retirement

Financial Success

What is the first step towards financial success?

“Where there is no vision, the people are unrestrained” – King Solomon

I was recently reading “the Solomon’s secret” and I found some insights within the book which are suitable to be applied to financial planning. In the above proverb, he mentioned the importance of vision. Same applies to financial success.

If you want to build a house, would you begin with finding the contractor who can help you build the house or finding an architect to help you to design your house? Likewise, if you are driving, which one you will do first? Identify where you want to go or find the shortest route possible?

However, when it comes to financial planning, many people want more money without knowing how much money they need. This is like an attempt to find the fastest highway to reach their destination without deciding whether he is heading north or south.

Hence, setting the vision on how your financial success looks like is the first step to financial success. It is more vital than finding the shortcut to success. When having the vision right, several goals such as retirement goal, housing goal, kid education goals will be set. Magic will then happen as the shortest path to these goals will appear.

Don’t believe? When you want a good recommendation for hotel, do you get it easily when you ask around and tell your friends which city you are going? If your question is merely “which hotel is good?” without informing the exact location you want, would you get good recommendation?

Similarly to the example I gave for building a house, once you have the plan of the house that you are going to build, you will easily find specialist contractors who can help you to build what you want. Before having the plan, you are clueless where to start, hence wasting a lot of your time to try to find the best contractors. Don’t ask “how to be rich?” or “how to get more money” or “how to get more return”. It is hard to get good recommendation when people do not understand your financial vision. When the vision is set, the direction and strategies come effortlessly to you!

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Saving

Is it wise to keep money in the fixed deposit?

The fixed deposit rate has been revised downwards several times in 2020. Despite recently the Bank Negara has announced the base rate remains unchanged, however, it is unknown whether the fixed deposit rate will reduce again. Interest rate reduction is required to boost the economy. While saving interest rate is low, people will spend rather than save. While loan interest rate is low, people will borrow money for investment and for business expansion. These are important to stimulate spendings and the economy.

While fixed deposit rate is low, the upcoming inflation is going to kill the wealth. 10 years ago, a Teh Tarik cost RM 1. In 2021, a Teh Tarik cost RM 2.20. The price has increased more than 200%. If we save RM 1,000 in fixed deposit 10 years ago, now, it is RM 1,350 at 3% annual interest. Why the value is not double? This shows that the inflation rate is in fact higher than the fixed deposit rate. If you keep your money in the Fixed Deposit without increase in your active income / saving amount, your wealth will decrease over time, i.e. you will become poorer because your affordability decreases.

However, by saying so, where to put the money if not fixed deposit? To make sure the money grows better, investment is the right place. Read more about investment trends here.

Investment is not a sure win, especially within short period of time. Market is always uncertain. Hence, for short term, putting your money into the investment is not suitable. For those who have cash flow issue, having emergency fund in fixed deposit is more important than investing. When one cash flow is not stable, investment fund will be withdrawn within a short period of time. Considering the management fees, brokerage fees involved, putting money into investment for people who have cash flow problem will be worse.

In conclusion, for those who have cash flow problem, they must first set up 3-6 months emergency fund in the fixed deposit. Fixed deposit can be easily withdrawn without loss. For those who are cash rich with emergency fund, it is indeed not wise to put the money into low-interest fixed deposit as the wealth will be reduced over time.

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Investment

Is Malaysia worth to invest in? If not, where else?

MCO struck again. As known, Malaysia economy will be impacted again due to restricted movement. It is again coupled with political unstableness. The future prospect of Malaysian investment remains unknown. Unless highly targeted investments in selected sectors or companies, Malaysia remains unattractive comparing to other countries.

According to Ifast Capital: “Fitch Ratings has downgraded Malaysia’s long-term foreign-currency issuer default rating (IDR) to ‘BBB+’ from ‘A-‘, with a stable outlook where the downgrade marks the ratings agency’s first for the country since the 1997/98 Asian Financial Crisis. The downgrade came as the rating agency opines that Malaysia’s key credit metrics have been impaired by the economic fallout from COVID-19 and has added to the country’s fiscal burden. While Malaysia’s economy is expected to rebound by 6.7% in 2021, lingering political uncertainties have added to the downside risk of the outlook. On fiscal deficit, Fitch expects it to remain higher than pre-pandemic levels, given a continuation of support measures and political pressure for higher spending. It also pointed out that uncertainty about the continued inclusion of Malaysia in a key bond index remains, and exclusion in 2021 could potentially generate capital outflows.”

If not Malaysia, where else?

  1. China – China had its export rose last year to their highest level on record, positioning as the only major world economy to grow during the pandemic year. Chinese exports rose 3.6% from a year earlier according to data from China General Administration of Customs. Chinese factories are resuming on production after the lockdown. Chinese Yuan has strengthened against USD over the course of 2020.
  • Asia Pacific and emerging market – There are many countries such as South Korea, Indonesia, Philippines and Hong Kong are worth investing. These countries are having much more stable government than Malaysia. The post pandemic recovery should benefit the countries compared to developed countries. The loose US monetary policies will weaken US dollar which will increase additional investments in the emerging market and make cheaper borrowing for USD denominated debts.

If you are looking for personalised investment advice. Please contact me via telegram through the link below.

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Leverage

Leveraging on successful businesses?

Many businesses are successful during this pandemic period especially those companies related to technology, e-commerce, social media platforms, artificial intelligent, health care and vaccine related companies.

Are we able to leverage on them? Yes, we can easily leverage on them by buying their shares. When holding the shares of these companies, we are part of their shareholders. We get profits through income distribution when their businesses are growing. We also enjoy the capital gain of their share prices when the stock prices are hiking up.

Many might ask, some of the share prices are too expensive. I cannot afford to buy. For example, Tesla company share price is now USD 600 / share, which is RM2400 per share. Amazon share price is now USD 3100, which is RM 12,000 / share. The entry price will pose some difficulty for people who are just starting out to invest. However, one can choose to invest in unit trust with all the company shares. For example, investing in the mutual fund with Technology theme. The required starting capital is only RM 1,000. While investing in the Technology Fund, one gets to leverage on these successful businesses like Amazon, Facebook, Apple, Visa, etc.

In order to realize the millionaire plan, everyone needs to invest (leverage on successful businesses) or venture into businesses. Which one is easier?

Investment requires lesser effort than venturing into a business. You can still do both and work on the business that you are passionate on. Don’t work hard for money but let your money work hard for you.

If you are starting out on investment and require advise and help. Feel free to connect with me.

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Millionaire

Millionaire game plan

Many hope to become millionaire but many think that it is hard if not impossible. Is it really that hard? I always like to use the financial calculator to indicate how simple it is to create the millionaire game plan. It is not hard, in fact most of the time, we over complicate things.

For an example, Keith wants to be a millionaire in 10 years. He has RM 100,000 capital. How he can achieve it?

Finishing line is RM 1 million; Starting point is RM 100,000; Time frame is 120 months

                 Scenario 1                                        Scenario 2                                          Scenario 3

These are the pathways to millionaire:-

Scenario 1: He needs to invest his RM100,000 for 120 months at 23%+ per annum profit / interest.

Scenario 2: He needs to invest his RM100,000 and adding RM 3,000 / month for 120 months at 11%+ per annum profit / interest.

Scenario 3: He needs to invest his RM100,000 and adding RM 4,000 / month for 120 months at 8%+ per annum profit / interest.

You shall see the game plan involves the initial capital, on-going capital and the interest rate. Higher interest rate can only be achieved with more active involvement, e.g. business, trading or leveraged investments. Which action to take shall depends on how much capital, time and skill you have. If one is good in business, his goal is to compound his capital 24% every year to turn his RM 100,000 to RM 1 million within 10 years.

There is no right or wrong in how to do planning. Once the starting point, finishing point and the time frame are known, we can identify the strategies. The tactics used depends on our risk tolerance and our preference.

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Spender

Are you a spender or an investor?

We need to spend. Our wealth creation destiny depends on how we spend our money. Money is a form of energy, it must flow. If it is kept, we are blocking the money energy from flowing. It will hurt us than do us any good. If we need to make sure our money flows out, we have 2 ways, either we spend it or we use it to invest.

Spenders are normally positive about the future. Hence, they hardly have any future plan because they believe things will turn out good in the future for them. They adopt instant gratification which they treat enjoyment more important than the future. They will spend more for luxurious items. They like big cars and houses. They are not very careful on spending because enjoyment comes first. This group of people hence will struggle more to meet the month ends. If they are not careful, they will easily fall into the credit card debts.

Investors are spenders too because they will spend their money on investments. They believe by spending on investments, the investments will in turn generate more incomes for them. Hence, they can slowly upgrade their lifestyle. They may not need to be frugal because the incomes for investors are normally higher. They are 2 groups of investors as well. One group of investors will invest using their hard earn money. The other group of investors understand the power of Other People Money (OPM), which allows them to invest using other people money.

  • Ahmad, a spender, ends up every month with zero saving every month. He bought an expensive watch and ended up with RM 4,500 credit card debt.
  • Adil, an investor, is able to save 30% of his salary every month, i.e. RM 3,000 per month. After 12 months, he used partial of his saving of RM 30,000 to purchase a low medium cost apartment at RM 300,000. He paid 10% down payment and borrowed the remaining 90% from the bank. Next, he rented out his apartment at RM 1800 per month. He sold his apartment at RM 400,000 after 3 years

Through this example, you see also two people, i.e. Ahmad and Adil are in debts. Why Ahmad has no money and is struggling while Adil is borrowing but is thriving with more money – rental and capital gain? Would you want to be spender or investor?

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Retirement

How much you should save per month for your retirement?

When we do financial planning, retirement goal is always the biggest goal. All of us know that we need to start saving early to accumulate our retirement fund. However, how much should we save per month for our retirement? It depends on these factors: –

  1. How long do we have before our retirement?
  2. Are we willing to down grade our lifestyle during our retirement?
  3. How aggressive are we in investing our money for retirement?

The longer we have before our retirement, the lesser we need to save per month. If we are willing to down grade our lifestyle or spend much more lesser during the retirement years than pre-retirement period, we can save lesser during pre-retirement. The more aggressive we are in investing our money (of course, it also means the more return we get from our pre-retirement saving), the lesser we need to save per month.

As a general guideline, one should save and invest minimum 30% of his / her net salary for 30 years at 5% net growth to enable him / her to sustain 30 years’ retirement with 70% – 80% of the pre-retirement expenses. So, start saving 30% of your income now to achieve your retirement goal.

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Retirement

How to ensure you don’t outlive your retirement saving?

There is a research from Employee Provident Fund Malaysia (EPF) shows that 70% of Malaysians outlive their retirement savings. This is a very sad statistic.

Due to the pandemic, many Malaysians are struggling hence the government has just announced (26 Nov 2020) to allow eligible Malaysians to withdraw their compulsory retirement saving (Employee’s Provident Fund). Read the news here.

This will in fact affect many retirement plans, especially those who do not plan well for their financial future. There are two reasons why the retirement saving is not enough:-

  1. Malaysians underestimate the retirement needs. Many think that they would have earned enough money when they are older. Hence, they do not save or do not save enough when they are young.
  2. Life expectancy is getting longer due to the advancement of medical equipment and technology.

To make sure one do not outlive his / her retirement saving, here are some tips:-

  1. Understand how much you need for your retirement. You can read more on how to calculate your retirement amount here. Awareness is the beginning of a change. Many people do not save enough because they do not understand the retirement amount needed is huge. Once they know the figure, it is more likely they will plan well to save more.
  2. Start to save early. The retirement figure is huge. Say one needs RM 1 million to retire, if only 5 years are remaining before he retires, he needs to save RM 200,000 a year. If he started 15 years earlier, the required saving amount will be RM 50,000 a year only.
  3. Start to invest. Investment can help one’s saving grow faster. To reach RM 1 million retirement sum, one needs to save RM 50,000 a year for 20 years @ 0% interest. If he chooses to invest @ 5% interest rate, the amount that he needs to save is much lesser, i.e. RM 30,300 per year.
  4. Be healthy. One of the most expensive bills during the retirement is the medical bill. Ensuring good health will reduce the expensive medical costs. In addition, it is important to get yourself covered with medical insurance to avoid your saving being wiped out for medical expenses before your retirement. While being healthy, you can choose to work part time during your retirement to earn some income.
  5. Diversify your investment portfolio. While investing, never forget to do the risk allocation for your investment assets. During retirement, the investment income is needed, hence investing in extremely aggressive or volatile assets would not be suitable. Try to get to more aggressive investment portfolio when you are young but switch to less aggressive investment portfolio when you are nearer to your retirement age.

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Leaving legacy

Work harder and longer for leaving a legacy?

There is an interesting article which shares that Japanese who wants to leave a legacy will work harder and longer. Those who do not leave legacy will work hard but not longer (read the article talking about this here).

I have a slightly different view to the above. Leaving a legacy for children does not need to work too much longer. Legacy can be built through insurance fund. If we want to leave a legacy using our own assets, it will definitely take longer time to accumulate. However, if we pay some fraction of money to purchase a large payout insurance policy, then, leaving a legacy to our children will be very simple.

See this example. John (aged 30) wants to leave RM 2 millions to his 2 children when he passes away. He will need to save and accumulate RM5,500 a month continuously for 30 years to accumulate RM 2 millions assets. Can John enjoy life after 30 years if he wants to leave all monies he saves and accumulates for his children? The answer is an obvious NO. What if he spends RM 1,500 a month to buy a RM 2 million insurance policy, his children will get the RM 2 million insurance payout when he passes away. If he can save RM 5,500 a month, he can use his remaining saving, i.e. RM 4,000 (RM 5,500 – RM 1,500) to enjoy his life and for retirement.

Do you need to work harder and longer for leaving a legacy? Not really – You just need to be smarter and choose the correct financial tools to help you achieve your financial goals. Don’t ever sacrifice your life especially your retirement life because of your children. You deserve to enjoy your life better because you work hard too!

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