters, it is how much money you save that matters.

When a person is able to buy a big car, it doesn’t mean that he / she is rich. You do not know whether he is buying it with loan which he / she is struggling to pay off the loan installment every month. When a person can earn well, it does not mean he / she can save well. If he / she is spending greatly every month, there could be not much money left in the bank every month. Do you think this type of person have a lot of money after 10 – 20 years? I think the answer is clear.

You want to check whether your finance is okay, the followings are the 5 ways:-

First: Check whether you have at least 3 – 6 months’ emergency fund saved in the bank. Without emergency fund set aside there is no sense of financial security. How can you have good finance if there is no financial security?

Second: Check whether you are saving at least 20% of your income every month for medium and long term goals. We know that we cannot work forever, failure to save means we will need to work longer. We will not have enough retirement fund when we are reaching our retirement age. It is critical to save every month whether you like it or not.

Third: Check whether your monthly expenses (excluding the loan payment) are less than 40% of your income. If your expenses are more, it is time to review and re-balance back. Identify the top 3 expenses and start from there.

Fourth: Check whether you are able to pay off your credit card and minimum loan installment for car loan and house loan every month. Loan interest especially the credit card is super high. Missing paying or paying only the minimum payment for credit card means your money is working for the bank and working against you. This situation also means that your loan will roll into a bigger loan which you will soon really getting harder to pay off. Your finances will surely be affected in the medium to long term.

Fifth: Check whether you have extra monies for leisure activities, for example travelling, doing sports, watching movies, buying books, etc. Having extra monies for these means you have lesser stress with money. You have enough to do what you love to do. You do not need to take additional personal loan to pay your simple lifestyle.

So, how many of the items mentioned you have achieved? If you are unsure what is the percentage of your saving and expenses against your income, it is time to do some tracking. Find the worksheet here to track your expenses. You cannot improve without tracking the numbers. Let’s start doing it for better financial future!

Watch the Youtube video here on this topic.

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3 mindsets that you should have for money mastery

In the previous article, we talked about fixing the financial problem. It has been explained that we should identify the root cause and not just busy getting more incomes fixing the immediate financial issues. The first mindset you should have is: make money important for you. What I realize over the years is people often ignore the importance of money. Many make career more important and they forgot the main reason why they go to work? They spend time working, doing the work better and they often do not track the end results which is the money. Some might think that having more money is evil and rich people are bad. This makes them ignore the money even more. They just go back to work, hoping they can get enough money to survive. If that’s what they think, they will only get enough money to survive.

When I talked to many of my prospects about setting financial goals, i.e. how much money they need for retirement or for their children, many of them have no clue. Some even told me that it is still too long to plan and they will postpone this when they are free to do the planning. You see, people are too busy working without knowing why they need to work. It is a never-ending cycle. If money is important, why is it not being prioritized? Why people want to postpone it to a later dater. When people want to start planning, unfortunately, it is because something has happened. The fire fighting cycle start happening. I’m not suggesting that you should worship money. I just want you to realize that money is a very important tool to help us get freedom and solve many of our family issues. If we have money, we can use the money to engage other people to do something for us and free up our time. We can then spend more time with our family members. Change your priority from working to money.

Number 2 mindset, allocate time for our personal finance every day. If it is important, we need to have time thinking about it. Not tomorrow, not after 1 week and not after 1 year, do it everyday and start today. Robin Sharma is one of world’s top leadership experts who coaches many billionaires and top world athletes said “Consistency is the mother of mastery”.

If we want to master the money, we got to do something consistently. Nowadays, many are spending too much time on working, some don’t even track whether they are working productive to get the money they deserve. Many will just spend without tracking. If we can just allocate 15 mins everyday for this important matter. I can assure that everyone of us will do better in personal finance. 4 things that we should be doing everyday. First, save everyday. We know that we cannot work forever, hence we need to start saving for our future. We do not postpone this action to next week, next month, next year or next 10 years. It is a top priority that we take care of our future. We spend 1-2 minutes transferring our money to our future retirement account, it can be an investment account so that it can give us a better yield than normal saving account. As the investment might need minimum amount, so I normally set up a separate banking account which I transfer money into it on a daily basis. Every month, I will transfer this money in the banking account to another investment account once it reaches the minimum amount for investment. Read here for how I set up a separate goal in Maybank to save money everyday.

Second, spend time planning and budgeting of the expenses. Spend 5 minutes or so tracking the daily expenses and reflect. Know how much we are spending and improve the way we spend our money. Third, spend 5-10 minutes everyday learning something about personal finance. You can learn about loans, saving, budgeting, investing, general market situation which affects your money. You can get new knowledge via watching YouTube Video, reading books, reading article, listening to podcast, etc. Fourth, spend 10-20 minutes every month to plan for your investment and grow your wealth. We certainly do not want to continue trading our time for money. Start to find ways to earn money while we are sleeping through leveraging on productive assets.

Third mindset that we need to have is always think long term and never give up. Personal finance takes time to master and improve. It requires discipline to maintain it. No one knows everything and we are improving every day. It is not a sprint but a lifelong journey. Never expect that we can earn a huge amount in one shot and then rest forever. This hardly can happen if we don’t master the money transmission process. People who get big fortune within a short period of time and not spending time managing the money will eventually run out of money again. Then these people will need to work hard again to get more money.

Once you have these 3 mindsets and you will be able to apply all the strategies to grow your wealth. Remember, strategies alone are useless without the correct mindset.

Once we are able to master the money skill, it will help you forever. Do the required action everyday, you will be a money master in no time. You can watch the Youtube video here on this same topic.

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One book that changed my life

Recently, there is one friend who asked me to write on books that have impact on my life. In fact, there are a lot of books that I felt that have changed the way I do things which transformed me to who I am today. However, out of so many books, I would like to share 1 book that have changed my life the most. The book is written by Robert Kiyosaki. The book is not the popular “Rich Dad Poor Dad” but “Retire Young Retire Rich”. I personally feel that this book is much more powerful than the “Rich Dad Poor Dad”. The below is the cover picture of the book.

In the book, it mentioned the reason why we need to retire early. Our focus should be on regaining our control on finances as fast as possible and we will have plenty of time to accumulate the wealth we need for our wildest dreams. In the first chapter, it mentioned everyone has the potential to be rich even though one started without any money. It is all a matter of leverage.

There are 3 types of leverage mentioned in the book:-

Leverage of our mind: we first need to believe that retire young and retire rich is possible. It does not take money to make money. Getting rich begins with our word, and words are free. In the book, it mentioned that people who say “investing is risky” are some of the biggest losers in the investment markets. Robert mentioned that we will soon find out what we think is real becomes our reality. Change the words we choose, our wealth destiny will change accordingly.
Leverage of our plan: Robert mentioned about investing is a plan. We need to have a plan so that we are moving towards the right direction. Most people have the plan to be poor. That is why so many people say “When I retire, my income will go down”. In other words, they are saying “I plan on working hard all my life and then I will become poorer after I retire”.
Leverage of our actions: There is an overused story about three birds sitting on a fence. The question is, “If 2 birds decide to fly away, how many birds are left?” The answer is “3 birds are left”. The lessons is, because we decide to do something does not mean we will do what we decide to do. Implementing what we plan is crucial to our financial success!

The above are the three main messages conveyed by the book. Because of the book, I have changed my mind that we have the rights to gain wealth. I understand that we need to change our mindset to be retiring early rather than following the majority who are struggling financially. If we want to have different destiny, we need to change our mind, have a plan towards it and implement according to the plan. We need to think and act differently from the majority since the majority cannot retire early. After reading the book, I have started investing and investing even more aggressively over the time. I shall share more the book review in the upcoming article. Stay tune!

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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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7 income streams that you can consider building for yourself

We often hear that the rich are having more than 1 income stream. This is entirely true as it is just too dangerous to only rely on 1 single source of income. To grow our wealth at lower risk, we need to have several sources of income streams.

The first type of income stream is earned income. This is the primary income source most of us have. When we work, we get the income. When we don’t work, we don’t get the income. This type of income has a ceiling because it is based on the time we work. We have only 24 hours a day, very soon we will find ourself being not able to increase our working hour and hence limiting the earned income stream.

The second type of income is profit income. This is basically the profit we get from doing sale or business. We get profit when we sell products or services, as long as it is lower than the cost. The higher the price we sell, the more profit we get. We can also engage other people to help us to do the selling, this can help us to increase our profit income. Profit income can be increased very fast if we know how to acquire talents and have a system to help us sell.

The third type of income is the interest income. We can earn interest income by putting our money in the bank or borrowing our money to individuals or corporate. The fixed deposit interest is one of the examples of the interest income. Bond coupon is another type of interest income. The interest income is mostly fixed when we place the money with the borrower or bank. Hence, it provides better income stream stability to us.

The fourth type of income is dividend income. We get this income when we invest into stocks. Dividend is the income distribution by the companies we invest in when there are profits announced by the companies. Normally, companies which give high dividends are big, matured companies which have consistent revenues and profits. REIT, which is real estate investment trust is another vehicle which gives high dividend income. The dividend income is not necessarily stable as the dividend pay-out depends on the company performance every year.

The fifth type of income is rental income. It is generated from the real estate. When you buy a property and rent it out, you will receive the rental from the tenants. This type of income is mostly quite stable as well compared to the dividend income.

The sixth type of income is capital gain income. It is obtained when you buy an asset at a lower price and sell it at a higher price. It can be gained via real assets such as gold, properties, antiques or paper assets such as stocks, index funds, mutual funds, etc.

The seventh type of income is royalty income. You can get royalty income by designing, creating some intellectual properties such as books, franchising license, music or movies.

Out of the 7 types of income illustrated above, 3 of them are active incomes, namely the earned income, profit income and capital gain incomes. For the profit or capital incomes, if you can use a system to make it automatic, it can be considered as passive incomes. The remaining 4 of them are passive incomes, namely the interest income, dividend income, rental income and royalty income. Passive incomes mean you only need to do the work once and you shall get the income continuously without much effort later on. Passive income generation is one of the goals during the wealth creation journey because no one wants to work forever. Passive income streams will ensure we can earn money when we are sleeping.

Remember, all of us have only 24 hours a day. Let’s start to have more income streams especially passive income streams so we can let our money works for us rather than we work hard for our money. If you are not having income when you are sleeping, you will need to work forever.

If you wish to watch the video instead of reading this long post. Check out the Youtube Video here.

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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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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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