Employee Provident Fund (EPF) – Part 3

We have discussed about the impact on the profit rate charged by banks is normally lower for higher loan amount and vice versa. Before we further, let us see what are available withdrawal types for housing loan so that nothing is missed out in our discussion here.

•          Withdrawal to reduce or settle outstanding housing loan
•          Withdrawal for buying house
•          Withdrawal for monthly installment on housing loan
•          Withdrawal for flexible housing loan

Again as highlighted earlier, withdrawal to reduce or settle outstanding housing loan will be the best option based on criteria for less hassles and for better profit rate on our financing products. Withdrawal for buying house is very common for the first time purchaser because of the down-payment issue if can get something attractive deal from the developer or owner.

The next one is on monthly installment on housing loan where our monthly installment will be paid via our money from account two (2) in EPF based on total amount available when submitting our application. Let me illustrate from monetary value, say we have RM 12,000 in our account two (2) and our installment is RM 800, then EPF will pay on standing instruction by depositing into our saving/current account so that can be paid to our housing loan account. This is how it takes place on withdrawal for monthly installment.

Last but not least on withdrawal for flexible housing loan where this is almost similar to previous to pay on monthly basis and it has very tedious procedures and not all banks offering through this scheme. Since there is not much benefit from this withdrawal, no further discussion I want to highlight here.

In conclusion, I may say that the best option could be withdrawal to reduce or settle outstanding loan based on all the justifications we have seen earlier. You may judge accordingly and choose whichever the best suit with your need.

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.

Loans

Do we need loans in our life? Is it important in our life? Some says, it's not recommended to have loan or many loans. I believe most of us have heard or seen about good debts and bad debts right? So, how to know whether the loan we are acquiring is good or bad? Simple concept on this good and bad debts is on the impacts from these two (2) debts/loans; good debts/loans is something can make us richer and richer, whereby bad debts is something can make us poorer and poorer.

As discussed earlier, there are so many products in banking world and to be more specific; they are so many loan types based on needs and requirement. Sometime due to our knowledge level, we may acquire bad debts. This may happen accidentally or unfortunately. Another rule of thumbs is that it is very to get good debts and it is very easy to get bad debts. Sounds good so far? Let us discuss further in upcoming articles.

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).

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”.

Knowing the Rules

One of key element to achieve financial freedom is via knowing the rules to be rich. We must fully aware and knowledge about the rules in financial matter including banking, taxation, etc. How we can benefit from knowing the rules?

To answer on how we can benefit is mainly on how we can fully utilize the rules to protect our savings or investments. As a footballer, he must know the rules on do’s and don’ts when playing for a team. Before ahead with skills, we must fully aware all relevant rules in any fields. Similarly, we must know the fundamental in finance subject matter then develop the skills as experience grows.

Experience in finance subject matter could be developed directly from own experience or indirectly by reading, attending talks, etc. Gaining experience not necessarily would be something positive but negative as well from both ways either direct or indirect. However, applying both experiences appropriately could lead to awesome results where almost all risks taken are measurable risks and able to minimize it. Rule of thumb in finance subject matter or developing investment portfolio it is recommended to gain as much of negative experiences from secondary sources.

How can we define our secondary experiences to avoid this happen to us while executing our tasks towards financial freedom? As highlighted earlier, we must able to gain somebody else experiences via reading books, attending talks, seminars, chatting, etc. which normally this well-known investor have published their books to be shared publicly so that people can benefit from their previous loopholes.

Gaining secondary experiences can be one of the way knowing the rules in developing investment portfolio where there could be something totally new to us since we are not familiar with the particular investment area. Hence, whatever investment portfolio we’re developing we must know the rules which is must be obviously legitimate in our country and it is halal for Muslims. Again, educate ourselves with knowledge so that we’re always up-to-date with latest rules and always conscious with any potential opportunities.

Shopping

Shopping is an activity in which a customer browses the available goods or services presented by one or more retailers with the intent to purchase a suitable selection of them. In some contexts it may be considered a leisure activity as well as an economic one (source: http://en.wikipedia.org/wiki/Shopping)

Shopping is very synonym with us and it is very popular during festive seasons due to our culture to buy new items during this season. Most of us been thinking that shopping is something ended-up with buying. This is especially those never had experience window shopping. For those who had experienced window shopping might be more confident when telling that shopping not necessarily ended with buying goods. Even window shopping sometime not really a good practice because ended-up with buying the interested items sooner or later.

I define shopping for my own use as evaluation process before purchasing any interested items so that we are getting the best of the best in the market. It could not be the real best of the best but at least the best of the best among we evaluated. Hence, we'll have some confident when making judgement to purchase it whether in term of price or quality. So far I'm been writing about shopping normally done by us as human being.

Come into real picture about shopping for me actually is about getting the best deal which lead us to achieve our goal financial freedom slowly but consistently. I've been writing about increase our financial knowledge by reading books, attending courses, attending seminars, etc. So, how we can apply the concept of shopping in this field? You may go shopping for books available in the market about financial education to educate us about how to succeed or at least to prevent for losing our hard-earned monies. When you start reading, you may know later how to go shopping on money related courses and seminars. Knowledge is actually preparing us shopping for better choices mainly related to good shopping; namely shopping for credit cards, shopping for lawyers, shopping for loans/mortgage, shopping for real estates, etc.