Financial fitness

How this concept helps me to acquire more than 10 properties

In order to retire early, we need to know about this important concept – assets and liabilities. The wealthy people often spend more on assets than liabilities. A lot of people think that saving is important but spending on the right thing is equally important. The wealthy people don’t just save, they use the saving to spend on assets.

I learn the concept of assets and liabilities from Robert Kiyosaki’s book. For him, assets mean things that can put money into our pocket and liabilities are things that take our money away from our pocket. The following shows the cash movement:-

Another thing you might not be aware is assets can generate automatic inflow for us while liabilities will generate automatic outflow from us. The more assets we have, we are more relaxed as we do not need to work that hard. The more liabilities we have, we are more stressed because we need to work harder to pay for the automatic outflow.

Because of this concept, I make sure more of my money goes into assets. I only save enough for my emergency and the rest of my money goes to assets. One of the assets for me is property which can generate rental income for me. I prefer to buy more properties to rent out than upgrading my own stay house. So, my most expensive property is not for own stay but for investment.

I will try to reduce my liabilities by reducing spending on things that cannot generate income for me such as car and credit card loans. Credit card interest is high and I will never pay late, I will ensure the full payment is made on the last day of the due date.

My friends often ask me, why not I buy a bigger house or bigger car? But, I really cannot justify the decision. For me, a bigger own stay house will take more money out from my pockets. For example, I need to pay more electricity bills because I need to install more air conditioning units. I also need to pay more maintenance fee because the house area is bigger. I do not like fancy car as I don’t enjoy driving. The bigger car I have, the more I need to pay for insurance and the fuel. It keeps taking money out from my pocket.

Investment properties are different. If the property is the right one, it gives good rental yield and the income is regular. It might not be a fancy or beautiful property but it gives rental monthly income.

To be able to retire faster, this is the basic concept that you need to understand. Let’s start to buy more assets and reduce liabilities. Before that, understand also what are considered assets and liabilities. Never treat your own stay house and own used car as assets anymore!

Watch the Youtube video here on this topic.

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Retire early: the why, the when, the how and the what

The WHY: Every success starts with the strong reason why. Why do we want to retire early? The strong reason should not be just money. A strong reason needs to be associated with emotion. When we have money, we can buy time. We can buy what our family members need. Researches have shown that people with strong reason will succeed better than people who don’t know the reason why they want to do something.

The logic behind this is that what we want to achieve is beyond our comfort zone. Mostly, we need to do something different from what we are currently doing. If we don’t have a strong reason, we will easily fall back to our old self. Retire early can help us have more time. Time is powerful, when we have time, we can sleep more, we can network and build relationship with people we care, we can do what we love to do, we can help others who need. Many are not aware that when we have time, we can also build our wealth to a greater level. If you survey around, the richest people mostly have more time for themselves. We should not be stuck by being busy and not able to get the wealth that we need.

The WHEN: If someone is offering you a million Ringgit with no strings attached, do you want it now or next year? Obviously, the answer is NOW. We need to act now for the planning to retire early, not tomorrow, not next year. Marianne Williamson quoted this before:

Our deepest fear is not that we are inadequate.

Our deepest fear is that we are powerful beyond measure.

It is our light, not our darkness, that most frightens us.

We ask ourselves, who am I to be brilliant, gorgeous, talented, fabulous?

Actually, who are you not to be?

Understand who and what are stopping us from taking action now to retiring early. Makes our dream come true by doing something now.

The HOW and the WHAT: the how is actually the least important on early retirement. We just figure out the WHAT, the HOW will surface. To retire early, these are the following simple WHATs:-

Save everyday, have sufficient emergency fund for rainy days (3-6 monthly expenses)
Invest the rest

You might be surprised how simple is the WHAT. In order to save more, the how is to spend wisely and plan wisely on cash outflow. In order to invest, the how is to understand how each type of investment works, understand the objective of the investment and to determine the right investment strategies. The initial investment strategy shall focus more on capital gain because our starting capital is lesser. When it is growing to the required amount, it is time to switch to investments that can offer consistent dividend return, rental return that can help to offset the retirement expenses. Learning the investment risk management is also important to make us win in investment most of the time.

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How to improve your wealth by just changing your identity

George Akerlof, a famous economist, in his book explained that how you see yourself plays a huge part in how much you earn, and indeed how much wealth you believe you deserve and gain eventually. So, how you see yourself is how you project yourself to others which forms your identity. So, you need to have supportive identities if you want to grow your wealth and retire early. This can be the easiest to change because what it requires is only YOU, nothing else.

People always think that they must have money first then they can do what they love to do such as retire early. After that, they will be rich. This is the wrong thought and contrary to the law of success. If one doesn’t think like the rich, he can’t even be able to attract and see the opportunities to grow his wealth. We first need to think like the rich, believing that we can retire early, then we will start behaving like the rich, after that, you will realize money starts coming in. It might sound magical but it really works that way. Things work best from inside out and not the other way.

It is like scoring good grade in school. We don’t first score good grade. We believe we are good students, and we behave like good student which we spend time reading and doing what a good student needs to do. And finally we have good grades.

It is also like building relationship with others. We first need to believe we are sociable, then we will act friendly, hence we are attracting more friends. If we think that we need more friends to become sociable, it can never work. If you think that we need to have money first for wealth, we can never be rich. This illustrates the importance of who we believe we are, which is our identity.

What are the identities that we need to install for early retirement? The quick way is start visualizing yourself have retired earlier, how would you think? How would you carry yourself? How would you act? Then act accordingly.

People who can retire early has multiple sources of income, they save and invest heavily. When you have such identities, you will slowly change your action. If your identity is a saver and investor, will you be saying investing in risky? Will you be asking how to save? No! because you already believe you are doing it. You would start to saving and investor straight away. This is the shortcut of changing behaviour. You won’t need strong motivation.

Change your identities, change your wealth destiny.

Watch the Youtube video here on this topic.

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How applying the loan moratorium can affect you?

Bank Negara announced the six-month moratorium beginning July 7, 2021 which individuals and SME owners can opt in to apply for it. This announcement is indeed good for individuals or SMEs who are having tight cash flow during the pandemic. It said banks will not charge interest on interest, or profit on profit (i.e. compounding interest/profit), or any penalty interest/profit during the period of assistance.

The repayment assistance packages for individuals are as follow:-

However, banks will still be charging interest on the loan outstanding amount. Only the compounding interest is excluded. For example:-

The original loan amount: RM 500,000

Loan interest per annum: 3.10%

Loan tenure: 30 years

Loan monthly instalment: RM 2,148.68

After 10 years, the outstanding loan amount will be RM381,090.63. If one starts to apply for the 6 months’ loan moratorium, one will be charged additional interest for these 6 months, i.e. approximate RM 100+. The planned repayment of the principal with interest is RM 12,892.08. Please note that the full repayment with the additional interest can be immediately payable upon the end of 6 months’ loan moratorium. If you need to postpone the repayment of this amount, you need to arrange with the bank and more compounded interest will be incurred and spread over to the remaining loan tenure. If you are not having cash flow problem, you should continue paying your normal loan instalment as normal. Delaying it will cost you more and upon the end of 6 months’ moratorium, you will face bigger outstanding amount to be paid.

Different banks will have different treatments. You can check the following links for different banks.

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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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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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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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5 things we should do on finances Thumbnail

5 things we should do on our finances during the pandemic

The pandemic started since early 2020 does not seem to be ending too soon. Many businesses in Malaysia are now affected especially during the current lockdown. Honestly, we do not know when this will come to an end. There is nothing much we can do about it. It is better for us to get prepared rather than worrying something that we cannot control. The followings are the 5 things we should do on our finances during the pandemic.

The first thing is to visit our monthly cash flow. Cash flow is the king! Clarity is the key! Is our current monthly cash flow now positive? Predict the upcoming 6 months income and expenses. Have a feel on how the ongoing lockdown and pandemic are going to affect our cash flow. Try to find ways to cut down the expenses so that we can have more savings for the rainy days. Things are unexpected now; more cash means more security. Here is a template to key in your financial data to check your monthly cash flow.

Second, we need to have a look at our emergency fund. Make sure that we have at least 6 months’ expenses as our emergency fund to cope with any upcoming unforeseen circumstances. If you have not set up the emergency fund then you need go through your saving accounts, investment accounts to identify the emergency fund sources. Understand where we can source the emergency fund? Is it fixed deposit, is it saving account or is it in the investment account? If the emergency fund is not in the bank yet, it is time to do some switching of the investments to lower risk assets to allow for any flexible withdrawal without affecting the investment performance.

Third, look for opportunities to refinance the long-term property loan. Currently, as you know, the OPR is low. Bank Negara Malaysia has reduced the OPR 4 times in the year of 2020 from 3% to 1.75%. If the loan has been taken quite a while, the interest could be high compared to what the banks can offer now. This can potentially reduce your monthly loan instalment. It is also possible to prolong your instalment period if you are young enough, this can reduce your monthly expenses too! For example, if you bought the property in 2010 at RM 450,000 and the loan amount is RM 405,000, loan installment would be RM 2350. After paying the loan installment for 11 years, the outstanding loan amount is RM 300,000. You can choose to lower the interest only by paying lesser installment by committing to pay in another 25 years’ time, loan installment shall be reduced from RM 2350 at 4.85% to RM 1,540 at 3.15%. In addition, if you need some cash, you might be able to cash out some monies from this exercise if the property you bought has increased in price. In the last example, the property value has increased from RM 450,000 to 800,000 in the past 11 years. One can choose to refinance it up to maximum of 80% of the property value to get some cash back. 80% of RM 800,000 is RM 640,000 and the outstanding loan is RM 300,000. In this case, one can choose to cash out the difference subject to the loan approval. However, make sure you are able to make good use of the cash out!

Fourth, learn and start investing. Investing is the way to grow wealth. If you are having some excess cash, make sure you don’t just save it in the bank. Start looking into investment. Currently, the saving rate is less than 2%. OPR has been reduced 4 times in the year of 2020. It is not enough to cope with the inflation. There are many ways you can invest, i.e. stocks, unit trusts, index funds, Real Estate Investment Trusts. Make your excess money works for you and your future will thank you for doing it now.

Fifth, create a second source of income stream. During lock down period, there are many opportunities online. You can consider learning a new skill to start create another income source for yourself. Since last year, I have seen many are selling things online via YouTube channel and social medias. You can turn your passion into extra income too. Do not waste your time, start to learn a new skill to help yourself during the lockdown period when you have saved so much time on travelling to office.

Remember, we cannot control what happen to us but we are able to do something to get prepared to the pandemic.

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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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