Employee Provident Fund (EPF) – Part 2

Let us focus on withdrawal of EPF savings to pay-off housing loan where I have highlighted earlier in previous article. How to choose among all four (4) types to be the best option? Let us discuss further on we can manipulate so that we can benefit. Not to forget, all these are legitimate and halal to be executed and it depends on how and what we choose on the withdrawal type.

Very common for new buyer to withdraw for the new and/or first house to avoid any down payment with own cash. However, have we ever noticed aware something not good by using or cash? Again this is based on case by case where if it’s required or mandatory to pay down-payment of 10% then no choice besides to pay the amount. If we’re buying with some rebate by the developer or by the owner, there might be some scenarios where we’re not really required to pay the down-payment besides some charges and fees for lawyers. So what would be the scenario where the purchaser normally still withdrawing the EPF account 2 amount to pay as down-payment? Let us discuss further about this scenario to have better clarity.

As discussed earlier, new purchasers for the first house don’t have any experience in purchasing a house, hence, end-up with some technical issues which will make the decision made is not beneficial for them. Our mentality to reduce as much as possible for housing loan must be removed from our mindset. Some may say that our house to be stayed must be loan-free property because it takes money from our pocket. YES! I agree with you but let us manipulate first so that we can manipulate for our benefit. There are some winning points I would like to share for our benefit mainly on documentation required, financing profit rate, and loan amount. There might be some area I missed out you may leave the comment for further discussion.

The most significant benefit is mainly on the financing profit rate where as everybody aware the concept for housing loan, “higher the loan amount, lower the profit rate” and this is very common in most of the banks. This is not something I’m sharing just by reading but based on personal experience where profit rate for loan below RM 100,000 is BFR – 1.6 and above RM 100,000 is BFR – 2.2 (this is before new mechanism on profit rate is introduced). Just to share in term of monthly instalment, my monthly instalment for housing loan of RM 108,000 is same as my housing loan of RM 91,000 which is approximately RM 500. Let us read and digest first before we go further discussing other types.

Attitude Vs Investment

Success in investment are partly or I would say that contributed by our attitudes. As time flies, we’ll see more money in investment, if can’t control our attitude might end-up with disaster. That is the reason I always emphasize that better to be not rich instead of being poor. If you notice, in anything if you have problem with your attitude then you’ll face the disaster. This is regardless of the tools or mechanism that you could have is the best available but due to attitude can be totally disaster to you. In this case, don’t limit to finance subject matter only, for example on driving attitude; even you’re driving the best car in town but if your attitude is not tally with your class of your car then all the safety features promoted by the car manufacturers are waste.

This attitude is the one will guide parallel with the financial planning we have developed or being developed. Hence, most of the time we need somebody professional to guide us with discipline so that the goal can be achieved. This is because when we have the professionals with us then we have to follow their plan for us to see the results as we’re paying to them for professional fees which could be very costly but very effectively. From there we can develop our attitude to be more constructive manner to achieve our financial freedom. What I’m writing here is based on my personal experience where before I’ve got my personal financial planner my saving will not be long-lasting because normally at the third month I’ll use my savings to pay-off all my bad debts. By having professionals with us, we indirectly able to educate ourselves to allocate our savings totally for savings so that it will be our platform to start our investment. Now it’s very difficult for me to withdraw the savings for any unnecessary expenses which are mainly bad debts.

So, what I would say about how attitude is affecting our investment portfolio is mainly on managing our cash-flow and the first cash-flow we have to prove that we are good in our attitude against investment by maintaining our savings progressively. From there we have capability to develop our positive cash flow in our investment portfolio.

Investment - Savings

I believe most of us believe that the key element to start investment is start with investing in knowledge. I have written about investing in knowledge in previous article(s). What would be the next step or next level of investment after we started some research on knowledge either by reading, listening, attending seminars, etc.?

I also have written on savings which really important before start investing in something halal and legitimate. It is really important for us to have some savings before we start our investment and I believe most of us know the importance of it. What? Not really sure? Then, I suggest to read again on my previous articles on savings Part 1 and Part 2.

My personal opinion before we start invest, we should have our reserve fund for at least 6 months to sustain without any source of income. All these are not something to be developed overnight but it is possible if we practice very “healthy” Lifestyle over the time. Whoever really willing to start with some investments but there is none of savings then it’s like to construct a house without the pillars. How is it possible to have a house without the pillars? So, answer to yourself honestly before you take any further action. Always remember that better to be not-rich than poor! Why?! Spare some time and think about this.

I know there are people will claim that we can’t go far just by saving and I totally agree with this statement. I also believe in that where we can go nowhere just by saving. Again, remember that savings is one of the foundation before we start investing after we invested in knowledge. Why all these are important? Spare some time and read Real Investment.

Lifestyle

Why lifestyle is very crucial towards achieving our financial freedom? How exactly it affects our process to achieve our goal? How does rich practising their lifestyle and how about the other side? Not clear about the other side? Well, the poor I meant.

 

There are always myths are about the rich and the poor. Rich always are blamed to be too greedy and stealing money from others to become richer and richer. Poor always claim that they are always being discriminated by rich in most of the places. As long we believe that this myths are true then definitely we cant be the rich because we always see the rich is the villain and the poor is the hero.

 

Personally I don't agree with all the myths because I want to be rich and want my family, relatives, friends, and whoever reading this to be rich. Why don't you go back on some history of the rich people where they started with very poor family but ended up with indefinite wealth. No need for me to mention it here because almost all of the top 100 richest person in the universe are from poor family background.

 

 

So, what exactly the main criteria is differing between rich and poor? YES!!! The lifestyle of these two (2) different people is totally different! I believe that some might be thinking that "obviously different because rich spending like nobody business and the poor is spending wisely".

 

If we analyse wisely of this rich people's lifestyle, they have very systematic or proper recording of all their expenses. Why? Spend sometime and read some of my previous articles on Saving, Earning Vs Saving, Levels of Financial Freedom, and lot more. You will find the key elements on how to be rich slowly and steadily. The rich people also practising very systematic book keeping to monitor what is in and what is out. Most of the time, active income from rich people are untouchable or recirculated for investments. Last but not least, rich always allocate some portion of their wealth to be shared with others via charity.

 

How about the poor? Hmmmm.... They don't have proper recording at all, no book keeping, no traceable records, and always rely on active income only for their life. Hence, spend more time to invest on knowledge prior to take action to avoid unnecessary mistakes. Best of luck for us buddies! 

Importance of Networking

Why do we need connections for this finance subject matter? How exactly can we benefit by having all this networking or connections? How many connections normally in general we have to have when dealing something related to investment subject matter?

 

First of all we must have our friends or/and relatives which practising very good personal financial planning where we can start developing our network from them. Why is from them? It's simple because they must have somebody more professional dealing with this subject matter. Normally they should have they financial planner where most of their actions are guided by this professionals to minimize the risks based on their personal experiences or lesson learnt from other clients.

As our skills is being developed in this field even we are not the experts but slowly you'll see that more skilled people are surrounding you where can be benefited from them. Start with products from banks, you'll see bankers start becoming your friend or network. My point here is that make friend with them even sometime can be annoying because of the sales skills from them. Hehe! Don't worry because they are professionals and fully aware if you have any specific products that you are looking for. Remember that we want to get rich a bit faster by using all this products offered by the banks.

 

As you go further, you'll find more people will become your contacts and more importantly this professionals will be part of our team in developing our wealth. Who are these professionals? Do you want me to name it here or in future articles? Alright folks, let me list them here but will explain further in upcoming articles so that we can team-up with them in future. Other professionals that we must have connections are lawyers, real estate agents, investors, and valuers (I might be missing some professionals that might crucial in developing our wealth).

Consistency - Part 2

We have discussed on acquiring knowledge and experience consistently by reading, sharing, and asking. So, now it’s the time to take action! We have discussed about Savings in previous article which is key element before we start develop our investment portfolio. Hence, how it can be done and materialized? And more importantly is consistently!

I believe almost all of us are earning salary or monthly income consistently and why not we reflect it into our saving too! It has very powerful element in order to success with consistent saving. People always emphasizing on steady (or consistent) income but hardly people emphasizing on consistent saving. Hence, again as highlighted in my previous article on Earning Vs Saving where I emphasized on the percentage of saving compared to the actual amount because it shows the CONSISTENCY. Again I would like emphasize here that we must consistently allocate our hard-earned money (steady income) for steady saving to ensure we can expedite to develop our investment portfolio.

Our way forward towards financial freedom is mainly to develop consistency on saving from our consistent active income. By having this steady income, must ensure that we can have consistent saving too on monthly basis. When we can develop our consistent saving automatically we can generate passive income consistently (with assumption no money is spent from saving dividends). As we develop further, there will be consistent passive income higher than our steady active income (please read Levels in Financial Freedom). You’ll see the miracle when we do it consistently from beginning, where financial freedom is just ahead of us and it’s possible to achieve.

If you notice, this CONSISTENCY will actually develop attitude to achieve our goal toward financial freedom. Anything we want to develop must develop from attitude, not specifically only finance subject matter but anything on earth. So, key element to success is attitude which has to be developed from habit which actually CONSISTENCY. Hence, when we can do it consistently you’ll see that you’ll slowly, steadily, and consistently will develop your investment portfolio. Let us start do it consistently!

Levels of Financial Freedom – Part 3

We have seen from level four (4) to level three (3) was like a magic where suddenly have some passive income but very minimal amount and cannot be used as our core income in our life due to insufficient amount. So, we can move ahead for higher level?

Again to achieve higher level is not something can be achieved overnight but will take some time and efforts to reach there. Now, to be in level two (2) where our passive income could cater our expenses or is higher than our expenses will be more challenging because we have trained ourselves to spend more than 50% of active income (very common scenario). Remember that our passive income still lower than our active income in this level two (2) but somehow able to cater our expenses. In this level, our passive income not possibly from dividends only but should be some other means like in property investment, businesses, etc. Bear in mind that all these must be halal and legitimate so that we are seen as the most handsome or beautiful person financially.

Similar to level three (3), we could reduce first our expenses so that we can develop our confident level to go ahead for sourcing some means of passive income. There so many means where we can get passive income but ensure we are well equipped with knowledge so that risk and loss can be minimized. Don’t simply attempt without knowledge, and the worst part is don’t simply acquire knowledge without taking any action (I hope you can get my point). Once you’re taking action, then experience will follow and you’ll find your skills much better than the beginning of your involvement.

Great! Now we have reached level two (2) and eager to go for level one (1) where anyone in this earth are looking to be in this level. What is the main difference? Obviously, passive income more dominant than active income and it could be passive income is much higher than total of active income and expenses. How it could happen? This is something like from level four (4) to level three (3) where the skills play a role to acquire more means of passive income; you’ll experience once you have reached level two (2). Many more to come on this passive income in future articles. So, stay tune with me!

The key element to be financially free here is that we must be very passionate and patient in achieving our target because there will be so many challenges along the way. Always remember “where is will, there are multi-ways”.

Levels of Financial Freedom – Part 2

We have discussed about the worst level or stage of the ranking in financial freedom ruler. Wow!!! It seems like music chart where we have ranking will be changing by weekly basis and similarly our aim to move on to be the best level in financial freedom ruler.

The next level or level five (5) will be the expenses is equivalent to the active income or the monthly salary received by us. This seems like not an issue but ultimately will affect our goal to achieve financial freedom. What would be the possible ways to bring our level to next level (level 4)? Exactly! Similar approach like we did to move from level six (6) to level five (5). What? Forgot? Yes, then you have to read, read, and read even the same materials until we take it into action.

After we have cut expenses and increase our income (mainly active income), we should able to move to level four (4) where our expenses is less than our active income which may put under savings which ultimately will be used as our fund or capital for investments. All this lift-up process of the levels will not happen overnight but will take some time and we have to be passionate and patient to move steadily. Remember about consistency!

So, we have some savings from surplus of our active income and we should have put somewhere to give us some return which is mainly some dividends because at this level this is the only potential passive income for us (even there are potential better investment with proper planning). Without noticing it, we have moved to level three (3) where we have some passive income but definitely much lower than our expenses.

Let us digest first these three (3) levels here before we proceed higher level which are level 2 and ultimately level 1. Digest here is not only read, read, and read but also understand prior to take action. Definitely later we must take action to make it realistic. Whoever have reached this level, CONGRATULATION! We’ll move ahead to higher level soon.

Levels of Financial Freedom – Part 1

How can we gauge our financial freedom level in life? Are we healthy enough financially? How to optimize it? What are the supplements can be taken to improve our healthiness? All these are important because we can only improve if we are able to detect our own loopholes. It’s not sufficient only by knowing the loopholes but must know how to rectify it so that our goal for financial freedom can materialized as we planned.

I personally segregate level of financial freedom into six (6) different levels by referring to our active income, passive income, expenses, and savings. How all these four (4) items are very important? These are the tools can gauge our attitude and reflect it into our financially healthiness which can be rectified if we have certain “diseases” which may be harming our goal to achieve our financial freedom.

The worst level ever in financial freedom is where our expenses is more than our active income. What? Where is our passive income? My friend, if there deficit in our balance sheet, it shows that there is no other income except our active income. In this situation, the most probable causes are due to bad debts and money spent to unnecessary items, i.e. updating gadgets based on latest available models which ultimately reflect our bad habit in finance subject matter. So, how to rectify it to be at the best level or at least one level higher than this worst level? You may go on How To Start Saving - Part 1 and How To Start Saving - Part 2 as a starter to rectify your "illness" and comment if have some specific area to be discussed.

We will discuss more on the remaining five (5) levels in the next coming article Levels of Financial Freedom – Part 2. List down all our passive income, active income, and expenses so that we can gauge our level if we are lucky enough not to be in this level. Again! Remember that money could be the Cash King but knowledge is the QUEEN to manage our wealth wisely.

Excuses

Anything human made will have both pros and contras. So, as human being we must able to differentiate so that we can really benefit from those human made ideologies, products, etc. Similarly as we discussed for our savings that possibly implemented might be impossible for some other people. What would be potential causes to make it impossible to this group? Hehe! Back to the topic of this article, which is "Excuses". So, identify our excuses so that we can eliminate this culprit (excuses) to make our plan for savings to be possible.

Why is this culprit can exist and stopping us from taking action so that our dream can be materialized? Attitude? Education level? Be precise with the "education" my friend! Yes! Financial education level! What else could be the potential causes spreading this virus among us and stopping us from being rich?

How is this culprit or virus can be reduced and ultimately eliminate from our attitude in order to start implement our target for financial freedom which is the basis fundamental is by savings? Again, as highlighted in previous article on How To Start Saving - Part 1 and How To Start Saving - Part 2 we must very particular on our inflow and outflow to monitor the exact flow of our money. Hence, "Excuses" is just matter of attitude and can be eliminate slowly with some level of knowledge in finance subject matter.

So, how we can eliminate this virus from our attitude in order to achieve our financial freedom? Let us discuss in new article to be published soon. Coming soon!

How To Start Saving – Part 2

Let say you have started saving part of your net monthly salary but not consistent over the time because of some circumstances. What would be the scenario this could happen? Before that, any of us experienced it? Answer honestly so that it can be rectified. Be honest, nobody is perfect in doing anything. As a human being, people tend to do mistakes. So, learn from the mistakes to lift ourselves one (1) level higher compared to others that never attempt at all.

This scenario could happen if we started our saving with very high portion whereby it is not possible to allocate such huge portion if this is our first experience to allocate our income for the savings. Hence, be realistic with our intention where we could start with 5% our income then slowly develop discipline to maintain monthly saving. From there, we can gradually increase our saving based on annual basis with another 5%. Bear in mind that this is the portion or percentage whereby the absolute figures (savings) could be higher if there are salary increment or adjustment on annual basis.

How to increase the percentage of our savings from first year to the following years? As discussed earlier on salary increment or adjustment, there are lot more ways that we can increase our active income (hard-earned income). Some might ask how it is possible if we are just an employee with fixed monthly income and no other source of income. So, how is it possible? Is it a joke? Haha! Have you done with your laughing? Then, let us discuss how we can get extra income by maintaining our permanent job. Be frank, to discuss about how to get additional income could be a separate topic with more than 200 pages but let us just brainstorm what could possibly be done to increase our monthly income.

Definitely there are people good are certain area and willing to share it with others and the mean of doing so can be called as tuition or consultancy. So, by teaching to others with reasonable fees could surplus our normal monthly income. Great! Now you have extra source of income besides normal routine job. What?! You can’t teach? Then, you might sell something by buying in bulk and selling at retail price. Obviously we must ensure those are halal (for Muslim) and legitimate in our country.

There is indirect way to increase our saving which is by reducing our expenses, it could be unnecessary which might not be really needed but due to some circumstances we’ve been buying or subscribing. Hence, by stop buying or unsubscribing will give extra value to our savings. Again it is not difficult to allocate some portion of our salary for the savings where if we could do both scenario; increase active income and reducing expenses. By doing so, we may can allocate saving up to 20% because it is very rare case we need more than 50% of our salary if properly manage our expenses.

Last but not least, discipline and consistency is the crucial part in developing our skills for the financial freedom. All these only can be achieved with passionate to follow our plan systematically and consistently. Don’t wait my friends, start doing it because the moment you started you’re not too late.

How to Start Saving – Part 1

Key element to start to be financially free is discipline to do saving from the active income. If a person doesn’t has any saving then it is difficult to get along the right track for financial freedom. Why it is very important to start with savings prior to investment or to achieve financial freedom?

Whoever we are, how old we are, it is not too late as long as we just started a minute ago. The key point is that we must start have savings. It could be very difficult for us if we never practised to allocate our salary for the savings with so many monthly commitment to pay. If we have done it before then it is very practical for us. It would be much more helpful if we could make it as a habit to allocate part of our salary for the savings. For those who started career with less than a year could be much simpler to discipline ourselves by assuming no commitment in place yet.

It is very simple to start saving if we can follow our plan by listing our net salary with all the monthly expenses. Again it is not about the amount but percentage and consistency throughout our life towards our goal to achieve financial freedom. By listing the numbers, we can easily illustrate our savings because most of the time will not lie to us unless we lied to ourselves on the numbers. Clear? Or not really clear? Or totally blur? What I meant here is that we should be honest with listing so that more reasonable plan can be implemented. Let say we just started our career with no experience in savings, then don’t be too optimistic to put more than 50% of our net salary. I’m not saying it is impossible but we don’t drive start with higher gear to drive faster but we should start with lower gear to get speed and then slowly we’ll speed by changing to higher gear.

For instance, take an example to get better picture on it. Case study; Afnan started career as an engineer with salary of RM 2,000 and force himself with saving of RM 1,000 whereby the living cost itself could be more than RM 1,000 with current market price for rental, transportation, foods, etc. Hence, he has to be realistic when giving driving force to allocate his salary for savings. So, what would be the saving percentage? I would suggest to go for 5% or 10% first then slowly develop skills to increase the portion as time flies. As time flies, don’t increase lifestyle but increase the saving portions and we can see the effect really tremendous without we notice it.

As highlighted earlier, when we allocate our money for savings, consistency play a big role towards our goal to create our investment portfolio and ultimately to achieve financial freedom.

Earning vs Saving

Everybody have the steady earning but not everybody have the steady saving. What is the real correlation between these two? Which one is more important? Why is that important? Why saving is important whereby people always discuss about inflation which current value will not be the same in the next five years? Better leverage our money for investment rather than just saving. There would be so many arguments about saving which is not really advisable relative to current fluctuation in economy. Before we go further, we always must remember that, "it's good to be rich but it's better not to be poor".

How many of us have started saving with steady saving every month from the beginning of his/her career life? Be frank, I admit that when first started my career life there are so many wishlists to be bought from the first drawn salary. As time flies, we might aware that savings is crucial to back-up us during any uncertainties. Some says, emergency fund must be six (6) months salary or one (1) year salary in case of any uncertainties. Why people always mention relative figure not absolute figure? Any idea on relative figure and absolute figure?

Relative figure is something subjective where it comes from the salary for specific person and absolute figure is a fixed salary, i.e. RM 2,000, RM 5,000, RM 10,000, RM 20,000, RM 30,000, etc. If a person having salary of RM 3,000, he/she having sufficient amount fund during emergency which is more than six (6) months salary and his/her living style is designed based on RM 3,000/month expenses. Whereby for those getting salary RM 20,000 or higher would not help much as the committed amount is only valid maximum two (2) months which is far lesser than minimum requirement, six (6) months salary.

Hence, it's not about how much we put aside for saving but how consistent and portion are we put aside for saving. For those never had consistent saving might start with very minimum saving which is as low as 10% and slowly increase by annual basis. Is it possible? Obviously it is possible if proper financial planning is in place by discipline ourselves on expenses which is indirectly reflect to our living style. So, back to how good the saving based on relative figure, i.e. which one is considered having better saving from two different individual with two different salary bracket;  if a person with salary of RM 3,000 can put aside RM 600 for saving and a person with salary of RM 10,000 can put aside RM 1,000? For me the person with salary of RM 3,000 and saving of RM 600 is wiser than the one with salary of RM 10,000 and saving of RM 1,000. Why? Don't look at the absolute figure but on relative figure, 20% versus 10%.

Slowly develop our discipline in managing our financial strategy in order to achieve financial freedom even while working as a employee. From the steady saving comes the steady investment because slowly the knowledge and experience being polished simultaneously.