The global pandemic that hit the world has changed all aspects of our life. Besides the health and human loss that is caused by COVID-19, it has also impacted the economy quite severely.
Efforts by the government to curb the pandemic by imposing Movement Control Order (MCO) have a great impact on businesses and individuals. Many companies have closed shop and many individuals saw their income greatly reduced.
To help Malaysians, the Employees Provident Fund (EPF) rolled out three withdrawal retirement income initiatives namely i-Lestari, i-Sinar and i-Citra. The pandemic has clearly disrupted the cash flow of individuals affected by lockdown and economic slowdown.
A total of RM101.1 billion EPF withdrawals have been made and there are now 54% or 4.4 million members who have less than RM10,000 savings in their EPF.
This leads us to the question; can we save for retirement in this post-pandemic era?
A Long Term Game
Saving for retirement is a lifelong journey. Many Malaysians put their savings for retirement plans on-hold as they struggle for the past few years.
A survey conducted by the Private Pension Administrator (PPA) highlighted that 80.1% of respondents who are facing financial challenges were rethinking their retirement plans and goals, while 19.2% of respondents want to resume saving once they have achieved financial stability.
Government approval on EPF withdrawals should not be the only solution to ease an individual’s burden. To alleviate the difficulties of the rakyat, the government must create more funding schemes or come out with other forms of assistance rather than approving the withdrawals from retirement funds.
This will be a huge problem in the future, as many are left with very little once they retire.
The country is now rebuilding its economy, our borders have reopened, and many people are going back to work. Even the traffic jams are getting worse.
If you are badly affected and have exhausted the means from your EPF, it is about time to start filling in your retirement funds. We can see the light at the end of the tunnel, just need to persevere a little bit more.
About the Author
Nur Aiziera Sukmancompleted her Masters in Quality & Productivity Improvement from Universiti Kebangsaan Malaysia in 2007. She has more than 10 years of experience in the Financial Services industry and specializes in understanding financial planning needs and develop customized plans to suit retail and corporate client.
In 2019 she pursued her professional certificate in Certified Financial Planner from Financial Planning Association of Malaysia and continued her study in Islamic Financial Planner from IFBIM and received the IFP Certificate in 2021. She can be reached at aiziera@aswaadvisory.com.
Aswa Advisory is your preferred one-stop center for Shariah Independent Financial Advisory. Get a free consultation from an Islamic Financial Adviser Representative by filling in your details here:https://www.smartinvestor.com.my/SIxAswa
In order to become financially independent, the need to track your net worth is a crucial step. And for our net worth to grow, we need to have good cash flow management where part of our income is retained and converted into financial assets. Can we spend or can we not?
However, when I say good cash flow management, this does not mean you have to track what you spend every day. Usually, people associate this with not spending money or cutting back on their lifestyle, which is inaccurate.
Rather than doing that, I believe that we should not suppress our urge to live our life the way we want it. We work so hard every day, so why shouldn’t we live the lifestyle that we would like to have?
Why it’s OK to spend?
I’m not here to tell you not spend money, and I’m not here to tell you that you should save x% of your income either. With our lives surrounded by advertisements that promote consumerism, it’s not easy to resist the temptation to spend. Instead, I’m here to tell you that it’s okay to spend money.
Generally, there are three types of spenders – which category do you belong to?
Type 1: Spend More Than You Earn
Despite enjoying and living on our own terms to the max as a Type 1 spender, it comes with consequences. Since the additional spending is funded by money that is not ours, there will be time when you will need to pay it back, and it will not be fun when that time comes.
Immediate gratification is common for Type 1 spenders, as their wants and needs get fulfilled. Over time, however, this may become a habit and if you are trying to adjust or change this habit later, it may already be too difficult, and the process may not be easy.
Type 2: Spend What You Earn
Those in this category are usually smart enough to avoid the painful journey of paying back what they owe the bank, and so they spend within their means. If they bring home RM1, they spend RM1. This seems slightly more attractive than the first type, as this is living in the present without having to worry about payback.
However, this has its downsides too.
The downside comes from you having to continuously earn an income to pay for the food and services you need. It means that you cannot stop working. The day you stop working is the day you stop earning an income, and you’ll then no longer be able to pay for what you need.
That said, this category isn’t entirely ideal either. On the flipside, if you are a salaried employee, you are automatically made to save at least 11% of your gross salary in anticipation of your golden age.
However, this can only be enjoyed after your retirement. What about the other life priorities and goals that you would like to pursue between now and when you retire? If we spend all that we take home now, we will never have the ability to pursue these life goals.
Type 3: Spend Not More Than 90% Of What You Earn
This type of spender acknowledges the irony of the need to spend and to save, and makes it a point to set aside part of their take-home income to prepare for their future.
While living in the present, they also prepare for the future. This group of spenders understand that it is better to prepare than to repair. With the goal of spending not more than 90% of the take-home income, they practice what is referred to as ‘pay-yourself-first’.
You can decide how to spend as you like, so long you keep the maximum available for spending at 90%. If you can lower that spending amount, you will have more control over your quest towards financial independence.
By doing so, you have choices for your future. You are not just saving money; you are giving yourself more flexibility and options.
Honest Self Review
So, which type of spender are you now? If it’s up to you, which type of spender would you want to be? If you are not there yet, what is stopping you from getting there?
Usually, people who have insufficient monies to spend every month would say that they have to spend all their monies because they are not making enough. For these people, their mantra is ‘I will start saving when my income increases”.
Do you have these same thoughts too? My advice to you is to not wait – we can start making an effort to not spend all your take-home income today.
However, despite its benefits and advantages, just being a Type 3 spender is not going to promise you financial independence. Without managing the monies that you save in an efficient manner that supports your personal values, chances are you are not making full use of your financial muscles.
If you are unsure about your current spending behaviors and how to manage your personal finance, let’s chat.
Kevin Neoh is a NextGen Money Coach who works with people to help them transform their relationship with money to improve their lives with the money they have. Kevin can be contacted at kevin@nextgenadvisors.my and www.kevinneoh.my.
C: Women have inherent qualities that enable them to plan their own and their family’s finances
In my financial planning practice, I have observed that female clients, whether they be single career women or married with children, tend to face similar dilemmas and challenges when it comes to planning their personal finances.
But why is that happening to them? They should and they must have their roles in family finances.
Lack Of Time Due To Multiple Roles
There is no denying that the modern-day woman is highly adept at multi-tasking – from her job, her family, her children’s education to other social obligations and so forth. The downside of assuming so many roles and responsibilities is that it leaves hardly any time for herself at all.
Any precious moments of “me-time” that ladies can manage to squeeze out of their packed schedule goes towards rest and de-stressing to rejuvenate themselves. Financial planning issues will hardly be on their minds after a long day.
Tendency To Priorities Family Rather Than Themselves
Being selfless and filial are undoubtedly noble characteristics that every parent, husband or sibling would want their daughter, spouse or sister to have. However, when putting the interests of family members ahead of your own, more often than not, your own needs may be neglected.
A Senses Of Apprehension When It Comes To Managing Money
This can be real, imagined or selective. Numbers and calculations can be intimidating to certain individuals regardless of gender or age. Others tend to shy away from money matters because they find it too complicated and confusing, preferring to let their spouse handle it so that they can focus on other responsibilities.
My wife is happy to help our son with his algebra and trigonometry, but she claims to make no sense out of a financial spreadsheet.
Female clients sometimes base their decisions on how they “feel” about something. While having a keen financial gut instinct has made many billionaires, it is another thing when the heart overrides the mind in making investment decisions.
Examples would be putting money in investment plans because a friend “strongly recommended” it, or out of sympathy for your banker whom you known for ages and needs to meet his/her sales target.
Choosing To Save Rather Than Invest
Some individuals consciously decide to continue saving in cash, preferring to keep the bulk of their money in fixed deposits despite the dismal returns. They are in fact aware and reasonably well informed of their options but due to their position in the family (for example, being the only daughter or the only unmarried sibling), they feel a sense of duty or responsibility to have funds on hand to assist other family members should they require it urgently.
Taking on the status of the family’s “standby banker” no matter how well-meaning, denies some women the opportunity to plan for their own financial future. Instead of viewing these challenges as barriers, turn them into catalysts for your personal financial growth instead. There are many ways to empower oneself to take control and own your financial destiny.
Reprogramming The Mindset And Be Prepared
While you may currently have the luxury of someone else handling the household’s financial matters for you, i.e. your spouse, there may come a time when you need to take over or assist in those duties. If you are already prepared, well and good. If not, take time to increase your own financial literacy so that assuming the role of the home’s financial manager will be a comfortable transition.
Be Heard And Be More Involved
Suppose money matters are not exactly your cup of tea. It may be tempting to leave all the family finances to someone else, especially if things are running smoothly and the party handling it has the necessary expertise and experience and doesn’t seem to mind doing it. However, you may have insights and suggestions for improvements, so share your thoughts rather than keep them to yourself.
Make It A Learning Process
If your financial matters are currently delegated or outsourced to other parties, there is the danger that you may one day find yourself in a situation where this party is unable or unwilling to continue the responsibility. Thus, it is important to get yourself educated on how to handle your own personal finances rather than leaving such a crucial task entirely to someone else.
Leverage On Other People’s Time
If you find yourself already overwhelmed with work and other obligations, learning to put your personal financial matters in order from ground zero may seem like a mammoth task. Under these circumstances, a licensed financial planner would be able to work together with you and assist you through the entire process while ensuring your involvement every step of the way.
Individuals are not born with good personal financial skills, but everyone can learn how to be competent at it. Due to personal and family circumstances, women are often unable to take advantage of the opportunities present to improve their financial knowledge and be as hands-on in their personal financial matters as possible.
Nevertheless, women already have a natural advantage in taking on the role, thanks to two critical attributes that play a huge part in successful financial planning.
Firstly, regardless of age group, education level or social strata, almost all women are inclined toward a long-term mindset in whatever course of action is decided upon. This is usually more evident when it comes to buying a vehicle for example, or renovating a home or planning for the children’s education. Rarely are decisions made by women in the household without thinking two or more steps ahead about the effects and implications, contrasted with men like many of us who are more prone to “act first, think later”.
Secondly, women tend to err on the conservative side of men by questioning downside risks before taking action, which is actually a good thing. While profit and returns are typically top on the list of male investors, having a woman jointly involved in the investment decision would help to temper any hasty actions and mitigate potential financial risks.
As such, these inherent qualities in women make them suitable candidates to plan their own and their family’s finances. With guidance and financial education, they have the potential to surprise even themselves.
A household may have mixed styles of financial management as both men and women are good in personal finances in their own ways, therefore by complementing one another and learning from one another, amazing results can be achieved.
About the Author:
Felix Neoh CFP CERT TM is the Director of Financial Planning at Finwealth Management Sdn Bhd and is a certified member of FPAM. He can be contacted at enquiry@finwealth.com.my
We at Smart Investor and Finwealth is committed to help you better manage your financials. Get a free consultation from an expert by filling in your details here: https://www.smartinvestor.com.my/SIxFinwealth
For us to pursue our multiple life goals, we will need to have financial resources, which is like our ‘financial muscle’. We will need to have muscles to do the weight-lifting, which is to turn our life goals into reality. Therefore, we need to have the know how.
This, essentially, is financial literacy.
The Organization of Economic Co-operation and Development has defined financial literacy as a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing.
Why Is Financial Literacy Important?
Obviously, the decision we make today has a long-term impact on our financial wellness in the future. Hence, a poorly made decision may have a very detrimental impact on our future.
If a person is not financially literate, then this person may face multiple challenges in respect to managing his or her own wealth. Potential consequences can be:
Not protecting savings and assets adequately;
Not prudent in borrowings and ending up with too much debt;
Not investing to inflation-proof your purchasing power;
Not having a will; and
Not having financial safety net like an emergency fund and health insurance.
The list can go on and on.
When a person is in a situation as above, it’ll be rather difficult person to attain financial independence as well as pursue his or her life goals.
How Financially Literate Are We?
The following statistics from the National Strategy for Financial Literacy 2019-2023 Report gives us a picture of where we stand as a nation in terms of financial literacy.
43% of Malaysians understand that growth of money is compounded over time, while 22% believe money grows on linear basis;
75% of Malaysians understand that inflation means cost of living is rising, only 38% can relate the effect of inflation on their own purchasing power;
84% of Malaysians who claim to save regularly typically withdraw it at month-end to cover daily subsistence expenses;
Three in 10 of working adults need to borrow money to buy essential goods;
52% have difficulty raising RM1,000 as an emergency fund;
Only 24% are able to sustain their living expenses for at least three months if they lose their main source of income, and only 10% can sustain for more than six months;
Six in 10 adults are self-employed and hence not covered by a social security system or any formal retirement fund; and
About 60% of investors were found to have unrealistic expectations on potential annual return from investment in capital market products.
A Financially Responsible Person
When a person is financially literate, he or she will be more capable in understanding how his or her decision can impact their financial future, hence becoming a responsible person financially.
When we are financially responsible, we will be careful about adding financial responsibility to our finances. We will ensure that we do not spend all we make but make provision for our future, and for emergencies.
In fact, most people are aware of this but somehow, fail to take action.
What Is Missing?
Since most of us who are working adults have not been taught about financial literacy in school, we need to learn it from somewhere.
Learning is a passive thing – you can continue to read, learn, listen to podcasts or attend workshops for years. However, it is not the learning that matters but the doing that makes a difference.
To ensure that we do what is in our best interests, not only do we need financial education, we also need financial accountability. I truly think this is the key missing piece of the puzzle.
That is why we are unable to behave rationally and stick to our plans, fail to save what we plan to save every month, all because of a lack of accountability.
I will define accountability as having a sense of ownership over your work and accepting consequences for your actions and behaviours.
Many times, we are aware that if we don’t save, it will leave us in a worse shape compared to when we save. But we spend anyway.
So to increase your financial accountability, it’s best if you work with someone interested to help you stay true to your own words, and be accountable for your own actions.
Financial Accountability Partner
An accountability partner is someone who coaches another person to keep a commitment. Getting a right accountability partner is known to be a highly effective strategy for goal-setting and achievement.
The good news is that If we want to stick with our action plan, we just need an accountability partner. The bad news is that we cannot be our own accountability partner.
And if you have selected a candidate who is not so suitable, your accountability partner may well turn into your partner in crime.
What To Look For In Your Accountability Partner?
Ideally, this person should be able to complement you in terms of knowledge, skills, expertise. Since this is a financial accountability need, your candidate should possess extensive knowledge on this subject matter. Otherwise, coaching you to do the wrong thing will eventually send you down a path that is cursed as well.
However, you should look beyond things that are measurable such as knowledge. Will this person be willing to challenge you to out-grow your limit?
Your main objective of getting an accountability partner is to outperform your own set objectives. Therefore, you need someone who has the courage and discipline to tell you what you need to hear, not what you want to hear.
Your accountability partner should also be able to make sure you follow through on your commitments, monitor and review your action plans with you so that you can find ways to improve on it.
When you are in doubt, he should also be able to provide you with independent feedback and show you the next step so that you will not be stuck at status quo.
Who Can Be Your Ideal Financial Accountability Partner?
Most of us have friends, and family members who we care a lot for. Are we their financial accountability partner?
Did any of our friends or family members volunteer to talk to us about our financial successes and planning? Has anyone have taken the time or initiative to tell us the importance of save-first, spend later, or the importance of having an emergency fund?
I guess the common answer to these questions will be a string of “no’s”.
That is also why I volunteer myself to be your financial accountability partner by devoting my lifework to be a licensed financial planner. I have a strong sense of fulfilment whenever people feedback to me that they are seeing progress and happy because they are sticking to their own plans and are seeing results.
That sense of fulfilment is even stronger when I get credit for the success my client is having.
Personally, I believe that it is important for us to work at something we love to do and are passionate about. I’m just glad I’m under this category.
I think someone who is doing what they are doing when not motivated by monetary reward alone, will be the right person to do the best work.
So, get an accountability partner to make sure you are accountable for your financial independence.
About the author
Kevin Neoh is a NextGen Money Coach who works with people to help them transform their relationship with money to improve their lives with the money they have. Kevin can be contacted at kevin@nextgenadvisors.my and www.kevinneoh.my.
As a counsellor, I have seen many young adults come in claiming that they are depressed. From my perspective what they might actually be experiencing can be termed as ‘’quarter life crisis’’
Then the question arises “What is quarter-life crisis?’’
This is a new phenomenon that is happening to young adults who are in their twenties and thirties. Fresh graduates who are entering the ‘real world’, suddenly find themselves under a lot of pressure to succeed vocationally, relationally and financially even before hitting their thirties!
Signs That Young Adults are Facing a Quarter Life Crisis
They are confused about what their next step in life should be – Questions like these would appear in their minds: Is this what I want in life? Will I be stuck here? What can I do next? There are tons of questions that they don’t seem to be able to answer.
They are overwhelmed by all the possibilities out there – The modern economy is fast and dynamic; it’s in a constant state of change. Adapting or succumbing to change is the only option. This creates high stress and anxiety effect on them.
They feel stuck in terms of their life choices and feel like not having control over their own future – Some may feel pressured to marry and have children before the age of 30 as some of their friends may already be married and have a high-paying job to accommodate their luxurious lifestyle whereas they are still questioning the decisions they made for their life.They keep jumping from one career to another. They spend a lot of time wondering if they should work for money or follow their passion and do what they love. They would second-guess their choice of career field and be probably wondering if they should go abroad to explore the opportunities or stay where their family and friends are.
Finding the Right Ways to Cope
Become aware
Identify which aspects of their life they struggle with and break them down into smaller segment. Look at it one by one; don’t mix relationship issues with career, and don’t compartmentalise them either.
Don’t be hard on them
Remember that they are a beginner and it takes time to adjust. Venturing into something new is a tough transition so be patient.
Don’t be afraid to let them try new things
It is okay to make mistakes as they journey through this phase in their life. They will slowly gain experience as they go along and this will be their priceless assets. It is like learning how to ride a bicycle and once they master it, they will be able to do it without having to think of it much.
Recognise their achievements
Recognise their accomplishments. Take pride in them. Be grateful for them. It will provide them with the energy to keep moving forward. Take comfort in knowing that through hard work and determination, everything else will fall into place.
Seek help from a counsellor or a mentor
Find a counsellor/career mentor to help them strategise what their next move should be. Counsellors/career mentors are trained to identify problems people face and will be able to empower a person who is facing difficulties find practical solutions to their problems.
Lastly, quarter-life crisis is not a crisis! It is an expected development of personal growth and evolution of an individual. Young adults are growing, learning and noticing new talents as they grow. It is not a crisis if they have not achieved greatness by their late twenties and it is okay to make mistakes as it helps them become better human beings.
As long as they continue to love themselves, discover their potentials, and evolve into their authentic self just remember that every step they take in life is helping them become something better.
So, if at any point of time you come across a young adult who is facing a hurdle in their path, don’t let it overturn them, just encourage them to keep going as this is just a small dent in the road, to the beginning of the rest of their life. After all this is what is called LIFE.
About the author
Faith Foo (MA Counselling) is aRegistered & Licensed Counsellor at Rekindle Therapy (www.rekindletherapy.com)
Insurers in Asia are experiencing above inflation rises in the cost of employer-sponsored medical benefits programs over pre-pandemic levels, according to a report by Mercer Marsh Benefits (MMB). According to findings in MMBHealth Trends, costs in Malaysia decreased by 3% in 2020, but increased by 8% in 2021. Insurers are expecting medical costs to further rise by 12% in 2022 – six times the predicted general inflation rate for Malaysia, the third highest increase in Asia, the report noted.
The MMB Health Trends report surveys 210 insurers globally, including 74 in Asia, and identifies key trends influencing the future of employer-provided medical benefits. The results show that five countries in Asia experienced higher medical trend rates than the regional average (8.8%) in 2021, namely India with the highest medical inflation rate of 14%, followed by China (12%), Indonesia (10%), Vietnam (10%), and the Philippines (9%). Overall, 81% of insurers in Asia indicated an upward trend in medical claims activity in 2021, even though 53% of insurers reported lower medical claims than pre-pandemic levels.
Malaysia’s Ministry of Health has estimated that non-communicable diseases (NCDs) cost the Malaysian economy RM 12.88 billion in terms of productivity losses arising from absenteeism, presenteeism or premature death in persons of working age per year.[i].
The MMB Health Trend report reveals that cancer (55%), diseases of the circulatory system (43%), and COVID-19 (36%) were the top cost drivers of medical claims in Asia in 2021, while respiratory diseases (47%), gastrointestinal diseases (36%) and COVID-19 (34%) are healthcare conditions that experienced the most frequent claims.
Joan Collar, Asia Regional Leader, Mercer Marsh Benefits, commented: “Costs have soared despite lower levels of medical treatment than before the pandemic, a trend exacerbated by deferred healthcare treatments that for many have resulted in more adverse outcomes, leading to higher costs. Reducing NCDs remains a key priority for employers for the health of their employees and their business. More than ever, employer-sponsored medical benefits should be viewed as an investment in employees’ well-being. Employees who feel their employer cares about their health and well-being are more motivated, productive, committed, and loyal.”
Gaps remain in mental health coverage though inclusive benefits increase
Of all global regions, the report identified Asia as having the most inadequate coverage in relation to mental health, with only 34% of insurers providing coverage for outpatient treatments in mental health, and just 21% providing coverage for preventive mental health measures. Moreover, 32% do not offer any coverage for mental health services, reflecting a huge protection gap between access to benefits against the burden of mental health risks.
However, the study shows that 33% of insurers are making changes to facilitate more inclusive medical plan designs by allowing coverage for the non-permanent or full-time workforce with 54% either adding or considering extending eligible expenses that are more inclusive for women.
“Employers need to develop a mental health strategy to enhance the overall well-being of their employees and refine their benefits strategy accordingly to align it to their diversity, equity, and inclusion goals and the different needs of their employees. With a sharp rise in the number of employees experiencing burnout and fatigue, this has become a workplace imperative. Employers need to deploy investments and resources to ensure they maintain a mentally resilient workforce,” Ms. Collar added.
The Mercer Marsh Benefits (MMB) is the service value proposition that Marsh brings to its clients. MMB is not an insurance product. In India, an insurance product can be provided only by a registered insurance company. Insurance is a subject matter of solicitation.
About Marsh
Marsh is the world’s leading insurance broker and risk advisor. With over 45,000 colleagues operating in 130 countries, Marsh serves commercial and individual clients with data-driven risk solutions and advisory services. Marsh is a business of Marsh McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people. With annual revenue nearly $20 billion, Marsh McLennan helps clients navigate an increasingly dynamic and complex environment through four market-leading businesses: Marsh, Guy Carpenter, Mercer and Oliver Wyman. For more information, visit mmc.com, follow us on LinkedIn and Twitter or subscribe to BRINK.
[1] The Impact of Noncommunicable Diseases and Their Risk Factors on Malaysia’s Gross Domestic Product (2020). Putrajaya, Malaysia: Ministry of Health Malaysia.
For many millennials striving for success in their careers, starting their own family and seeking to build up a nest egg for a comfortable retirement, the journey of wealth accumulation can often be fraught with challenges and pitfalls.
Many think that wealth accumulation is just having lots of money. In fact, “having money” and “wealth accumulation” are two different things.
Having money allows you to pay for your expenses but it is typically spent shortly after it comes in. The latter goes a step further – it is taking disciplined steps over a period of time to achieve wealth accumulation. Here are some tips for the millennial on how they can accumulate wealth.
Saving, Saving, Saving!
For wealth accumulation, you need cashflow. The very first step is to set a financial goal and stick to it! Once you are clear about your objective, the next step is to be disciplined enough to achieve your money goal.
A good suggestion is to use “automation”. Automation adds built-in discipline to your financial life and reduces the likelihood that you will forget your objective or spend money on things you do not need.
You can set up automatic deductions from your paycheck bank account to send money directly to another savings account, unit trust or investment account. By automating these payments, you are making sure that you are paying yourself first.
Cut Expenses
Cutting unnecessary expenses is the key to living below your means, so you can reach your financial dreams. Challenge yourself by resisting expenses that are most tempting. For example, you might:
Cook at home every day for a month instead of eating out;
Refrain yourself from buying any new clothes or handbags for six months;
Avoid window shopping as that will cause unnecessary spending;
Say no to cinema and other entertainment places for six months; and
Cancel or delay your annual trip to another year.
Imagine how much money you could save if you are successful in overcoming the above challenges. You could easily have an additional RM10,000 to RM20,000 to add up to your savings.
Multiple Streams of Income
You need cashflow to build wealth, and the best way to generate that extra cashflow is to earn more money. In Robert Kiyosaki’s book ‘Rich Dad, Poor Dad’, he mentions four types of income streams: Employee, Self-employed, Business Owner and Investor.
For the first three sources of income, you are exchanging your time for money. It is a form of active income whereby you need to be “actively” working for money. However, please do not underestimate these sources of income, as it can be useful when you want to utilise this as a leverage power to accumulate your wealth.
You may buy your first property with this financial leverage. And if your investment is a positive cashflow, you would probably end up owning the property for free as your rental income is able to pay down your mortgage loan.
The last source of income – Investor – is the status that people most closely associate with wealth. This is where “money works for you”. As an investor, you earn the best kind of income possible – passive income by investing in assets such as stocks and properties.
Why is it the best? Because you earn money while you were sleeping! If you can generate enough passive income, you may never need to work again in your life. In short, you can retire early.
Get Rid of Your Bad Debt
In the journey of wealth accumulation, we also want to identify the obstacles preventing us from achieving our financial goals. One big obstacle could be having too much debt. However, not all debts are bad – there are good debts and bad debts.
Good debt is money you borrow at a low interest, with which you could make a higher rate of return, such as your mortgage rate. Bad debt, in contrast, is consumer debt. For example, money you borrow at a high interest rate to buy things that do not produce income or grow in value such as cars, electrical appliances, furniture and even luxury trips.
The price of bad debt is the impact of compounding rates of return working against you instead of for you. If you have credit cards or bank loans costing you 18% or more a year, that’s 18% compounding against your retirement.
The Bottom Line
In summary, wealth accumulation does not happen overnight, it is a gradual and a disciplined process that requires proper planning and execution.
Nevertheless, It is always good to have a licensed financial planner to guide you in setting up a blue print for your financial journey. They are generally able to help you to make better investment decisions and make sure your money is being deployed in the best manner.
About the Author
Pauline Yong is the CEO of Sigma Wealth Sdn Bhd. She is a CFP® (Certified Financial Planner), a licensed financial planner with a Securities Commission license (CMSRL) and a Financial Advisor Representative (FAR) licensed by Bank Negara.
She has published five investment and financial planning books and writes regularly for various publications. Pauline is also a regular commentator on stock market outlook for City Plus FM radio station.
Malaysia is a country whose most professed religion is Islam. As of the latest statistics, there were approximately 19.5 million Muslims or 61.3% of the total Malaysian population.
From another perspective, in 2019, it was estimated that the Malaysian population aged over 65 years stood at 6.7 percent. Malaysia is currently facing the prospect of an aging population, and the latest statistical data predicted this to be happening as soon as in 2030.
In a simplification, Muslims are the majority in Malaysia, and we are looking at the more significant rate of retirees as the year goes.
However, are we truly ready for it? According to a recent survey by the Credit Counselling and Debt Management Agency (AKPK), more than 50% of Malaysians may not be financially ready for retirement. While the figure alone is already scary, what been happening, in reality, is even worse.
We start to see the senior citizens who now need to continue working despite their retirement and against their suitability due to financial constraints and weak to no financial planning. Those with completely empty retirement savings within not even a few years without accomplishing anything contributing toward financial freedom – to name a few.
Why Islam Encourages Us To Plan Their Lives In All Aspects?
Islam encourages Muslims to plan their lives economically and financially to achieve the objectives of Shariah (Maqasid al-Shariah). As Islam governs all aspects of life, it takes full cognizance of how Muslims gain and spend their money, including wealth.
Even though the child should look after their parents, especially when the recipient becomes too old and incapable of sustaining themselves, however, with a good understanding by the parent that their children are responsible for their own families, too.
The need to plan one’s retirement becomes more evident as the years pass. Retirement planning becomes more significant as the financial impact and demands of modern society take their toll on the grown children’s lives. Then once the cost of living increases, the ability of the children to care for other people other than their immediate families will become increasingly difficult.
Hence, one should consider the Islamic retirement planning tools and processes as one’s preparation to be independent financially when one is old or retires from one’s job.
Aspects Of Islamic Retirement Planning
Retirement planning is one of the elements of Islamic financial planning and wealth management. Retirement planning is a process that includes a comprehensive review and analysis of retirement income, retirement goals, and investment strategy.
The purpose of retirement planning is to coordinate the financial resources available so an individual can plan for a financially secure retirement or reduce financial risk during retirement.
Role Of A Financial Planner
To build a retirement planning is not an uneasy task. That is due to while everybody has an opinion on how to plan their financial needs, the truth is, a wholistic plan from a financial planner point of view, it should start with assessing the future income needs of an individual.
Followed by financial objectives need to be established so that the retirement plan would have a clear target on how much future come to need to be achieved. Also, the retirement plan must align with the projected future income.
The most crucial part for the Muslims here is to ensure that shariah compliance must be taken into account. It is essential to make sure the retirement plan is free from prohibited elements, especially riba.
Even if one claims that they are ready for retirement period and have a clear set of financial and lifestyle visions and goals, it is always encouraged for them to seek advice from experts such as Licensed Financial Planner.
That because only a financial planner specializing in that area, to giving any pieces of advice or a financial planner, can be aware of several common missteps that many fall victim to, even those with a plan.
Retirement Hazard
Many fields might fail to notice by one person when it comes to retirement planning. The most common mistakes made when we talked about retirement planning are lack of preparation of finances related to the impact on one’s health, misjudging how long one or one’s spouse will live, presuming a longer working life. Many take lightly how to prepare for and live in retirement.
To conclude, the retires worker’s situation is different from his previous situation during the working time with a specific income. Hence, everyone must prepare for their retirement by planning. In other words, planning one’s retirement is similar to planning against the risk of premature death.
The preparation should be holistic from the financial planning overview. It should be avoided element that is prohibited in Islam such as riba, gambling, gharar, etc. The planning should also prepare for the religious obligation that, as Muslims, we need to perform hajj, payment of zakat, and the recommended donations, helping the poor and needy.
About the Author
Nuraishah Hanani Abdul Ghani is a Certified Islamic Financial Planner with a demonstrated history of working in the banking industry.She has a strong finance professional background with a focus in Islamic finance and is a graduate from Universiti Islam Antarabangsa Sultan Abdul Halim Mu’adzam Shah (UniSHAMS) in Ba (Hons) Islamic Finance and Banking, Master in Chartered Islamic Finance Professional (CIFP) from INCEIF and Certified Islamic Financial Planner (IFP) from IBFIM.
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Most of us are now more concerned about the rising of housing prices in Malaysia. Sometimes, we fear that with the rise in the housing price Malaysia will affect our dream to own a house.
Well, are you thinking of applying for a housing loan in Malaysia to buy the property you dream of? But, did you know whether your application will most likely be approved or not? It’s easy. You don’t have to worry. Before applying for a housing loan, you can do some self-checking of your loan eligibility based on the Debt Service Ratio.
What Is Debt Service Ratio (DSR)?
Simply put, DSR is a calculation made based on your income and your commitments. From here, the banks will calculate your DSR and see whether you can afford the loan you are applying for. It has its own formula and keeps in mind that each banks vary its DSR limit.
In terms of a housing loan in Malaysia, this formula helps the bank to get to know your commitments which then will be considered whether you’re eligible for the loan you’re applying for.
It’s based on your monthly net income and the total commitments that you have to pay every month. For instance, your car loan, student loan, personal loan, and any other loan that you need to commit monthly for payment. The bank will see and decide whether the loan you’re taking is within your financial limit.
At the end of the day, the bank has to be very selective and careful. They’re not doing some charity work but a profitable institution. DSR is one of the main factors that banks use to determine your borrowing power.
Your DSR is then compared to the bank’s maximum DSR limit. If your DSR is within the limit, then you’re one step closer to get your housing loan approval.
Remember! Every bank has its own DSR limit. DSR is not the only criteria for a housing loan to be approved but it is one of the main factors that banks consider.
How To Calculate DSR For A Housing Loan?
As explained above, DSR is calculated based on an individual’s net income. Whatever income that you gained after the deduction of income tax and EPF, then it will be divided by your total monthly commitments such as car loan, personal loan, PTPTN (student loans), credit card bills, and the housing loan that you’re applying for. From there, it will be multiplied by 100 to obtain Debt Service Ratio in percentage.
The formula is,
DSR = (Debt / Net Income) x 100
It’s very useful for you to calculate your DSR before applying for a housing loan in Malaysia. This will help you consider whether or not you’re pursuing a housing loan application.
For a better picture, let’s take RM7,000 as your net income. Your monthly commitment in total is RM3,000 while you’re now applying for a housing loan with a monthly payment of RM1,200. Both will sum up to RM4,200.
Divide the figure (RM4,200) by RM7,000, then multiply that by 100 and your DSR is 60%. Most of the banks in Malaysia has DSR limit at 60% to 75%.
If you were to ask the average millennial about how early they would be able to retire, chances are you would get varied responses. However, it is unlikely that any of them would be aiming to retire before the age of 50.
That is where the concept of FIRE comes in.
What Is FIRE Movement?
It stands for “financial independence, retire early” and is a growing movement worldwide. In short, proponents of the movement aim to save a large portion of their income (up to 70% or even more!) and aggressively invest in order to hit a set number they feel comfortable with for retirement.
The aim is to hit this number far earlier than traditional work structures after which they become financially independent and can “retire” or pursue work or projects they are passionate about.
Proponents of this movement suggest the “4% rule” as a guideline – the goal is to accumulate 25 years’ worth of annual living expenses through various investments, and withdrawing 4% per annum, assuming it generates at least that much in passive income.
This is unlikely to diminish the portfolio, and individuals that have reached this level can be considered financially independent, with any form of employment or work now optional instead of necessary.
4 Varieties Of FIRE Movement
Fat FIRE: This allows individuals to live a more traditional or typical lifestyle, but also requires saving more than the average retirement investor. It usually allows for luxuries like fancy meals, holidays and gadgets depending on the amount saved up.
Lean FIRE: This model requires a strict commitment to follow a minimalist lifestyle with little expenditure and extreme savings. An individual can achieve this when they have saved and invested 25 times their annual expenses while also spending less than the average person.
Barista FIRE: This form refers to devotees that do not follow a set 9-to-5 job, but do work in some capacity on a part-time basis to cover necessary expenses that would otherwise have them tap into their retirement nest egg.
Coast FIRE: This can also apply to followers that have a part-time job, but who have already saved up enough to fund their retirement and living expenses (thanks to compounding investments), allowing them to “coast” towards retirement.
Julian Ng, co-founder and CEO of robo-advisor Akru, believes that the FIRE movement is intriguing and helps people think beyond the realm of what is considered financial normalcy.
“I thought it not only had interesting financial planning principles but also life angles,” he remarks, adding that FIRE devotees did not have to stick to the concept of only being able to retire when they are older.
Ng believes followers of this movement are tired of being stuck in the rat race and want to work towards other goals that offer fulfilment. Corporate highs to be replaced by personal pursuits and leisure. The latest gadgets and cars substituted with experiences and time with their loved ones.
“I think they plainly want a life. They want to spend time on things that matter like family, friends and their passions. They also value health and emotional wellbeing. In terms of bigger life philosophies, they figured out that they do not need to have caviar and business class all the way. They are a bit minimalist in that sense, although they are also financially very comfortable.”
Early Retirement?
According to Malaysian law, the minimum age of retirement of an employee in the private sector is 60 years of age. There have been calls to raise this number to 65, meaning that the average person could potentially work for over 40 years before calling it quits – hardly a tantalising prospect to most people.
Although following the FIRE movement potentially offers a way out for weary millennials, not everyone is specifically aiming for an early retirement.
“Personally, I’m aiming for the FI part of FIRE as I don’t plan to retire early,” says Leigh, the founder of popular investing blog Dividend Magic, who aims to have a passive income of RM36,000 a year, most of which is derived from various investment dividends.
“I lived a pretty frugal lifestyle even before learning of FIRE. These habits have been instilled in me since a young age and I have actually been telling myself to spend more often, but on things that genuinely bring me joy. And it will have to be happiness that lasts,” he adds.
This is a notion shared by Lee Sheung Un, communications officer of Affin Hwang Asset Management, who describes himself as a subscriber to a milder version of FIRE.
“Early retirement is not the end goal for me, but rather achieving financial independence,” he says.
“Personally, I aim to save at least 40% of my monthly income which is not quite close to the FIRE benchmark to save at least 70%. I am sure it is possible if I really tried, but I also like spending on my own comfort to save time and avoid stressing about the small things.”
To the average person, the idea of retiring early may sound good on paper, but it is not surprising that many FIRE devotees are not just looking to coast through the rest of their life. Rather, they are aiming for the freedom and time that financial independence unlocks to be able to pursue what fulfils them.
Achieving FIRE In Malaysia?
As a concept originating in the West, the burning question for many will be whether it is possible to achieve financial independence in Malaysia.
“FIRE is not realistic for people living in countries with a wide wealth gap,” sighs Suraya Zainudin, the founder of personal finance website RinggitOhRinggit.com.
“Mathematically and statistically speaking, the structure simply does not allow the majority of people to reach their financial goals, even modest ones. Unfortunately, Malaysia is one of those countries.”
However, Leigh believes that FIRE is definitely possible but that it is not for everyone as it can be hard or too intensive to keep up with.
“We live in a world of spending and instant gratification. Getting a new phone, signing up for gym memberships all costs money. Not everyone is willing to grind all day and put a hold on spending. And a huge problem in Malaysia is that people are not investing,” he observes.
And while not everyone may be cut out for the FIRE movement, the philosophies and beliefs around it can help to cultivate a healthier understanding and relationship with money, as well as a way to escape traditional ways of thinking.
FIRE Movement: Theory And Reality
The points highlighted above shows how investment formulas are great in theory – but we know real life works out differently. Things start to fall apart when you are faced with unexpected expenses, for example.
What happens if you are suddenly responsible for another dependent – a child, or parent? Or if you lose your job or become incapacitated?
On the positive side, the financial dynamics might change because you inherit a windfall or enjoy a rapid increase in earnings. Any of these instances will alter the time it takes you to reach your desired retirement age.
Neil Walton, Head of Investment Solutions says: “We know the concept of FIRE has spurred some to consider downsizing, retiring, investing and changing their lives. But even for those who do not intend to do anything so radical, FIRE provides a useful blueprint for planning. Good investment will sit on a good financial plan, and that is inevitably about building investments over time to provide an income in the future.”
Kevin Neoh is a NextGen Money Coach who works with people to help them transform their relationship with money to improve their lives with the money they have. Kevin can be contacted at 
