Inovatif

Category: Cash Management

  • Financial Planning for the Middle-Class Rakyat

    Financial Planning for the Middle-Class Rakyat

    Financial planning has often times been associated with the rich. Most people have the perception that only rich people can afford to plan their finances. Is this a fair observation?

    So does this mean that if you are not rich, you should drop the idea of financial planning? What if you are in between these two extremes – the middle class or middle-income people?

    I have constantly observed how the middle-income group struggle more compared to the low-income group. When you’re in the latter, you live a lifestyle more driven by need.

    However, if you belong to the middle-income group, the decision-making process is based more on the want factor, not need anymore.

    How then can the middle-income group reduce their disadvantage and propel themselves toward their aspirations and dreams? Below are some ideas that one can explore:

    Be Aware

    When it comes to investing, you cannot wait until you have enough money, and then only start to think about investing.

    The popular belief is that we can only manage our financial affairs once we have surplus. However, in actual, those who have surplus are those who have done planning, and make it a point to ensure they do the needful.

    Cash-flow management is crucial

    If you manage your cash-flow and debt obligations, you would end up having surplus because without surplus, it’s impossible for one to have savings.

    Protect your savings

    It’s not easy to accumulate savings nowadays; thus, you need to learn to protect it efficiently. We cannot afford to overlook or ignore risk management as this can help protect our savings when financial losses occur.

    Watch your credit behaviour

    Those who are in credit card or debt crisis have once told themselves that they would just use the credit card for rebates and free-gifts, and that they would make sure they pay the billed amount every month.

    The only trouble with this plan is that before you realise it, you are barely making minimum payments, and the amount balloons into a huge outstanding in no time.

    Moreover, interest payment is one of the tiny leakages that will have long-term impact on our ability to save.

    Start early but small

    According to Figure 1 below, a person who starts investing RM12,000 today with no additional new contributions thereafter, will need an investment that generates 10% per annum to have RM130,016 twenty-five years from now.

    financial planning
    Future value of investment

    However, another individual who started with RM6,000 (50% lesser) would require an investment that is 50% less risky (5% per annum) throughout the same time period, to generate RM134,863. The trick is to cultivate the discipline of adding RM200 a month to the savings pot.

    It’s much easier to save a smaller amount than wait for your capital to become significant, as smaller amounts can also grow to become substantial.

    Stay ahead of inflation

    A person who invests his savings in a way that is right and in-line with his risk capacity, will see his wealth grow and become inflation-proof in the long run.

    If you do nothing about inflation, you will find it tougher to maintain your lifestyle. This is due to your shrinking purchasing power, and since it is more likely that your income level will stay stagnant or grow slowly, you will then find that your freedom will be limited by your purchasing power.

    The only way to give our wealth some chance to at least maintain its purchasing power is to put it to work.

    When you invest, you must bear in mind to invest in instruments that are suitable with your risk profile and is regulated at the same time.

    Work on your investment literacy

    A person in the middle-income group may have some disposable income, which they would want to invest, after taking care of their lifestyle.

    However, be aware of scammers who are out to ‘steal’ our money, influence us to make bad investment decisions, resulting in losses or wasted opportunity.

    It is therefore important to have a basic knowledge of investment literacy to conduct appropriate due diligence on investment proposal that is presented to us.

    Financial planning is not for the cheapskate

    One misconception people have is that when we embrace financial planning, we will have to accept a frugal lifestyle.

    However, the whole point of financial planning is to put the aspirations and life goals of a person at the core; as such, it’s rather counter intuitive if you will have to live a frugal lifestyle.

    If you embrace financial planning, what you’ll essentially do is look at your personal finance in totality, make decisions that are smarter and less attached to your urge and emotions for instant gratification.

    It doesn’t mean you have to eat lesser, or not go out with your friends. We all need a life to build our network.

    All said and done, we need to go through a process to manage our financial affairs to ensure that at the end of the day, we will have enough ‘financial muscles’ to help us achieve our life goals.

    About the author

    kevin neohKevin 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.

  • Should I Give Up Paying Insurance Premiums In Difficult Times?

    Should I Give Up Paying Insurance Premiums In Difficult Times?

    Insurance is an important element of any sound financial plan, and a proper Risk Management plan should cover personal risk (Premature Death, Total Permanent Disability, Dreaded Diseases, Personal Accident and Hospitalisation), property risk (car, house and its contents) as well as liabilities insurance.

    Having these insurance policies in place can protect your income, savings, retirement, and peace of mind if uneventful situations were to take place.

    Without an insurance policy, the consequences of a tragedy can be much worse, especially with the rising cost of health care that can create a heavy financial burden on your family.

    A proper life insurance can be used to pay off mortgages, car loans, and credit card debts, leaving other remaining assets intact for your family in the event of the breadwinner’s premature death.

    Life insurance proceeds can also be used to pay for final rite expenses. Better still, life insurance can create an estate for your heirs.

    Although insurance is a very important aspect of our lives, yet most people treat it as least important, or even strike it off from their financial budget list.

    Spending hard-earned cash on vacations, shopping, movies, expensive data plans and dining is seen as more important than paying for a life insurance premium.

    Before signing up for an insurance plan, you should first look at your Net Worth Statement to see how much debts you have incurred. Your insurance must be able to cover the debts so that it will not be passed down to your family in the event of a premature death, disability or critical illness that can result in a loss of income.

    Therefore, you should either adjust your cash flow and expenses, or increase your earnings in order to find extra money to maintain the premium payments and excess money for savings.

    Even if you have been retrenched, you must not stop paying your insurance premium, or worst surrender the policy. Make sure that your insurance is intact to cover you in this critical moment.

    However, should there arise a situation when you are really tight for money, there are a few options that can be taken to make sure the insurance cover stays intact. Let’s have a closer look at them:

    Car and Home Insurance

    insurance

    Car insurance premium is mandatory as it is required by the law; so, premium payment is a must.

    Same goes for your house fire insurance premium as it is required by bank if your house is still under mortgage.

    Life Insurance

    You can consider a temporary term, investment-linked, or a whole life non-par insurance policy, which has an affordable premium but comes with big protection to address the problem of huge debts.

    If you have an existing traditional whole life policy, you have the option of allowing the policy to exercise auto premium loans (APL) to make sure the protection is not affected due to temporary non-payment of premiums. However, this is only a temporary measure.

    You cannot allow APL to exhaust all the accumulated cash values as your policy will then become lapse.

    You may wish to convert the policy to an extended term assurance, where there is no further future premiums to be paid, and the sum covered will remain the same until the new revised term of coverage expires. You can even convert the policy to be a paid-up policy with the reduced sum assured.

    Health Care Insurance

    You’ll never know when you may fall sick or get injured. But you do have options when it happens if you continue to pay your health care insurance premium.

    You can lower the premium by considering a standalone health care plan, which has a more affordable premium as compared to packaged plans. But this pretty much depends on your age, gender, health conditions and the coverage amount.

    Also, if you are paying a high premium for a bigger coverage, you may want to consider reducing the coverage and get a deductible health care plan with a very low premium.

    If you’re planning to do some changes to your existing health care plan, make sure you are aware of the exclusions, waiting period, pre-existing illnesses, as well as other terms and conditions of both the new and the old plan; otherwise you might lose your coverage.

    Thus, with the above options, there is no excuse for not paying your insurance premiums.

    In any case, before making any of the above decisions, it is best to seek professional advice so that you can make a more informed decision.

  • Loosening Cash Flow when Money is Tight

    Loosening Cash Flow when Money is Tight

    There are times when one has to spend money even when there is little to go around. Arguably, there are three areas where money has to be spent. The areas are: Parents’ Allowance, Education and Giving Back to Community. Even though this may eat into existing funds, with Smart Spending Techniques and Money Allocation, the situation can be managed.

    Must Spend Money

    In one’s life, ‘Must Spend Money’ falls into three possible categories:

    1. Parent’s Allowance

    money

    No matter how wealthy or poor the family may be, taking care of one’s parents – whether financially or physically − is part of a child’s obligation, at least in eastern culture. After all, we have enjoyed the great sacrifice, financial support and care of our parents and when we start to work, we should contribute a portion of our money to our parents as a token of appreciation.

    The parent, in turn, should accept the child’s money even when it is not needed. This can help to shape the child into a more grateful and responsible human being. This, however, doesn’t mean that we should depend on our children’s financial support, if the situation allows it, we should be fully responsible for our own daily expenses.

    A psychology counselor once told me that a lot of family crises arise from financial problems (or a lack thereof) caused by the husband’s failure or patial failure to fulfil his financial obligations to the wife or family. Tracking the root cause behind each case, she found that many of the individuals were not educated on the responsibility of giving money to the parents when they were single. It explains why they do not contribute to their families when they got married.

    2. Learning Fund

    Learning is life-long. Always allocate a portion of your money (plus time and effort) to learning, travelling and exploring as this will help you grow and acquire knowledge. If you want to have a better life and wisdom, or upgrade from your current level, you should always continue to improve your mindset, knowledge and soft and hard skills, no matter what age.

    3. Community Give Back or Charity

    Open your eyes and you will see so many people living far below their basic means and opportunities. When compared to them, we feel blessed about what we have and don’t have (such as bad weather, environment, natural disaster, lack of opportunity and so on). We are a part of community, enjoying  its benefits and effort so never forget to lend your helping hand to give back to those who need money, effort, time and knowledge.  If you agree with the concept of the power of giving, you will understand that the more you give, the more you will receive. The rich know this concept and that is why they keep on giving out and yet, still remain very rich. Warren Buffet once said he became what he is today (Super Rich) and is able to do what he wants, because he was born at the right time in the USA. His fate would have been very different if he had been born in another country. 

    Smart Spending

    When it comes to spending wisely, how do you do that? Here are some cost-saving pointers:

    Compare, Research, Make Informed Choices

    Perform two to three comparisons before purchasing. Only buy when there is a promotion or large discount and only purchase necessities. Purchase items that have been re-packaged under the departmental store or supermarket label as they are usually 20 − 30% cheaper buit just as good.

    Has anyone purchased their own engine oil instead of letting the car workshop decide everything for you? You might be interested in my experience about buying engine oil. A normal brand of fully synthetic engine oil can cost above RM200 (at promotional prices, it can be around RM170++).  After reading many positive comments on an online forum, I purchased a departmental store brand engine oil (imported and repackaged locally) that only cost RM80-RM100 during the promotion period.  I have been using this oil for several years now and it has, to date, not caused problems. You can apply the same technique too, to almost any other item to save money (but of course, you must also take the risk).

    Bulk Purchasing

    Let me share with you one of my uncommon practises. Normally, I will purchase another set of shoes or clothes or necessities (during offer periods) to prevent having to purchase a replacement at the normal price when the item is worn out/broken/lost.  

    Another way to save cost is to skip the intermediaries like a supermarket and deal directly with the factory where you can get the items at distributor’s price. Of course, some factories don’t deal with retail or the public. However, I have purchased baby diapers from the factory where I enjoyed more savings than even the supermarket promotional prices. Of course I needed to purchase 12 packs in three boxes but I knew the items would be fully utilised within nine months.  I also enjoyed the free delivery that came with the bulk order. 

    For daily and heavy use items, you can do the same but do not over purchase until you need to keep the items in store for a few years; you will be losing your purchasing power by storing the goods over so many years.

    Purchase Pre-Owned Items

    Yet another way of saving is to purchase branded second hand but in good shape items. A statistical survey on self-made millionaires in the US during 80s and 90s (The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko) showed that a majority of them preferred to buy branded, high-quality but second hand cars. Their methods can be replicated, but when applying it here, add another requirement of low mileage. (Generally speaking, the second-hand car that gives the best value is aged between three to six years).

    Money Allocation

    money

    Here are some money allocation techniques according to the book Secrets of the Millionaire Mind by T.Harv.Eker. It advises you to adjust according to your situation. As a rule of thumb, we should maintain 50% of our money on necessities, 10% on investment to work towards financial freedom, 10% on Long Term Savings which you can use for future big spending like house renovation, car and so on, 10% on education-life long learning, 10% on recreation, play or any self-rewarding activities and the last 10% on giving back to community or charity.

    The other guideline is to maintain a healthy cash flow by making sure our monthly debts servicing ratio (DSR) for housing, car, education, personal and credit card loans over monthly income is kept below 40%, while 10% of the positive surplus is used for savings and investment in order to grow your wealth.  The money spent on purchasing insurance should be within 15% of your monthly salary.

    Yong Chu Eu is a Licensed Financial Advisor/ Head of Education Division of Fin Freedom Sdn Bhd (CFP, FAR, CMSRL, HRDF Certified & SIDC CPE Training Provider). He can be reached at ceyong@financialfreedom.com.my

  • Financial Planning Lessons That I Learned From My 72-Year-Old Customer

    Financial Planning Lessons That I Learned From My 72-Year-Old Customer

    When I joined the financial industry in 2017, I was so lucky to meet my first customer. Not just because of the first investment business he gave to me, but also the lessons that he taught me.

    I remembered the day when I first met him, I was introducing a unit trust fund to him, and he agreed to invest immediately after I finished my explanation. Since he was my first customer, I was being extra careful to avoid any mistakes in the process.

    I asked him every question in the suitability assessment form:

    • Do you have investment experience in the past?
    • Do you understand about the investment risk?
    • How many percent of fluctuation can you accept?
    • Do you read and understand English?

    The customer suddenly slapped the table, and said: “Why do you need to ask so many questions? Other banks did not ask all these questions when I invest with them! I told you, I’m ready to take risk when I invest. I can even accept the RM100k investment becoming a total loss.”

    Knowledge Is Power

    People may think that when one gets older, he/she should be less aggressive in investment. But this customer taught me that when one is fully equipped with knowledge, he/she will be able to make an informed financial decision despite of his/her old age.

    Later, the customer topped up his investment after his first investment made profit within five months. But this time, the market was not going as smoothly as the first time. The unit trust fund was badly hit by the US-China trade war in 2018. The fund dropped ~20% in the first year of investing.

    I asked the customer whether he want to switch his investment to other funds that were not affected by the US-China trade war?

    Surprisingly, the customer did not worry about the paper loss of 20%. He told me that it is normal for the market to be up and down. He does not want to switch the fund because he has belief in China, and he is confident that the fund will rebound; and he has the holding power and patience to wait for it.

    A year later, the fund recovered and the investment broke even at the end of the second year. 6 months later, the fund then made a 20% return. The customer was very happy with the annualised return of 7.63% after waiting for two and a half years.

    Patience Is Key

    Hourglass on dark background

    In reality, most investors might quit the market and cut loss when the fund is at ~20% loss. Some investors might withdraw their investment when the fund finally breaks even at the end of second year. Only a few are able to see the return after waiting for two and a half years.

    The customer taught me another lesson that when one has a clear investing goal and strategy, he/she will not worry unnecessary about the market’s volatility, he/she will always stick to the initial plan without making emotional decision.

    It has taught me the importance of financial literacy and it resulted in my faith to become a licensed financial planner a few years later.

    Thanks to my customer, I’m now a licensed financial planner currently and I’m also conducting financial management workshop regularly to educate Malaysians on financial literacy.

    About the Author

    Angel Chan is a Licensed Financial Planner attached to UOB Kay Hian Wealth Advisors Sdn Bhd. Besides providing comprehensive financial advisory to her clients, she is also committed to educate the public about the correct financial management mindset and methodology through article, YouTube video and Financial Management Workshop conducted by her and her team. Do reach out to her for more information.

    FB page: https://www.facebook.com/angelchan.financialplanner

    FB page: https://www.facebook.com/profinance.my

    YouTube channel: https://www.youtube.com/channel/UCf5f7O3vuOhnwy_wflDuuKA

    Smart Finance: https://smartfinance.my/planners/chan-aun-kei-rfp

    To book a free 1-hour consultation with Angel Chan: https://forms.gle/8Ur46Dox9T6g3yKS8

  • RONW, a Formula to make Sound Financial Decisions

    RONW, a Formula to make Sound Financial Decisions

    Perhaps, if you are reading this, you might be in the midst of making some financial decisions. They could be:

    • Should I use EPF Account 2 to settle my mortgage?
    • Should I invest my bonus first or settle my liabilities?
    • Should I invest in unit trust, stocks, or properties?
    • Should I buy a new fancier car or a bigger house?

    And, the list goes on. You get the idea.

    Most people may be overwhelmed by them as a decision either way will move you forward or backward financially. Understandably, many will choose to procrastinate because it will seem to be the “safer” option since many financial decisions can be irreversible.   

    However, here’s the real problem: How do you make smarter financial decisions if you are not equipped with the right tools to make them?”  

    Here is a straightforward technique that we believe will be helpful for you to make sound personal finance decisions. The tool is known as the “Return on Net Worth Analysis” or RONW.

    What is RONW?

    RONW tells you how efficient you are in using capital. It is quite similar to the ROE (Return on Equity) ratio we often look at when analysing corporate financial statements.

    Calculating Your RONW

    Here is how to calculate it:

    Step 1: List down all your assets and its value, including the projected return rate of each asset, such as “REITs − RM10k − 6%”, “Cash − RM20k − 3%”, “Rental Property − RM300k − 8%”, etc.

    Step 2: List down all your liabilities, including the effective interest costs, such as “Credit Card − RM5k − 18%”, “Mortgage − 200k − 4.5%”, etc.

    Step 3: Calculate the RONW

    RONW = (Total return – total interest) / Net Worth

    We have a full video demonstration. You can google “RONW KCLau” to find it on my website.

    What does RONW Tell You?

    If you have calculated your RONW and discovered:

    Your RONW is Negative:

    It means your net worth will shrink every year. You may start by clearing out debts with high interest rates such as personal loans and credit card debts to ease your financial burden. Then, you may follow up by adding productive assets to further improve your RONW figures from negative to positive.

    Your RONW in Positive:

    Congratulations! You have more productive assets than liabilities. If your net worth is still small, then, you may continue to grow both your net worth and your RONW. If both your net worth and RONW is significant, most likely, you are wealthy and are enjoying financial freedom.

    To Answer Above Questions Using RONW

    1: Should I use my EPF to settle my Mortgage?

    Source : EPF

    Let’s say you have RM30,000 in your EPF account 2 and you are considering withdrawing it to clear RM30,000 off your mortgage. Is this a smart financial move? Let’s see. Based on the RONW, we would consider:

    Returns from EPF:

    RM30,000 x 6.9% = RM 2,070.

    Interest Payable from Mortgage:  

    RM30,000 x 4.5% = RM 1,350

    If you withdraw EPF to clear mortgage, we would save RM1,350 in interest payment but will forgo RM2,070 in EPF dividends. Thus, you would net out RM720 per annum if you go for it. Hence, the answer is a straight “No” based on the RONW formula.

    2: Should I Invest or Settle my Liabilities?

    First, it depends on how good you are as an investor and what liabilities you owe currently.

    For instance, let’s say, you are a good stock investor who knows how to make 6% dividend yields from your stock investments. You have the following debt such as credit card debt of RM10,000 where the interest rate is 18% and PTPTN loan of RM10,000 where the interest rate is 1%. Today, you are given RM10,000 to either invest in stocks or pay off any of the two debts mentioned. What should you do?

    The answer is obvious. You pay off the RM10,000 in credit card debt because its interest rate is higher than the 6% dividend yield from investing in stocks.

    But, if there’s no outstanding credit card debt, then, you may invest in stocks that pay 6% in dividend yields as it is higher than the 1% interest charged by your PTPTN loan.

    3: Should I invest in Unit Trust, Stocks or Properties?

    Your investment objective is to maximise your RONW safely without taking unnecessary risks. So again, it depends how good you are in investing in unit trusts, stocks and properties. Some seasoned investors go all out to invest in stocks and properties.

    4: Should I Buy a Fancier Car or a Fancier House?

    Let’s start with a fancier car. Apparently, a car depreciates over time. But, the amount of your car loan and interest payment will increase after you’ve purchased or upgraded to a new fancier car. So, should you refrain from getting a brand new car? If you are now into improving your RONW, then, don’t do it. But, if you are not, then, you may go for it if it makes you happier.

    Meanwhile, a fancier house might not affect your RONW as severely as having a more elegant car as properties appreciate over time. Nevertheless, you will still end up with lower RONW after upgrading to a bigger house.

    Again, there is nothing wrong with upgrading your home as it does bring more joy to your family. RONW is a measurement of the efficiency of your capital and not the level of your happiness.

    In conclusion, RONW is very similar to the way we look at the ROE of a company. Value investors love to hold shares of stocks with high ROE because that shows the efficient use of shareholder’s fund. On the personal level, if you know how to maximise your RONW, you will be doing way better than 95% of the population.

    About the author

    This article is co-written by KC Lau and Ian Tai.

    Ian Tai is a Dividend Investor. Financial Content Machine. Producer of 200+ Articles, Weekly Host and Presenter at KCLau.com. Co-Founded DividendVault.com, an online educational membership site that empowers retail investors to build a stock portfolio that pays rising dividends in Malaysia and Singapore.

    KCLau is a financial educator, having published seven books including the current bestseller Money Smart, and co-created a dozen online financial courses. He gives away his popular Money Tips e-book volumes free at his website: https://KCLau.com

  • FICO Insights: In Malaysia, 1 in 2 Experienced Drop in Income Due to Pandemic; Many Will Switch Banks in 2022 to Chase Better Offers

    FICO Insights: In Malaysia, 1 in 2 Experienced Drop in Income Due to Pandemic; Many Will Switch Banks in 2022 to Chase Better Offers

    RFI Global’s 2022 Post-Pandemic Consumer Banking Expectations Report, prepared for FICO, confirmed
    that the pandemic has aggravated financial hardship for retail banking consumers in Malaysia, with 1 in 2
    experiencing a drop in income. It has also revealed that many are motivated to search for better banking
    offers, and that the inclination to switch lenders has increased year over year.

    More information:
    https://www.fico.com/en/how-banking-expectations-asia-pacific-are-changing-post-pandemic

    Disruptive impacts from the pandemic differed across the region

    While a considerable 23-30% of Australian and New Zealand respondents experienced a negative
    impact, 50% of Malaysians, 40% of Singaporeans and 63% of Indonesians saw a decline. Respondents in Thailand suffered the biggest blow, with 70% saying their income had been reduced.

    The report uncovered that more than 1 out of 4 consumers across the region (27%) and nearly half (49%) of Malaysian respondents have deferred loan repayments. While nearly 1 in 3 (31%) in India and nearly half in Thailand (47%) deferred loan repayments as a result of COVID-19, this was much less common in Singapore (12%), Australia (9%) and New Zealand (7%).

    Despite the uncertain financial climate, the majority of Malaysian retail banking customers plan to
    maintain or boost their investments (77%). Most are looking to maintain or increase savings (82%), and many will consider changing banking providers this year.

    Increase in customers’ intention to switch banking providers

    Surprisingly, while the report indicates that most customers were highly satisfied with their main banking
    providers, up to 20% of APAC banking customers who responded said they plan to change banks in 2021. In contrast, only 10% said they changed banks in 2021.

    This increased propensity to switch lenders is highest among the mass affluent (defined as the high end
    of the mass market or those with at least MYR200,000 total investable asset holdings).

    In Malaysia, 5% of retail banking customers and 5% of mass affluent customers switched in
    2021. That is set to at least double this year, with 10% of retail customers and 14% of the
    mass affluent saying they are very likely to switch.

    Top reasons cited by Malaysian respondents include a change in personal circumstances (31%),
    consolidation of accounts to where they now have a deposit account (25%), a desire for access to
    better investment and wealth management products and services (24%), as well as a change in
    where payroll is deposited (21%).

    Financial impacts felt by even the wealthiest of Malaysians

    Amongst mass affluent banking customers in Malaysia, 43% experienced a decrease in income due
    to the pandemic, with half of overall retail customers negatively impacted. Nearly half of the mass
    affluent (46%) deferred loan repayments as a result, just 3% lower than the wider retail
    banking market in Malaysia.

    This disruption to income has left 2 in 5 affluent Malaysians saying they intend to reduce spending (40%), just as 39% of Malaysia’s retail banking customers plan to do.

    Across APAC, the mass affluent are more likely to step up their borrowing compared to the wider market
    (16% vs 8% ). In Malaysia, specifically, more of the mass affluent plan to increase borrowing
    (19%) than retail banking customers (6%).

    The report further revealed that 80% of the mass affluent are opting to maintain or boost their
    investment levels with banks, versus 77% of Malaysia’s overall retail banking market.

    Impacts of the Pandemic on banking intentions

    Consumers are changing their banking behaviors, in response to the financial impact of the pandemic.
    More than 4 in 5 of Malaysia’s retail banking customers will either increase or maintain their savings (82%). Across the region, the sentiment to maintain or increase savings was highest in New Zealand
    (94%) and in Indonesia (87%).

    Despite a dip in borrowing plans year over year, the level of borrowing for APAC retail banking customers
    still remains higher than pre-pandemic times as consumers deal with the lasting effects of the disruption.
    “The pandemic has clearly exacerbated financial hardship for customers regardless of income class,” said
    Aashish Sharma, Senior Director of Decision Management Solutions for FICO in Asia Pacific. “As
    borrowing and spending habits contract, customers will be on the lookout for avenues to grow their
    wealth and boost their savings. Banks must be able to proactively identify customers’ needs, and pivot
    their approach to alleviate financial anxieties while ensuring their products suit customers’ affordability
    and funding requirements.”

    Gravitating towards Digital

    Many Malaysian respondents (47%) still consider the proximity of branches and ATMs as a top
    determinant for a main banking provider; however, the report highlighted the importance of providing
    digital services. As many as 72% of APAC retail banking customers chose a fintech product over the
    option to use their banks’ main services. This was highest in Malaysia (94%) where customers did
    so as they wanted ease-of-use, time savings and easier application processes.

    Comparing 2021 to 2019, APAC consumers are increasingly gravitating towards digital channels at every
    stage of their application journey: initial enquiries and research (up 14%), follow-up enquiries (up
    15%), and banking applications (up 15%).

    How Banks can Ensure the Customer is at the Center of Actions and Decisions

    • Transform operations and data silos through the use of sophisticated analytics technology and centralized management platforms.
    • Make data-driven decisions by predicting, analyzing and optimizing customer interactions in real time for an event-based, profile-driven approach to relationship management.
    • Develop precise insights into optimal interactions and offers that would work best for customers
    • Create a digital twin (a type of virtual model used for simulation purposes) to leverage this continuous learning and test out radical new approaches and strategies in a low-cost, low-risk environment
    • Deliver hyper-personalized offers and customer actions in a scalable way

    “Banks must understand their customers’ needs on a deeper and more granular level, or risk losing them
    to competitors and alternative providers,” said Sharma. “Maintaining customer satisfaction alone will no
    longer suffice; customer experiences must be radically enhanced. Customer-centricity will be key to
    consistently delivering hyper-personalized experiences and retaining customers.”

    Survey Methodology

    This survey was conducted in 2021 by an independent research company adhering to research industry
    standards. 1003 Malaysian adults were surveyed, along with 12,885 consumers in Australia, New
    Zealand, Singapore, Indonesia, India and Thailand.

    Learn more here and at www.fico.com.

    About FICO

    FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded
    in 1956, the company is a pioneer in the use of predictive analytics and data science to improve
    operational decisions. FICO holds more than 200 US and foreign patents on technologies that increase
    profitability, customer satisfaction and growth for businesses in financial services, manufacturing,
    telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in
    more than 120 countries do everything from protecting 2.6 billion payment cards from fraud, to helping
    people get credit, to ensuring that millions of airplanes and rental cars are in the right place at the right
    time.

    Learn more at www.fico.com.

    FICO is a registered trademark of Fair Isaac Corporation in the US and other countries.

  • Malaysians And Inflation: Are We Going To Feel The Pinch, Pinch-ier?

    Malaysians And Inflation: Are We Going To Feel The Pinch, Pinch-ier?

    In April 2022, our national inflation rose to 2.3%, which exceeded the average inflation of 1.9% in Malaysia from the period April 2011 to April 2022. And just recently, it was reported that inflation rose to 2.8% in May against consensus of 2.7%. A vast development indeed. In addition, US Federal Reserve’s (Fed) move to raise the interest rate hike by 75 bps on 15 June 2022 had alarmed all quarters over the world on what could possibly be coming next – big inflation. However, what does all these means? Especially to the people out there?

    Generally, if most people do not understand what the numbers above mean, they do know one thing – they are feeling the pinch from the price hike of basic necessities, which has begun trickling the wallets of every household. From there, they knew and sensed that the inflation period is here. Not very surprising but not pleasant either, inflation is to stay persistent this time around.

    In concurrence with the recent development, Mr Jason Wong, Research Manager of FSMOne Malaysia commented: “On one hand, inflation is reducing the purchasing power of consumers. On the other hand, rising interest rates means that consumers are “forced” to absorb these rising borrowing costs. These are double whammies for consumers which would lead to dwindling disposable income while wages and salaries are hardly changed.”

    “Nevertheless, Bank Negara Malaysia’s move through its raise of Overnight Policy Rate (OPR) in May 2022 by 25 bps to 2.00% is commendable as the central bank is being proactive to stave off rising inflation in the country. At the same time, we believe this move will cushion some of the negative impact on the Malaysian Ringgit caused by the Fed’s recent aggressive interest rate hikes.”

    “The Research Team at FSMOne foresees that the central bank will make another 3 more 25 bps hikes to the interest rate during the remaining Monetary Policy Committee Meetings (MPCs) that are set to take place this year. We believe the central bank does not wish to make the mistake like Fed did, by hiking rates too slowly and letting inflation to spiral out of control. Hence, BNM stays abreast on this matter,” said Mr Jason Wong.

    Translating this to the current daily living of majority of people, Jason further elaborated that the current economic situation has led to Hobson’s choice moves by the Government. “Government has started the removal of subsidies moderately. As the pandemic came along with the Ukraine-Russia war recently, where supply chains were disrupted and shortages increased, many household commodities prices have been soaring up. China’s lockdown at certain provinces also affected major productions of industrial parts that they supply to Malaysia and other countries. Domino effect took place and subsequently, our local production is delayed resulted from this and affected end users as well.”

    “All factors combined and ramped up, these contributed to the increasing inflation in the country. Malaysian Government is now challenged to cope with the increasing cost of many commodities,” added Mr Jason Wong.

    By 1 July, the prices of eggs and chicken are expected to increase from the current price, RM8.90 per kg. The Prime Minister recently announced that the new ceiling price for chicken will be announced by Agriculture and Food Industries Ministry (MAFI) soon. The price ceiling for bottled cooking oil weighing 2kg, 3kg and 5kg will also be removed on 1 July.

    Based on these factors, it is foreseen that Malaysians will be facing greater food security issues as food items, even eating out, will be more expensive. In addition, food supplies could be tighter than before which may lead to limited quantity to be sold to consumers.

    Besides food security, majority of Malaysians are challenged with job security in terms of disposable income, as basic items are getting more expensive and possibly overall wholesale, retail and trade sales would drop as an effect to this. Malaysians may have no other choice but to start cutting off expenses and tighten their budget to match with their monthly income.

    Not to mention commodities and energy prices are also increasing higher than ever. RON97’s price is now lifted to RM4.84 per litre from RM3.94, which was last recorded on 11 May 2022. Although the price of RON95 has not changed from RM2.05 per litre, but it is foreseen that the price of RON95 may follow suit RON97 at certain point of time. It is just a matter of sooner or later. However, the water and electricity tariff maintain in Peninsular Malaysia.

    What does this mean to all Malaysians? Are we expecting recession in the near future?

    We are living in the bubble of protection from the Government today, with the lifting of fuel subsidies, like a balloon, as the air pressure increases internally, it’s only a matter of time, the rubber material gives way and pops.

    About FSMOne Malaysia and iFAST Capital Sdn. Bhd.

    FSMOne Malaysia (previously known as Fundsupermart.com Malaysia) is a Multi-Asset Investment Platform under iFAST Capital Sdn. Bhd. (“iFAST Capital”), established in Malaysia since 2008.

    iFAST Capital is a holder of a Capital Markets Services Licence (CMSL) and is licensed by the Securities Commission to deal in securities (includes Stocks & ETFs, unit trusts and OTC bonds), dealing in private retirement scheme, offer investment advisory services, financial planning services and fund management services in relation to portfolio management.

    iFAST Capital is a Federation of Investment Managers Malaysia (FiMM) registered Institutional Unit Trust Adviser (IUTA) and Institutional Private Retirement Scheme Adviser (IPRA). It is also an approved Financial Adviser licensed by the Central Bank of Malaysia to conduct financial advisory business and also a Participating Organisation of Bursa Malaysia Securities Berhad.

    iFAST Capital is a subsidiary of iFAST Malaysia Sdn. Bhd. which is wholly owned by iFAST Corporation Ltd. (“iFAST Corporation”). iFAST Corporation is headquartered in Singapore and the iFAST group of companies are also present in Hong Kong, Malaysia and China. The company was incorporated in Singapore on 10 January 2000.

    iFAST Corporation was listed on the Singapore Exchange Mainboard in December 2014.

  • Debt Management: Bad Debt vs Good Debt

    Debt Management: Bad Debt vs Good Debt

    A middle-aged executive named John finished work, drove home, and the very first thing that he saw was an envelope that contains the latest credit card statement. It states:

    Outstanding Balance: RM 36,867.44.

    He was overwhelmed and pondered, “How on earth am I going to clear off my credit card debt? It’s way too much, and I don’t have much cash in my bank account to do so. I’m so screwed.”

    If this sounds like you, fret not – let this article be a helpful guide on how to move forward.

    1. What’s a Bad Debt?

    First, not all debts are bad. There are two types of debt: Good Debt and Bad Debt.

    Good debt is debt that makes you richer. For instance, property investors are experts in using debt as their leverage to expand their property portfolio and thus, have become wealthier as their properties’ value continue to appreciate over time.

    Bad debt is debt that makes you poorer. For instance, many borrow money to buy things where their value drops over time, thus, resulting in the person becoming poorer. These debts include credit card debt and personal loans, where the interest costs are substantially higher than collateralized obligations like a mortgage.

    2. Discover the Root Cause

    debt root problem

    For some, such is life. For many people, their debts may stem from medical bills, a failure in business, a pay cut, or job loss. If this is you, just know this: It’s temporary and you may proceed to Point #3 to work on a solution.

    In most cases, having excessive bad debt is more than just a financial issue – it can be a psychological issue. I believe there is a deeper cause that might be the main culprit to your financial problems. For example, let’s say now you don’t have much money. Why do you:

    • Buy stuff that you do not need?
    • Attend expensive social gatherings?
    • Go on a holiday trip overseas?

    3. Work with a Partner

    debt

    If you are young and single, you may consult your parents for some financial advice. In many cases, you might even receive some financial grace which is much needed as a temporary relief to your problems.

    But, with that said, you might lose a valuable chance to improve your financial intelligence as you’ve been bailed out. But, if you opine: “I still want to solve the issue like a man”, then your next best option is to find a friend whom you trust and is more financially-savvy than you to impart some financial wisdom to you.

    If you are in a relationship, it’s ideal for you to work on these financial issues as a team. It’s helpful, but not easy, to be transparent about it and to find the solutions together. One thing is for sure: Both of you will come out stronger and more refined as a couple after you have cleared your bad debts.

    4. Go on the Offensive

    If you have little financial resources to work with, you may set a small goal to raise another RM500 a month which is dedicated to clear off your bad debt.

    It may be hard initially. But, if you have learnt how to raise RM500 a month to clear bad debts, very soon, you’ll also know how to raise even more which could be used for your investments.

    Here, I’ll share a guideline that enables you to take baby steps towards your freedom from debt. Firstly, you can split the RM500 a month into two categories:

    • Earn RM250 a month
    • Cut RM250 a month in expenses.

    Secondly, here’s a list that you can do to:

    Make RM250 a month

    • Do Overtime
    • Make more sales if you’re a salesman.
    • Take up one or two freelancing jobs.
    • Sign up as a Grabcar driver.
    • Have a part-time job.
    • Give tuition classes to school kids.
    • Sell your unwanted stuff on eBay or Mudah.my
    • Refer customers to your business friends for a commission.
    • Join MLM, sell insurance, but please … don’t join money games.

    Save RM250 a month

    • Track your expenses. You’ll find items to cut on very quickly.
    • Say ‘No’ to expensive social gatherings.
    • Say ‘No’ to smoking, alcohol, nightclubs and KTVs.
    • Say ‘No’ to gambling.
    • Cut entertainment expenses.
    • Cancel expensive gym memberships. Run in the park or do Tabata at home.
    • Cancel Low-Yielding Unit Trust Investments.
    • Cancel endowment plans with Low Sum Assured.
    • Exercise delayed gratification.
    • Quit drinking Starbucks or reduce four RM15 drinks a month.

    5. A Word on Balance Transfers

    debt credit card balance transfer

    Being aware of the latest promotion of Balance Transfers is helpful. Having said that, it’s essential for you to check the following before agreeing to do a balance transfer on your credit card debt:

    • Is it on an Effective Rate or Flat Rate?
    • Is it calculated based on an Annual Rate?
    • What are the clauses for Early Repayment?
    • How much is your monthly repayment after doing balance transfer?

    If you are not sure whether a Balance Transfer is to your advantage, you may consult a trustworthy friend first before proceeding with it.

    About the Author

    This article is co-written by KC Lau and Ian Tai.

    Ian Tai is a Dividend Investor. Financial Content Machine. Producer of 200+ Articles, Weekly Host and Presenter at KCLau.com. Co-Founded DividendVault.com, an online educational membership site that empowers retail investors to build a stock portfolio that pays rising dividends in Malaysia and Singapore. 

    KCLau is a financial educator, having published seven books including the current bestseller Money Smart, and co-created a dozen online financial courses. He gives away his popular Money Tips e-book volumes free at his website: https://KCLau.com

  • How Can You Save Money Without Even Realising It?

    How Can You Save Money Without Even Realising It?

    Life can throw us curveballs unexpectedly. Some of the events can be devastating and when we get hit, it could make life hard for many. To some, it may not be a significant event but to others, it may be a huge blow.

    Whether or not it is a huge blow, it boils down to whether or not we are in a good or healthy position to deal with the consequences and many a time, it involves spending or using money to solve or put off the fire.

    When these surprises happen, we have to deal with it and make adjustments.  Generally, we have these three choices:

    • Extend our timeline;
    • Forgo our goal;
    • Live with regret.

    Of Critical Importance

    save money

    That is what makes having emergency funds or savings a critically important item.

    I have seen many people in “thin” situations financially. In fact, not too long ago, it was reported in news that many young people (75% as a matter of fact) admitted that they would not be able to fork out RM1,000 to deal with unexpected emergencies. This shows how fragile we are.

    If you think that this news is unfounded, please know that the source of the alarming data is the central bank of Malaysia, so, this is certainly no fake news. In another news, we were told that working Malaysians could not survive six months if they were to lose their income.

    How to Put Money Away Easily

    Is there a good way for people to save money and ensure the money gets saved? The easiest way − and I have seen it working countless times − is to save the money you bring home without you being aware of it, or having to remind yourself to do it.  

    Automatically Move It

    The first way is pretty simple. You just have to login to your internet banking and look for the transfer of fund button, make it automatically repeat on a monthly basis on a date you are certain your salary will be credited to the account (don’t pick a date that is too far away from this date but try to be within a three-day range).  

    This mean you will have successfully “outsourced” this job to your online banking system in that it moves your money from your salary-receiving account to another account without you having to worry about forgetting to do it.

    However, it is important to note that you nominate an account you will not have easy access to, like an account without an ATM card, or an account that has very few branches or that each MEPs withdrawal will cost more than RM1.06.  The trick is to move the money where it will not be easy to make unplanned withdrawal or spending.

    Park at Flexi Mortgage Account

    save money

    If you have a flexi mortgage account, you can also “park” your money there. It will benefit you and help you to retain the money as a rainy day fund.

    Liquid Cache

    Alternatively, you may set up a standing instruction to move this saving into a money market fund or cash management fund. It is important for our rainy day fund to be liquid-like cash and money in a savings account, as these two options provide this feature.

    Big No-No

    If you are trying to force yourself to save money by signing up for an insurance endowment or savings plan, this may not be the best thing to do because when you signed on the dotted line, you are in fact agreeing or committing to pay the fixed amount of premium over a long term period which could be five to 20 years or even longer. This means you will not be able to withdraw the amount you may need in an emergency, unless you are in the late stages of the policy life or have past the guaranteed premium paying years.

    It is important to note that the instrument or place we choose to park our emergency or rainy day fund has the right criteria and characteristic, and is safe, liquid, and cost-free.

    About the author

    kevin neohKevin 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. 

  • Should I Take Out My EPF To Settle My Housing Loan?

    Should I Take Out My EPF To Settle My Housing Loan?

    I saw a news today regarding housing loan, and there are many netizens comment that they took their Employees Provident Fund (EPF) money to settle their housing loan earlier.

    Is it a wise decision to take out EPF money to settle housing loan earlier?

    Here is an example:

    Housing loan amount: RM199,000
    Interest rate: 3.15%p.a.
    Loan tenure: 25 years
    Outstanding balance at the end of 15th year: RM98,635.60

    Based on the information above, if I would like to do early settlement, I have to take out RM98,635.60 from EPF to settle off my housing loan at the end of 15th year (180th month).

    According to the calculation shown below, I can save a total of RM16,477.72 interest for early settlement.

    However, I could have made a potential of RM62,031.40 dividend if I leave the RM98,635.60 at EPF with expected 5% annual return (expected return based on past performance) for 10 years.

    I might be earning additional RM45,553.68 (RM62,031.40 – RM16,477.72) dividend if I do not take out my EPF to settle off my housing loan earlier.

    Hope that this simple calculation can solve the doubt of everyone who is planning to take out the EPF to do early settlement.

    Yet, I received some queries regarding the high housing loan interest rate of about 4%-5% in 20 to 35 years back, is it worth to take out the EPF to settle their housing loan when the rate increases back to 5%?

    Based on EPF historical performance, the time where the housing loan interest rate is at about 5%, the EPF dividend is about 7%-8%. Despite the historical performance does not guarantee future performance, but it can always serve as a guide for us before making our financial decision.

    About the Author

    Angel Chan is a Licensed Financial Planner attached to UOB Kay Hian Wealth Advisors Sdn Bhd. Besides providing comprehensive financial advisory to her clients, she is also committed to educate the public about the correct financial management mindset and methodology through article, YouTube video and Financial Management Workshop conducted by her and the team. Do reach out to her for more information.

    FB page: https://www.facebook.com/angelchan.financialplanner

    FB page: https://www.facebook.com/profinance.my

    YouTube channel: https://www.youtube.com/channel/UCf5f7O3vuOhnwy_wflDuuKA

    Smart Finance: https://smartfinance.my/planners/chan-aun-kei-rfp

    To book a free 1-hour consultation with Angel Chan: https://forms.gle/8Ur46Dox9T6g3yKS8