Pension and Retirement

In Malaysia, The Social Security Organisation (SOCSO)’s plan to introduce pension schemes for its contributors and the self-employed has been applauded by older working adults and for those who should be enjoying the golden years instead of working. These people are forced to work because they are unable to make ends meet and they have to support their children for their higher education.

How do you look at work in relation to retirement?


Work and retirement

Nobody should retire. If you do you will be bored to death. You can’t be doing nothing to pass the time. You still can find something interesting to do and at the same time create an income stream to supplement your retirement fund. If you are still working, just carry on. If it is something that you are interested in it is even better because it is not work anymore. The most important thing is to fill your time with useful activities even if you are no longer working.


Financial review
It is also necessary to review your financial situation in order to adjust your spending pattern according to available funds. Consider sending your children to higher education locally instead of overseas. You can also sell the bigger house and live in a smaller one if your children have a family of their own and they no longer live with you. Save the extra cash for future living expenses. Trim your budget to stay financially independent


Pension fund
Invest or save pension money when it is materialized. You can also accumulate the pension fund for an annual holiday. It can also be used to supplement your monthly spending should your monthly budget be overstretched. The best thing is to treat the pension as a bonus when it comes.

Credit Cards and Young People

According to a report from Credit Counseling and Debt Management Agency of Bank Negara Malaysia or The Central Bank of Malaysia, among the cardholders below the age of 30, 50% of them are unable to settle their credit card debt and they have to declare bankruptcy. In the survey, among the delinquent cardholders, 22% cannot properly manage their personal finance and another 27% cannot control the use of their credit cards.


What can young people, especially fresh graduates, do to manage their personal finance? Here are some useful tips


• Pay in cash: You will not get into debt when you pay in cash for all your purchases. Your spending is limited by your financial resources.

• Use prepaid card or debit card issued by Visa or MasterCard: For a start young people should use a prepaid card (it is preloaded with a sum of money and you use it as a credit card until the amount stored in the card is exhausted). You can also use a debit card and it is linked to your bank account. Like a credit card, you can charge your purchases to your card up to the maximum amount of your available fund in your bank account. You will gain credit card experience this way.

• Credit card: When you are using a credit card for the first time, remember to treat it like cash. For each Ringgit, you charge to the card back it up with cash for the same amount to meet payment at the end of the month. Do not opt for a minimum payment. You will not only incur interest but at the same time, it is the route leading to unmanageable debt and eventually bankruptcy. Use the card for convenience only. Don’t buy in credit to attract interest and debt.

• Impulsive spending: Do not show off your credit card by entertaining your friends lavishly with it. Do not buy what you want but use the card to spend according to your monthly budget. In this way, you stay out of debt. Getting into debt is easy but getting out of it is very difficult. Spend only your own money but not the bank’s money. Nothing is free in this world.


You can keep your credit cards but you have to spend within your monthly earnings and treat your cards like cash in your pocket or in your bank accounts. Settle the credit card bills promptly and fully to build your creditworthiness.

7 Tips to Avoid Debt

Debt

“When you get in debt you become a slave.”
-Andrew Jackson

Getting into debt is easy enough. If you don’t avoid the following spending habits, sooner or later, you will be in debt beyond your control.


1. Spending more than your earnings: This is surely the quickest way to get into debt. Imagine you earn $5,000 and you spend $5500 in a month.

2. Keeping up with the Joneses: You always want to be at par or better than your neighbor. When your neighbor changes to a more expensive car you also want to do the same without thinking of your limited resources.

3. Materialistic: Get the latest mobile phone, change your living room settee set and replace your TV to the latest model. You do it by hire-purchase, but the total amount is more than your monthly budget.

4. Gambling: Nobody can be a winner in the long run. You are motivated by greed. This bad habit will drown you into a sea of debt by borrowing more and more money. You think you will make your money back in the next bet.

5. Get-rich-quick scheme: Do not be gullible enough to listen to quick and huge returns for an investment. It is always too good to be true. Don’t borrow from your friends and relatives to invest and think that you are guaranteed to receive your investment and profit in return quickly.

6. Wrong use of credit cards: Pay your credit bills fully and promptly. Don’t pay the minimum amount or sign up for a zero-interest installment plan to make purchases of big-ticket items. You will snowball your debt way beyond your means to settle and you end up as a bankrupt.

7. As a guarantor: You can’t be kind in this way. You will regret it when your good friend defaults the loan and you have to inherit the debt because you can’t even locate him. He has disappeared into thin air.


Be happy to enjoy what you have. A debt-free life is a carefree life.

The Golden Rules in Investing

Investing

"The individual investor should act consistently as an investor and not as a speculator." - Ben Graham

Phil Town, a stock market investor and author from Wyoming, United States travels frequently teaching stock investing seminars. In 2006, he wrote the book Rule#1 which reached the New York bestseller list. Now as an ’Investment Guru”, his opinion is sought by many, as he is often interviewed on financial news media. According to him, successful investors look at stocks as businesses and find a few wonderful businesses. Then they wait for inevitable market drops and buy them when they are available at attractive prices.

The Rule #1 formula comes from Buffett – find a wonderful business and buy it on sale. His teacher, Ben Graham said the key to investing is to not lose money. The three most important words in investing according to Warren buffet are ‘margin of safety”. This is why they insist on finding the value of the business and then buying it at a big discount – like 50% off what they think its worth. According to Phil Town, you ask 4 questions to research a company before putting your money in it.

1. Do I understand the industry?
2. Does the business have a durable competitive advantage?
3. Is the CEO honest, investor-oriented, and passionate about the business?
4. Can I buy it 50% off its value?

If it does, you are guaranteed to make money.

The above is extracted from an interview of Phil Town by Gerald Chuah as reported in the New Straits Times.

Secrets to Avoid Bankruptcy

Bankruptcy

Unlimited activity, of whatever kind, must end in bankruptcy.

Johann Wolfgang von Goethe

According to figures released by the Malaysian government, from 2005 until June this year the following categories were the top cases in the number of people declared bankruptcy 

   Unable to settle car loan 15176 cases (23.69%)

Unable to settle commercial loan 6949 cases (10.85%) 

 As guarantor 6244 cases (9.75%) 

Unable to settle personal loan 6129 cases (9.57%) 

Unable to settle credit card debts 3767 cases (5.88%)

Owning to income tax 660 cases (1.03%) 

Housing loan default 214 cases (0.33%)

Educational loan 138 cases (0.22%) 

 Out of the 8 categories, 6 categories were relating to people who were unable to manage their personal finance. How do you look after your own money to avoid being declared bankrupt? 

 1. Live within your means: Before you decide to obtain a car loan or a personal loan you must factor in the amount payable each month within your monthly budget. When you work out the sum and you find that your outflow (household expenses, car loan or personal loan repayment, and all other commitments) is more than your inflow (your earnings) you are not in a position to raise the loan. Avoid the temptation and forget about getting a new car or getting a personal loan to beautify your house. 

 2. Credit card: Credit card is not a source for getting credit. It is only a convenient way to make payments. You still have to earmark and set aside a sum to meet the payment that you have charged to your credit cards. Again, the amount that you are about to charge has to be included in your monthly budget. If it is out of your monthly budget don’t use the card and restrain yourself from getting materialistic. Another point is that it is wise to settle the amount fully when you receive the monthly statement from the bank. If you don’t and you allow the amount to snowball, bankruptcy is the outcome as confirmed by the number of cases stated above. 

 3. Self-discipline: Don’t keep up with the Joneses. Do not attach yourself to material things. Enjoy what you have and be happy. Keep your reputation clean because people remember you more as bankrupt than an ordinary citizen. 

 A debt-free life is a carefree life. You go to sleep soundly every night knowing fully well that nobody is going after you for money.

Personal Money Management – 10 Wealth-Building tips

Wealth

Money may or may not buy you happiness, but managing your personal finance is a vital part of your long-term goals. Here are the top 10 tips:

1. Financial goals: How much money do you want to accumulate in the next five years? Set a realistic target. At the end of each year, you can compute your net worth to check how close you are to your objectives.

2. Savings: The amount you want to save every month is related to your financial goals. You set aside a specific amount before spending your money.

3. Investment: The money that you have saved in the bank to earn interest is not even sufficient to offset the inflation rate. You need to invest wisely to reap a reasonable higher return to beat inflation and sustain growth.

4. Spending: An important rule is to live within your means. Buy what you need and not what you want because your wants have no limit but there is a limit to what you can afford.

5. Debt management: The best thing in life is to buy with cash except for the purchase of a house and a car. Don't ever try to accumulate credit card debts. It will ruin your creditworthiness.

6. Insurance for wealth protection: Having adequate insurance coverage to protect your wealth is part and parcel of financial planning. It is also prudent to have enough medical insurance to cover illnesses, accidents, and disability.

7. Will: Draw up a will is a hassle-free way to transfer your wealth to your loved ones when you’re no longer around.

8. Charity: It is a gesture of kindness to help the needy. The amount is not important. What matters is the sincerity from the bottom of your heart to give.

9. Educational fund and retirement fund: Life is going to be miserable with insufficient funds for old age. Set aside an amount for the golden years. Financial independence is an important goal in life. Allocating a sum for children’s education is another major consideration of your financial goal. A good education for children is one of the best forms of investment.

10. Take advantage of tax relief: In Malaysia, you can reduce your tax liability in several ways, some of them are listed here:

• Save for your children's education with Skim Pendidikan Nasional (up to RM3,000 in tax relief)
• Purchase life insurance( tax relief of up to RM6000 inclusive of your contribution to Employee Provident Fund)
• Purchase of sports equipment( tax relief of up to RM300)
• Purchase of reading material excluding newspapers( tax relief of up to RM1000)
• Take up medical or education policies (tax relief of up to RM3000)

Here are some wise words from George Horace Lorimer, 

“It’s good to have money and the things money can buy, but it’s good to check once in a while and make sure you haven’t lost the things that money can’t buy.”

Get to Know Your Monthly Expenses the Quick and Easy Way

Monthly Expenses

Image source:https://bookkeepers.com/how-to-stick-to-budget/

You have no time to gather information about your household expenses and yet you want to know your monthly spending. There is an easy and quick way to find out: You only need to do it once a month instead of keeping track of your expenditure every day.

 This is the formula: 

 A) Determine your total cash at the beginning of the month: Cash Savings accounts (for making payments and receiving deposits) Current accounts (for making payments and receiving deposits) 

 Add B) Cash income for the month: Salary Dividends and Interest receipts Other income (e.g. earnings from AdSense)

 Less C) Fund at the end of the month: Cash in hand Savings accounts (for making payments and receiving deposits) Current accounts (for making payments and receiving deposits) 

 Equal D) Your expenses for the month 

 In short: A+B-C=D This method is only good when you actually pay in full the expenses that you have incurred for the month. Bear in mind also that the outflow of cash includes your payment made towards credit cards and other non-expense items such as savings and investment. It does not include charges for the month made on credit cards which you have not yet settled and any other outstanding bills. There is a difference between expenses incurred for the month and actual cash outflow for the month I would suggest you do a detailed record of your expenses for a few months so that you know the pattern of your monthly spending in the following areas: Grocery items Utility bills Children's education Petrol and traveling Housing loan Insurance premiums Car loan Entertainment Clothing Medical expenses When you have done that you can review and do a cutback on unnecessary expenses in this trying time. Happy budgeting and prudent spending!