Finance Freedom

Which one you need to control? Money or money flow?

Is there a difference between money and money flow? Yes! Big difference. Money is the tool, money flow is the process. Many people think that they need to control money, in fact, we should control the money flow.

If you notice, businesses revive the national economy. The money needs to flow into corporates (businesses) so that theses businesses have enough monies to flow out to individuals (employees), other corporates (suppliers) and government in the form of taxes. The main source of the government income is tax which depends on the corporates.

Corporates need to spend when they have received the income. Imagine, if they do not spend but keep the money in the bank, what will happen? If the individuals are not spending, there won’t have enough money flowing into the corporates. What will happen? The whole economy will be dying! Money must flow. When the corporates are not spending, the small suppliers will suffer. The employees will suffer.

Based on the above, you can understand that money is meant to flow and not to be kept. Money flow is needed for the economy.

Since everyone needs to spend, how do we ensure we always have enough money after spending? The key is to master the money flow. To improve your finance, you need to manage 2 money flows, i.e. money inflow and money outflow. In this capitalist world, it is no longer able to sustain with single source of income, you need to make sure that you are building or setting up several money inflow channels.

Let’s understand how the rich spend their monies. The wealth is created when the flow process is being controlled well. The richest in the world do not keep their monies in the bank. They make sure they “spend” on assets (properties, paper assets, business, etc.) so that the money comes back to them. If they are not “spending” on businesses, where can the corporates have money flowing into them? Putting money in the stock market raises the capital to the listed corporates too. Hence, do not hoard the money flow. It will damage the economy. Instead, learn to manage the money flow, build up several money inflow channels by flowing out your monies to the right items.

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8 things individuals should note for budget 2022

Budget 2022 has just been announced. What are the things you need to take note as an individual?

First – As an employee, if you are suffering cash flow problem currently, you can choose to contribute lesser to your EPF. Before year 2021, the minimum employee EPF allocation is 11%, this was meant to end in 2021 but the government has extended the period to June 2022. The 9% minimum contribution is the default mode. Employees who wish to maintain the statutory contribution rate at 11% are required to apply via Borang KWSP 17A.

Second – SST exemption for cars will be extended to 30 June 2022. This means buyers of locally-assembled (CKD) cars will be exempted from paying the 10 percent sales tax upon purchase. However, do note that other taxes like excise and import duties still apply. This SST exemption does not apply to commercial vehicles like commercial vans and pick-up trucks. If you need a passenger car, this is the right time to buy a new car, it will be cheaper. The saving of 10% sales tax is equivalent to about 2 to 4% of the total car price. Using the example of Honda Civic, you shall save roughly about RM 4 to 5K.

Third – The real property gain tax is now removed for house sales from 6^th year onwards. Real Property Gains Tax (RPGT) is chargeable on the profit gained from selling a property. Prior to this budget, individuals and companies will be charged 5% and 10% respectively for RPGT on sale of house exceeding RM 200,000 and more than 5 years. Now, you get more net return with the tax removal. So, if you want to have more gain from property investment, you need to plan to hold your properties for at least 5 years from the purchase date.

Fourth – RM 2500 is given for the income tax relief on purchase computer, handphones and tablets until end of 2022. You can take the chance to use this relief to buy these for children, yourself or your spouse. Take note that this is not for business use.

Fifth – Special individual income tax relief of RM 1,000 is given for domestic tourism expenses. This would be extended until the year of assessment 2022.

Sixth – There will be an excise duty imposed on nicotine-based gel or liquid products for vapes and electronic cigarettes, The government is also introducing excise duty on premix drinks containing sugar. For example, chocolate, malt, coffee and tea-based premix drink. This means these drinks will now cost more. You may consider spending less on these items. A stronger reason for you to promote healthy lifestyle.

Seventh – If you are still having PTPTN loan, it is a good news that you can get 10 – 15% discount. The discount comes into effect from 1^st November 2021 until 30 April 2022. If you wish to fully settle the PTPTN loan, you will get 15% discount. 12% discount will be given to those who wish to settle at least 50% of their loan balance in one payment. The 10 per cent discount is for those who wish to repay their PTPTN loan by scheduled salary or debit deduction.

Eighth – the government has increased the limit of the income tax relief for up-skilling and self-enhancement course fee from RM 1,000 to RM 2,000 to encourage Malaysians to pursue training programmes and acquire new knowledge. This limit will be extended to year of assessment 2023.

In addition, those who undertake courses with any professional bodies will be eligible for a tax relief of up to RM7,000. Approved courses include professional courses in accounting, finance and ESG-related. ESG stands for Environmental, Social, and (Corporate) Governance.

The above are the 8 things individuals should take note to enhance their personal finance.

Watch the Youtube video here on this topic.

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How can you control spending?

Money only speaks 1 language. If you save money today, money will save you in the future.

People know we all need to save, however, it does not seem to have enough saving. Researches show that the saving is limited due to overspending. To save more, we need to be conscious about spending. Let’s understand how to control spending.

You can curb spending by understanding why we like to spend despite we know we need to control spending. Human has the tendency to avoid pain and seek pleasure. While shopping and spending, pleasure hormone, i.e. serotonin will be released. While doing online shopping, there is an anticipation for the items to be delivered, so another pleasure hormone, i.e. dopamine will be released. We are craving for the pleasure feeling, this is why shopping and spending are so tempting and additive.

To curb spending you need to understand how our body works leading us to spending. The following process was obtained from James Clear’s book titled “atomic habits”.

Cue –> craving –> response –> reward

We don’t spend automatically, there will be some cues leading us to spend (Cue). If we go shopping, it leads to tendency to spend. We crave for the pleasure feeling after spending (craving), that’s why we spend (response) to get the pleasure feeling (reward).

If we want to control spending, we need to make the cue invisible. If we can reduce the frequency to window shop, the spending will be reduced. If we know what items we spend more, we just need to make sure it doesn’t appear in front of us.

Craving sense can be curbed by understanding the impact of spending. Once the pleasure feeling is being replaced with the pain feeling (the impact after spending), you will feel less addictive about spending. The greatest way to increase the pain of spending is to understand your financial goal and the impact of not reaching it. Visualising the impact will help you replace the pain feeling with the pleasure impact of spending.

We can also make spending more difficult so that we will spend less. For example, if we like to spend using credit card, just not bringing the credit card out while window shopping. If we like online shopping, just disable or limit the daily e-payment. If you want to buy more, you need to change the limit, it requires some effort to do so. We will tend to think deeper before spending. When the cue is not visible, there is no more craving or you make spending so difficult, you can control your spending much more easily.

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How to determine your investment strategy?

You know you cannot keep your money in the bank because the saving interest rate is too low. You know that you need to invest. But what to invest?

To determine the right investment strategy, you need to determine your investment objective. There are only 2 objectives when it comes to investment. You either invest for capital gain or invest for cash flow. If you are investing for capital gain, you need to buy low sell high. If you invest for cash flow, then you need to understand the predictability of cash flow.

Human is normally greedy. We all want capital gain and cash flow. However, the truth is most of the investments will achieve better for either one of these objectives. For example, if you are investing for capital gain, you may consider buying landed property or small cap stock. The potential for capital appreciation for landed property is better than apartment. Likewise, the potential for capital appreciation is better for small cap stock than big cap stock. However, in terms of cash flow, you should be aware that landed property fetches lesser rental yield. Same goes to small cap stock, because the company is still growing, the profit will be retained for future growth and the dividend pay-out will be lower.

Now, how do you know whether you need capital gain or cash flow investment strategy? You need to understand your financial goal first, you can access to this video to understand how to calculate your retirement goal.

Cash flow investment strategy is only suitable if you need constant income. The total investment yield for cash flow investment is more stable but lower compared to capital gain investment. Hence, this strategy is mostly required when you are retiring soon or when your retirement lump sum goal is or almost achieved.

If the gap between your current net worth and your retirement sum is huge, then you need to focus more on capital gain so that you can close up the gap faster.

What are the investments you can consider for capital gain? You can buy undervalued foreign equities and small cap stocks which have potential for capital appreciation. You may also go for undervalued properties or landed property for better capital gain potential.

When you select capital gain investments, be prepared to stay patient to wait for the capital appreciation. This type of investment will have very little cash flow during the investment period. Ensure you have sufficient active income to sustain while waiting.

For cash flow investment, you are aiming to get more passive income when you are investing. Then, you need to check the cash flow yield. Make sure the yield is more than the bank saving interest rate. This type of investment is not for withdrawal. Be prepared to keep the capital in such investments for long term to get the income that you want. Examples of this type of investment are bonds, rental properties and dividend funds or stocks.

Understand your investment needs better so that you know which investment strategy is more suitable for you. Let’s grow your wealth better! Watch the Youtube video here on this topic.

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Change your words, change your destiny

When it comes to personal success in wealth generation, most people think that if we can copy what the successful people do, we can be successful. Is that right?

How can words change your destiny? Test this out, excitingly tell your family members that you are happy. Do you feel sad after telling them this statement? When you receive an invitation to go out, tell the person that you are not free. You will soon realise your brain will find something to justify that statement.

Words can affect your brain. How the brain thinks will affect your emotion which in turn affect your action.

When it comes to wealth generation, most people gain wealth from only 2 things – investment or business. Can we just copy these to gain wealth? The answer is absolutely yes! We don’t just copy the action, we need to copy the mindset too. Most of the time, it is not that we do not know the method, it is because we are not willing to take action.

There are fears within us. We are doubting whether we can do it. Do we have the skill? Do we have the knowledge? What if we fail? See, we have not even started doing it and we have so many negative thinking about it. How can we copy the action?

Let’s talk about investment. What is the first thing that comes to your mind when you think about investment?

Do you treat it as opportunity or risk? Observe your thinking pattern. What did your brain tell you about the investment? The answer will affect your emotion and subsequently your action. If your brain is thinking about the risk, fear emotion will be created. It will then be followed by inaction. This is normal. What if your brain thinks that it is a great opportunity? You will feel excited instead and you cannot wait to start investing. This is what causes the success or failure.

We are not able to copy the action of most of the successful people do is because we are not able to copy the thinking. Understand why they do everything is more important than how they do everything. Understanding the how might not help if we are not copying the reason which affects the emotion and action.

The faster way to overcome this is to use powerful words. If you like to copy people’s success, try using the sentences or words they use. When you speak the same words, you will notice your brain will suit to match your words. If you think that how your brain works currently is not supportive to what you want to achieve, change your words instead.

When there is a great investment opportunity, do not say “I do not have the capital or I can’t take the risk.” Instead, say “I would like to take part and I’m now thinking how to arrange the capital in few days’ time”. And you will find that your brain is now thinking how to get it done instead of justifying why you are not taking action.

Doing nothing and staying within the comfort zone is easy. Taking action is hard. Changing your words will be the first easiest way for you to try out. Test it out and let me know whether it works.

Watch the Youtube video here on this topic.

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3 things you need to understand before you invest in bitcoin

Bitcoin price has risen to its all-time high surpassing the $65,000 mark. Whenever the price is increasing, there will be people who want to start investing in bitcoin. Here are the 3 things you should know before you start investing in bitcoin.

Bitcoin is a decentralized digital currency hence is not regulated by most of the countries in the world. It is not similar to the currency that we are using such as USD, AUD, MYR. Because of its decentralized nature, the government might not like it because there is no control over the use of this currency. It might never be regulated and it also means the price can be very volatile.

There is no way to determine the intrinsic value of bitcoin. Bitcoin is not a productive asset. Unlike stock investing, there are several methods to determine the intrinsic value of a particular stock. We buy a stock when the stock is undervalued. Doing this will increase our chance of winning. We invest in stocks when we believe the company performance is good. It can generate good income / dividend to us as shareholders. Bitcoin can never generate income. The price is determined solely by the emotion of the buyers and sellers. When there are more buyers than sellers, the price will move up. When there are more sellers than buyers, the price will move down. The winning chance of bitcoin investing cannot be determined properly.

Now the bitcoin price is at its all-time high. There is one famous quote by Warren Buffett – be fearful when others are greedy and be greedy when others are fearful. Currently, most of the people are greedy, hoping the price will go higher and higher. Do you want to be the one who buy it at all-time high? We should be buying low and selling high. Unfortunately, most retail investors like to buy high and panic sell when the price is dropping fast.

Understand the 3 points above before you start to invest in bitcoin. Ask yourself the reason why you want to invest in bitcoin and have proper diversification to avoid adverse risk.

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5 golden rules to follow to escape from rat race fast

5 golden rules to escape the rat race fast

Rat race is common in this capitalist world. People work day in and day out. The financial situation does not seem to change much. There are 5 golden rules you need to know before you can escape from the rat race.

First – understand what most people do for their finances that are not right. According to a new Credit Suisse report, 45.8 percent of global household wealth is in the hands of just 1.1 percent of the world’s population. Those 56 million individuals control a mind-boggling $191.6 trillion, as can be seen on the following pyramid.

Only minority of the population know the right way to gain wealth. If you want to retire faster, you cannot just rely on working hard, spending less and saving more.

In the current world, the governments are supplying money at a fast rate, printing money and causing the inflation rate to be higher. You will notice that your cost of living keeps increasing and the increase rate is faster than your earning increment rate. If you only do the normal thing, you might properly retire at the age of 60 or 65 with reduced lifestyle to cope with the increased living expenses, like other normal persons.

Second – You need to decide when do you want to escape from the rat race. Many don’t realise that if there is no decision made to stop work, nothing will happen. Decision will steer action. If there is no decision, there will be no action. Ask yourself whether you really want to escape from the rat race or you simply hope that you can escape from the rat race. Recognize that wishing is not enough to push you beyond comfort zone to do the hard things to achieve what you want.

Third – Increase your income stream. If you rely on normal salary increment, the chances to escape from rat race earlier will be slim. In most of the circumstances, the increment will still be slightly lower than the inflation. Do something to increase your skill or knowledge on what you do. Get higher promotion, challenge yourself to reach a better position. Also, consider to get more income by exploring the business opportunities.

Fourth – Properly invest. Most of the riches put their money at work. We have only 24 hours a day and it is not possible for us to work for money. Our income will increase up to a certain stage due to our time limit. We need to think of a way to create a system or leverage on other businesses to get more income. Stop thinking that investing is gambling. The major investing rule is to bet with higher chance of winning. If you are gambling, your chance of winning is only 50% or less. However, if you invest in good companies which have high demand or good property which can fetch rental, the chances of winning will be high. This is what we call taking calculated risk.

Warren Buffett advised that investing in the productive assets is a good way. Look for stocks that can generate income years after years. Many people argued that investing in gold or crypto currency is a much faster way. I cannot comment on this but what I’m sure about is these assets are not productive assets. The intrinsic value for gold and crypto remains the same throughout the period. What you see is the price changes based on the supply and demand. Remember that these assets do not give you income. The intrinsic value for stocks can change based on its ability to get revenues. So, the potential of the capital gain is much more reliable. In addition, you will receive dividends too if the company decides to distribute the profits to the shareholders. For example, Coca-Cola had been producing an annual net profit of more than 20% for the past decade and because of this, it allows the company to pay dividend every year.

Fifth: Risk management – many people are skeptical about the investment risk. Yes, it is true that there is always risk in investing. If you want to avoid risk at all cost, the truth is your freedom will be kept in prison. You have the highest security with no freedom. In view of the risk, risk management becomes a key if you want to escape from rat race. No one can be sure you won’t lose money in the investment. Hence, never invest more than what you can afford to lose. Never borrow money to invest, never sell you house to invest and never go all into 1 single investment. Diversification is the key when you have accumulated certain wealth. Regardless how good does the investment seem, there is no guaranteed win. It is a fact that all successful investors have bet wrong and they never bother about the loss as this is part of the game. Your investment can stay concentrated when your capital is small because you can get bigger win by staying concentrated in investment. However, when your portfolio is big, your investment shall stay diversified.

Watch the Youtube video here on this topic.

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4 life risks that you need to consider planning

Risks come to us on our daily life. We cannot avoid risk totally. The best method to deal with the risks is to be aware of the risks and manage them accordingly via strategic contingency planning. These are the 4 risks:-

A) Health risk: if we do not take care of our health, the risk will appear soon. We should have plans on exercise / diet to make sure we stay healthy. When we fall sick, we will need substantial financial resources to cure the illness. Currently, the cancer treatment will cost easily RM 200K – 300K. Do make sure you have a health medical card to cover all these hospital expenses when you need it. In fact, health medical card is the first protection one must seek before any other insurances.

Something to take note is that the medical card covers only the hospitalization expenses and it does not cover the loss of income, cost incurred for supplements, natural treatments, etc. Check your annual limit of your coverage to ensure it is enough in view of the inflation of the medical expenses. Also, this coverage is best purchased when one is healthy. When there is any sickness discovered, the insurance companies will reject the application or impose loading on the premium which might make the premium becomes unaffordable.

B) Mortality risk: no one can avoid the risk of dying. But what we are afraid is that we die too soon. Hence, we need to have a contingency plan to decide:-

Who will be affected if we are dying too soon?

What would be the arrangement for the affected individuals?

To manage this risk, we can transfer the financial risk to the insurance company. A good and adequate life insurance plan should be able to cover the financial commitments (loans) and future living cost for our dependents. How about other non-financial arrangement? This can be done via a will and a trust with power of attorney which we can list down who will be responsible to do what. For example, if one is leaving behind a company, it is better to identify a potential successor to take over the company in case anything happens. This can be done via a business succession planning.

C) Disability risk: accident can happen anytime. Sometimes, death is not the worst scenario, disability is. Surviving with disability will no doubt create more financial and psychology issues for one and his / her family. This might also ruin a family. Having a thought about how to deal with it can help one get prepared for it. Think about the loss of income stream when one becomes disabled. Start to plan some passive income streams so that we are not solely dependent on active income. Have Total Permanent Disability Insurance / Partial Permanent Disability Insurance in place to ease the financial burden in case misfortune happens in life.

D) Longevity risk: risk 1 and 3 are not definite risk. Risk 2 and 4 are very possible to happen. We either live too long or die too soon. This is something that we definitely need to plan properly. We have to ensure we save for future as we cannot work forever. Diversify some of your savings to various investment to ensure you have enough money to sustain if you are still living at old age.

A lot of people might think that contingency planning is just for their family. If you look at the 4 risks above, only 1 risk (mortality risk) is happened without you. The other 3 risks you will still survive. Hence, protect yourself and your family when you can still do so. Start planning these risks.

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How to change your financial situation?

After checking your financial situation (check our this blog to check your financial situation), you might want to change your financial situation so that you can improve better. How can you change your financial situation easily?

There are 3 elements to be considered when we come to assessing our performance. The outcome is the results that we want. In financial term, we want to improve our finance, e.g. increase our passive incomes, increase our net worth. The middle ring (the process) is about how and what we do to get the outcome we want. If we want to increase our passive incomes, we need to add in more income sources. If we want to increase our net worth, we need to save more, invest more and spend less. These are the “how”. What about the “what”? Are we able to do the required action? Let’s review the action building.

Do you know that one study determined that over 40% of the “decisions” we make every day are not really decisions. They are habits. If you build enough good financial habit, i.e. save more, invest more or spend less, you will find that your financial situation will improve.

Never underestimate the small improvement due to the good financial habits. Based on James Clear’s research, if we can improve 1% a day, we get to improve 37.78% after a year. However, if our net worth become worse 1% a day, our net worth will be nearly 0 after a year (see diagram above).

So, aim to improve your financial habit every day. Aim small so that you can achieve small success everyday. For example, if you need to save 20% a month of your salary, you only need to save 0.6% a day. If you need to save RM 1,000 a month, you can start saving RM 34 a day instead. This figure is smaller and easier to manage and achievable.

The inner ring is the identity. It is the value and the belief that you have on finance. This can be harder to change unless you have decided to change. If you aim to be rich, you must first believe that you can achieve that. If you want to save more money, you need to believe that saving is important to secure better financial future. If you do not have the supporting belief, it is hard to change. For example, if one does not believe in saving, you can expect that he will spend away the money when he has money in the bank. Hence, the 2 elements that can affect your progress on your finance situation improvement are the identity and the process. If you want to improve your financial situation substantially, these are the 2 elements you need to work on.

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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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