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.

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! 

Kepentingan Kewangan Peribadi – Bahagian 2

Seperti yang ditulis sebelum ini mengenai keseimbangan tunai adalah amat berkaitan dengan kesihatan kewangan kita. Ini adalah kerana keseimbangan ini adalah hasil daripada sikap kita dalam pengurusan kewangan kita. Pengurusan kewangan kita akan menghasilkan keseimbangan dalam aliran tunai kita sekiranya diurus dengan ilmu yang sentiasa berkembang selaras dengan kemudahan-kemudahan kewangan yang ditawarkan dalam pasaran terkini. Bagaimanakah semua ini mungkin?

Dalam menghasilkan keseimbangan aliran tunai kita yang sihat, perlulah kita dapat perhalusi aliran masuk dan keluar tunai kita supaya ianya dapat dikawal untuk memaksimumkan dalam simpanan dan pelaburan kita. Dengan pengurusan kewangan yang rapi, kita boleh mengesan ke mana hilangnya wang kita walaupun hanya RM 1. Mungkin ada yang menyatakan bahawa adalah amat cerewet untuk mencatit setiap satu perbelanjaan bagi setiap bulan. Namun, mesti ada hikmahnya dengan melakukan semua ini yakni wang untuk simpanan dapat dimaksimakan. Saya tidak menafikan ada yang meletakkan sebahagian amaun untuk perbelanjaan untuk setiap bulan supaya tidak leceh untuk menguruskan setiap perbelanjaan tersebut. Walau bagaimanapun, amaun tersebut dapat dikesan dengan memberikan segala senarai perbelanjaan supaya ianya lebih rasional kerana agar tidak terlampau rendah atau terlampau tinggi daripada perbelanjaan.

Setakat ini segala pengurusan kewangan yang dibincangkan adalah berdasarkan pengetahuan yang asas daripada gaji yang masuk setiap bulan dan perbelanjaan yang keluar setiap bulan. Ianya dapat dioptimumkan lebih lagi sekiranya dapat menggunakan kemudahan-kemudahan kewangan yang terdapat di pasaran. Ianya akan dibincangkan pada masa akan datang.

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.

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.

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.

Credit Card - Part 2 (Balance Transfer)

It is almost half a year I wrote about credit card whether benefiting or harming the owner. Again as explained previously in earlier post about how a knife acts upon it's functionality, we must fully aware of the impacts.

Any of you heard of BT? Never heard this acronym? Hmmmm, how about "Balance Transfer"? Never heard but thinking have read somewhere in newspaper? Great! At least have sensed about it. Now worries for newbies about this jargon because this is not really high linguistic jargon. This is very simple terminology by it's definition where the remaining or full balance from somewhere will be transferred to somewhere else. Where exactly this somewhere? Any idea? Back to the title of this post, from credit card A to credit card B. Why exactly do they have this package in banking business? Do I care? Not really, I'm not even bother why they introduce because this is part of their products and they are free to do so. So, as a consumer or customer we must able to benefit whatever products they introduce into the market.

So, when can we use this BT? There are some criteria normally imposed by bank via this BT program where we may only can transfer certain amount as a minimum amount. First, we may utilize this BT program if we're stuck with cash of any amount to be paid to original bank of credit card A and to reduce the compounding interest. If this is the case, we may not really worry about the rate will be imposed by bank issuing credit card B because the rate will be much much lower than compounding interest from paying only minimum amount. Most of the banks normally have number of choices to choose on the BT plan; 3-months, 6-months, 9-months, 12-months, etc. The rate also may differ among the plan. Hence, choose wisely so that we can benefit at maximum level.

Other than previous scenario, we may have amount to be paid to bank of credit card A but we may want to invest that amount in some alternatives. In this case, any rate imposed by banks are not recommended because we'll be losing our money, unless our investment can give much higher return than rate being imposed by the bank. Let us assume for the worst case where our return not much and lower than any rate offered by bank and what would be the scenario we can consider? In this case try to get whichever plan gives 0% rate and this plan usually very limited and very occasional basis. 

So, we as a consumer or customer always right and try to utilize the maximum possible so that we benefit whatever products being promoted by banks. Banks may have hundreds of strategies to create profit, similarly we create hundreds of strategies to benefit from their own products.

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.

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.