A story of a typical Malaysian walking a path less travelled. Ian approach me to help resolve his debt problem.
“Where do I go? Who can I turn to?”
I met Ian (not his real name) when I went back to serve as a coach in one of the property investment courses I previously attended in 2013. He was introduced to me by a friend, who said that I needed to help him.
During our first meeting at Old Town Coffee at Kuchai Lama over lunch, Ian shared with me that he was working as a Graphic Designer and has been working for more than 10 years but finds it very hard to have any savings. I see him as someone who has a dream, and ambition because he told me “People around me, my colleagues, friends and even relatives have already had their own families and even owned a few properties”.
Yet he is still single and haven’t bought his first property nor started any investment.
This was his situation:
Credit card debts, personal loans & Car Loan close to RM66,000
Negative cash flow of RM 1,767 (Outflow more than monthly salary)
Earns RM5000/month salary
His CCRIS has been badly affected, as he wasn’t prompt in paying his debts
Total commitments and loans of RM4,870/month(97% of his salary)
To be honest, I thought he was in a worse-off situation. But after reviewing his situation, I share with him two strategies to resolve his situation. The first strategy is called Debt Consolidation Strategy, as he had multiple loans which needed to manage.
Ian’s situation before applying the Debt Consolidation Strategy
Ian’s situation after applying the Debt Consolidation Strategy
” If there’s the slightest chance for you to make a change in your life, don’t let go of it. Keep moving and going and you will find a way.”
After applying the strategy, he managed to:
Reduce RM3,152/month after restructuring his debts from RM 4,870 to RM 1,718 per month
Ian could now save RM1,650/month as a result (Monthly salary having surplus)
Save on interest of 7-9% on average for his credit card debts & personal loans
Bought his first property for RM200K & subsequently another RM900K with his property investor team
Avoid being ‘EARMARKED’ by not going to AKPK else he wouldn’t be able to buy property. (I don’t have anything against AKPK, as they genuinely help people restructure their debts, but they need you to pay off your debts fully before taking on new debts)
Ian Was A Mr Nice Guy To Others, But Is He Nice To Himself?
So with these two financial strategies, Ian can free himself from his debt problem and pursue his dream of owning his own property. What I notice about Ian was, that he was an easy-going and easy to ‘trust people kind of guy’ which led him to this problematic situation.
This same trait led him to trust his friend, his friend’s MLM products because he didn’t know how to say NO. And as a result, he doesn’t know how much he has spent over the years. After this experience, he is much more aware of his financial situation.
How Do You Restructure Your Loans When Your CCRIS Is Not Great?
“How do you qualify for more loans since Ian’s CCRIS is koyak?” If this is the same question you are wondering about, congratulations!
It means two things. Firstly you are very aware of what you are reading and you probably have a high Financial IQ. Secondly, you could be in the same situation and you need help. Regardless, the solution to your problem is simple but not easy if you are not equipped with proper financial education.
*DISCLAIMER – All strategies listed here are not a recommendation or advice. The article is written purely for the purpose of education and journaling only. The content of this article is an expression of my opinion and should not be taken as professional advice. If you are seeking professional advice, please consult me personally. You should do your own research and/or seek expert advice when overcoming your debt circumstances.
Home loans and home loan applications may be complicated, with changing interest rates, bank policies, and government regulations. These and other factors lead to constant movement in what a lender can and can’t accept. As a result, countless Australians reach a point where they must shift lenders to take advantage of a better mortgage available elsewhere.
“Refinancing is tricky and time-consuming. Thus, it’s important to determine whether or not this choice is viable for you. Refinancing your mortgage is a big financial choice you’ll have to make. If done correctly, it can save you a fortune in the long haul.” says Shane Perry of Max funding—Australia’s leading second mortgage loan provider.
If you’re trapped in the same situation, take a closer look at these five tell-tale indicators that you need to refinance your home mortgage loan:
1. Low Rates On Offer
People refinance their mortgages for various factors, one of which is the availability of low-interest rates. Interest rates fluctuate a lot, so don’t pay too much attention to everyday fluctuations. When considering refinancing, it’s a good idea to keep an eye on the trends. Similarly, it’s critical to compare your current mortgage interest rate to the rates offered by mortgage lenders.
2. Your House Is Now Worth More Money
Secondly, you may choose to refinance if you’ve made significant renovations or improvements or the value of the homes in your neighbourhood has increased. Also, you may consider refinancing, particularly when you have a massive personal debt such as credit card, personal loans, etc., that you’d want to combine to payout or consolidate.
However, note that if your house’s assessed value improves, your home equity will likely rise, giving you greater borrowing capacity.
3. Your Income Or Credit Has Improved
Your income and credit score mainly determine the interest rate on your mortgage. Refinancing can help you get a better rate if you’ve earned additional income or your credit score increased after closing your mortgage.
4. Your Arm (Adjustable Rate Mortgage) And Mortgage Interest Rates Are Increasing
The combination of an ARM with rising mortgage interest rates is not a desirable match since it may substantially raise the total cost of your house when rates increase. If you find yourself in this situation, you should consider refinancing and switching to a fixed-rate mortgage.
5. You Want To Remodel Your Home
People who consider refinancing and get cash out often do so for various reasons. Home equity loans let homeowners borrow money against the value of their houses. You can spend the money to remodel your property and make changes to enhance its long-term worth.
Is Home Mortgage Refinancing Right For You?
Mortgage refinancing, along with many other financial transactions, is complicated and needs careful analysis by homeowners seriously considering it. Consider the signs listed above and connect with a trustworthy lender to get immediate answers to your questions. This will assist you in deciding whether or not refinancing is suitable for you.
Providing care for an ageing parent or loved one can be a rewarding experience. However, it is also considered one of the most physically, mentally and emotionally stressful times an adult child will face. This isn’t only because of the intense demands placed on the caregiver, but also due to potential conflict amongst family members. The conflict isn’t just contained to who does what for mom or dad.
Among other things, financial matters are one of the main sources of conflict among family caregivers. This is especially so when siblings or other family members disagree on how funds are spent or if one or more caregivers are helping to support mom or dad.
Who is in charge of the money decisions? Should mom/dad stop handling the investments? Is the ageing parent showing signs of cognitive impairment? How bad is the condition and how do you know? Is one family member doing all the hard work?
Pertinent questions such as these can sneak up on adult children and the ageing parent, wreaking havoc on family relationships if distinct instructions aren’t discussed and answers are left vague. Combined with the fact that the caregiver may have to reduce working hours or leave their job entirely to care for a parent, resentment and animosity may surface.
If the situation isn’t handled delicately, the result can be explosive. Ugly accusations fly back and forth, someone brings in a lawyer and the conflict escalates.
Hence, before things get to this stage, you should have conversations with all parties in the family about how the ageing parent wants their needs met during their later years – especially if you’re getting along in years and still able to make decisions. Doing so would make the caregiving experience easier in later years and bring the family closer.
While you probably won’t cover all the important topics in one conversation, it’s a good idea to have a plan. At the very least, make sure you cover these two areas: understand your parents’ financial situation and lay the groundwork for advance care planning.
Talking with Parents About Finances
Money is often a sensitive issue. Many people don’t talk about their finances, even with family members. As such, communicating with your parents about the subject may feel awkward or like you’re overstepping a boundary in their personal lives. Some are concern that they might upset their parents by talking about issues related to their possible incapacity or death.
On the other hand, many adult children aren’t aware about their parents’ financial situation. They don’t know if their parents have sufficient money to live on, what type of care or medical treatment they want, whether they can financially afford the care they want, or even what they would want in the event they became incapacitated and unable to make decisions for themselves.
However, it is never too early to have such discussions with them. Most families don’t talk about these important matters until a major crisis occurs. Then more often than not, important health and financial decisions are made under great emotional distress and without the time to find and consider all the alternatives.
The Benefits of Advance Care Planning
You may have heard of Advance Care Planning (also known as ACP) and pays to have one. Planning how you receive care ahead of time is important for not only your peace of mind – for yourself, as well as your parents – it also helps to save money and lead you to more options and better choices in healthcare, housing and legal matters. It also helps to reduce family conflicts and ease the emotional distress.
The sooner your family begin planning for care, the more options they have available. For example, while many Malaysians would choose to stay in their homes for as long as possible – aided by home care services when needed – when given enough time to plan and compare different senior living
arrangements, your parents might choose to move into a retirement community as they develop more definitively in Malaysia.
Some may prefer it over other options because they can stay in the neighbourhood near like-minded peers and be assured of the availability of continuum care. The facilities may also offer amenities -such as a fitness centre or transportation to planned social activities and shopping sites – that are important to your parents.
However, if your parents’ condition requires a high level of care, it could eliminate this alternative altogether. In such circumstances, such as limited mobility, they might have to choose another, less desirable living arrangement. Planning for these situations is especially pertinent as decisions are more difficult if your parents haven’t considered the options.
While talking about these issues – while they’re still healthy with time to plan and make choices – is discomforting, bear in mind that its much less so than the distress caused by failure to plan and decision-making during a crisis. You may not be successful in getting your parents to do some advance care planning, but the risks of not even having that conversation can be devastating.
Conclusion – The Pros and Cons
Unlike writing a will, penning down an Advance Care Plan document is not legally binding in Malaysia. The parties involved – such as doctors, healthcare professionals, and family members – are under no obligation to follow the directives listed and can ignore them in favour of options or treatments that healthcare professionals may deem more suitable.
However, having an ACP document that clarifies your preferences in a confusing and emotionally charged situation would give you or your parents a higher probability of receiving the care you wish for.
It also helps reduce ‘silence or violence’ responses – where family members either clam up when they get angry and shut off communication, or they get aggressive, accusatory and begin shouting and name calling, which also shuts off communication – and restore peace within the family.
If you need help with making an Advance Care Plan, do your research to find a trained and experienced Care Administrator. You can seek their services from Managedcare’s one stop care platform or visit www.managedcare.com.my for more information.
In the aftermath of medical emergencies, the matters is that a family pulls through the experience together for the better.
Aged Care Group (ACG) is an organisation engaged in the business of elevating and providing aged care services in Malaysia. It is involved in a range of products and services for the elderly including developing and managing day care centres, retirement villages, and aged care facilities.
ACG advocates innovation and transformation in ageing by offering continuum care as a premium choice for enriched living. We operate in an ecosystem that provides integrated care services & products through meaningful partnerships. A detailed profile of who we are can be obtained at www.agedcare.com.my.
I used to be a full-time musician a decade ago. I produced and arranged music from a home studio consisting of pre-owned musical gears that I bought mostly through eBay. I was always doing research and upgrading my audio gears from time to time, ranging from keyboards, microphones, sound modules, audio interface, software, and so on. Even though music is a niche and relatively small market, there is an array of equipment available and I was spoiled by vast choices.
Costly Sound Bites
For example, just in the area of vocal microphones under Neumann Solution DS, you could find one in the price range of RM100 up to RM50k. I would first buy an entry level microphone, then upgrade it after making more money from music gigs. My first studio mic was about RM800. Then I had one that was RM2,000 a few years later. What was the difference? Of course, it was more expensive but records better quality audio. It captured a wider spectrum of sounds. However, when I played the recording clips from these two different mics to friends, most of them could not hear the difference. The improvement was very subtle.
How about those mics that cost more than RM10k? It is true that the sound quality will be better. But what is the degree of improvement? If we put it in a graph representation, let’s say the entry-level mic gives a quality of 80%, while the RM2k-mic will boost it to 90%, and the RM10k-mic will produce 95%. However, when you consider the premium you need to pay, is it worth it? There is no right or wrong answer. It depends on your needs and affordability.
What Price for Prestige?
Another case we can examine is the passenger cars segment. For a sedan, there are many models from many different brands. Consider the most affordable Perodua Bezza, the value-for-money Honda Civic, the flashy BMW 5-series, or even the stately Bentley Flying Spur. All these vehicles have the same functions like air-conditioning, air-bags, automatic transmission and so on but the most important aspect is that you will get to your destination with any of these cars.
Now let’s consider the pricing. The cost of a brand new
BMW 5 Series 530i M Sport (CKD) (2017) (RM388,888) gives you a budget to buy up to 10 Perodua Bezza. I understand that the feeling and satisfaction you will get out of driving a BMW would be much better than a Perodua. But you will have to pay 10 times the price. Will you be getting 10 times the satisfaction?
Again, it depends on your level of wealth. You can own a luxury car when you are rich and can make good economic use of the money. From these examples, you can see that there is a premium to be paid for all the good stuff. Most of the time, you might need to fork out two times, five times or even 10 times more just to enjoy maybe a 20% boost of value.
Consider the Value of your Money
I would urge you to contemplate whenever you think of paying an extra premium for better stuff or better service. If it is for something within your budget, then go ahead. But when affordability becomes an issue, do consider the value of your money. There are always alternatives that can meet your budget and give you the best stretch for your money.
There was a research done about the level of wealth versus happiness. Psychologist Daniel Kahneman during his TED talk in 2010 made a note of studies that showed that earning less than US$60,000 per annum can have a significant effect on your happiness levels. It means when you are earning less than RM240k a year, every ringgit will contribute proportionately to your happiness. However, when it comes to making more than US$60,000 per annum, there is entirely no correlation between more income and more happiness.
More wealth does not convert to a prorated happiness boost. Similarly, when it comes to material consumption, most of the time, even when you pay 10 times the premium, it does not translate to 10 times better quality.
If this is true, how do you gain more happiness? The simple act of getting a new car, a bigger house, or a more exotic vacation is no longer the solution. I suggest that you look into areas that give you real satisfaction. Would it be a more meaningful job? Is it the freedom to make life choices? Or perhaps it would be spending more quality time with family? Know yourself.
About the author
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
One aspect of wealth planning is managing debts. Asians, particularly Malaysians, often have the mindset of prioritising debt payment over savings for retirement. Any extra cash at the end of the day is used to pay off existing debts rather than investing into a retirement plan.
Smart Investor spoke to a few prominent financial experts to gage which should prioritised – being debt-free or saving for retirement.
Retirement Savings More Important
Kenney Khew, Licensed Financial Planner Phillip Wealth Planners Sdn Bhd
Managing both our debts and savings is important because it increases our net worth eventually.
However, I personally would give more importance to retirement savings than reducing mortgage debt, especially now when inflation rate is pretty high. Furthermore, planning for the next 25 to 30 years is more important than focusing on debts that have already incurred.
One way to manage mortgage debt is by purchasing the Mortgage Reducing Term Assurance (MRTA) from banks. The MRTA is usually incorporated in the mortgage debt or monthly housing instalment to mitigate anything untoward happening to the primary borrower, namely accidents, death, total permanent disability and critical illness.
If this happens, the insurance company will pay a compensation to the bank to fully settle the mortgage loan.
However, if your Debt to Service Ratio (annual loan payment/annual take home pay) is greater than 35% and Debt to Asset Ratio (total liability/total assets) is greater than 50%, you might want to consider settling your debts first.
Debt is Cheap
Steve Lim, Chief Learning Officer Affin Hwang Asset Management
I think it depends a lot on an individual’s cost of debt verses investment returns. If I make say 12% returns from my investment in the long run, I would rather put more attention to retirement savings than paying off my debts that’s costing me 4% per annum.
Of course, you can quickly pay off your debts if you decide otherwise, but you’re only going to save 4%, and give away differential returns of about 6-8% on retirement savings.
As Asians, we have a debt-free mentality. But debt is very cheap in this environment right now. Everyone is getting very low interest rates, thus, if you can accumulate a return of 10% on your investment, better focus on that than settling a debt that is very cheap.
The only time an individual needs to focus on debt is if he is a conservative investor, investing predominantly in fixed income instruments that gives him a return of 5-6% per annum. With a 4% cost of debt, he would be quite indifferent as to whether he should pay off his debts or invest for retirement.
Understand your debts first before managing them. For instance, concentrate on settling short-term debts like credit card and car loans rather than mortgage loan. It’s wise to keep your short-term debt low as the repercussions of non-payment can be quite damaging.
Housing loans, on the other hand, are long term, and if you have a savings buffer of 6 months to a year, you should be able to pay off the instalment if you lose your job.
In fact, a home loan can only become a non-performing loan (NPL) after a year, so you shouldn’t be too worked up over a long-term debt, as you still have time. Therefore, my advice is to put things into perspective rather than doing intuitive.
Balance the Scale
Yong Chu Eu, Licensed Financial Advisor Fin Freedom Sdn Bhd
In my opinion, both are equally important, so instead of choosing to prioritise one over the other, we should try balancing the scale – meaning settle our debts and have adequate retirement savings.
If you’re debt-free upon retirement, which is highly recommended, but lack savings, you will be having a tough time managing even your daily expenses.
Likewise, if you have adequate savings, and still have a high level of debt upon retirement, most of your wealth will be used to settle those debts. This is why I always stress on simultaneous management of debt and savings.
Most Malaysians are conservative. They prefer to utilise their free cash flow to clear off debts, only then think of investing for retirement. But this is not a good idea as they will have lesser time in compounding their wealth.
The best way is to service your debts on a monthly basis according to the loan requirements. Take note that your total debts should not be more than 40% of your monthly salary.
Invest extra cash into an investment vehicle that you’re familiar with, but make sure that the returns are higher than the loan interest rate.
50/30/20 Budgeting Rule
Gor Sheau Shuenn, Licensed Financial Planner Blueprint Planning Sdn Bhd
Reducing mortgage debt is recommended if it’s for self-occupancy because we want to have a debt-free home to live in upon retirement.
However, if it’s investment property, just follow the loan repayment schedule and cover the commitment with rental income. Furthermore, the interest on loan are allowable tax expenses, which could be used to reduce chargeable income.
Nevertheless, saving for retirement is equally important. Retirement cashflow should focus on living necessities instead of loan repayment.
If you put all your money into paying off mortgage loan, eventually, you would have a house to stay, but not money to fund for basic living needs. What would you do then?
Of course, investment property can be disposed off anytime for capital gains and parked under retirement fund. But the question is whether you would be able to liquidate the property immediately.
Therefore, I would like to introduce to you the 50/30/20 budgeting thumb rule:
50% of your take-home pay should be used to pay for mortgage, home insurance and maintenance, hire-purchase loan, car insurance and maintenance, and other bigger commitment.
30% of your take-home pay should be used to pay for groceries, dining out, entertainment, and other family and personal expenses.
20% of your take-home pay should be used for savings, out of which 50% should be kept for retirement and the balance 50% for other financial goals and emergency purpose. This is on top of your EPF savings.
For instance, assuming you are 25 years old today, with the ability to invest RM500 every month into an investment instrument which gives you a return of 7%.
In 10 years’ time, or by the time you’re 35, you will be able to save RM86,500, and RM260,500 by 45.
Apply the Rule of 72 every 10 years, and you would be able to double up your capital by 7% per annum. By the time you reach 65, you would already have RM1 million, even if you have stopped investing at 45 years old.
Financial Discipline is Key
Tan Kim Book, Licensed Financial Planner Philip Wealth Planners Sdn Bhd
For an individual who would like to plan for effective wealth accumulations for retirement and distributions, we would first have to take a look at his personal financial statement.
If the cost of mortgage is higher than the rate of return on your investment, then I would advise you reduce your mortgage debt, which is logically and mathematically very effective as this can reduce the instalment tenure and save the mortgage cost.
However, you need to have the discipline to save more for your retirement after reducing your mortgage debts. Sometimes, you might have the discipline, but alas, time and compound interest may not be on your side.
Liquidity for day-to-day cash flow and accumulating for future retirement income is equally important. Unless you have a very high annual savings ratio of 20-30%, you may want to consider reducing your mortgage debts. Otherwise you have no choice but to increase your savings through your earning capacity.
On the other hand, if the rate of return on your investment is higher than the cost of mortgage, the problem is solved.
For instance, let’s assume that the cost of your mortgage is 4.5%, and the rate of return on your investment is 8%. In this case, there is no hurry to reduce your mortgage debts.
Instead, you should channel your surplus into the Employment Provident Fund (EPF) or a Private Retirement Scheme (PRS), and allow time and compound interest to work for you.
An important fact that many of us aren’t aware of is that we shouldn’t withdraw the savings in our EPF Account 2 facility, either monthly or lump sum, for paying mortgage instalments or early settlement, if the EPF return is higher than the mortgage cost.
It’s an Ongoing Process
Kevin Neoh, Licensed Financial Planner VKA Wealth Planners Sdn Bhd
I would say both are equally important. Debt management is also part of the key component towards a sound retirement planning, for if we have debts on our shoulders, we can never truly retire as we still have to service the loan when we stop working.
But if one has to take precedence over the other, then it is important to note that usually, our mortgage has a tenure that is as long as our time horizon towards retirement.
If one repays more to reduce the mortgage and to redeem the property from the financier earlier than the tenure stated in the loan agreement, no doubt there will be extra cash in hand and also a property that is free from incumbencies.
However, what happens when the person runs out of retirement fund? Does he have to sell his property then? If yes, where will this person stay after that?
Hence, it is important to prepare for a retirement fund while we are still working, as there is still ample of time before reaching retirement age. In short, just follow your mortgage repayment schedule and save the extra cashflow towards building a retirement fund!
Regardless of your level of wealth, estate planning is a vital part of your overall financial plan, with effective estate planning providing you with greater control, privacy and opportunity to leave more of your legacy to your loved ones.
To put things in perspective, an Estate Plan is a collection of preparation tasks that serve to manage one’s asset base in the event of their incapacitation or death, thus ensuring that all the individual’s personal assets go to his/her intended loved ones.
However, good estate planning is much more than just making a plan in advance and naming whom you want to receive the things you own after you die – there are many important factors to be considered in this aspect. Here’s what the experts have got to say.
Pay Attention to the Details
Azhar Iskandar Hew, Rockwills Trustee Berhad Group Chief Executive Officer
The key points to consider when doing estate planning and successfully leaving a legacy depends on whether the person is preparing a Will of trust, or both. Generally, an estate plan should include:
The list of beneficiaries;
Who to appoint as the trusted executor of the Will;
If the children are young, then appointment of guardians is recommended;
What are the assets to be distributed;
In what proportion, as well as the terms of distribution;
Substitute beneficiaries will need to be considered, depending on the family’s lifestyle such as yearly family holidays, along with the number of beneficiaries to be named.
In addition to the above, it is important to have a complete and accurate record of assets and liabilities including tax file status; items held in trust by others and for others; and a list of overseas assets.
Special attention must also be given to joint properties, assets or funds where nominees have been made earlier. It is also important to ensure that there is enough liquidity to pay debts.
For business owners, it is important to plan for proper business succession, both in terms of management and ownership. Not to forget, preservation of controlling interest as well as preservation of capital, including protection against creditors and ex-spouse claims.
With the above, the individual can then leave clear instructions to prepare a comprehensive Estate Plan to ensure he has a successful legacy. Depending on the person’s objective, Estate Planning can also cover various aspects including planning for business succession, education and retirement.
As an example, Mr Tan and his wife are the shareholders in two private limited companies involved in manufacturing and services. His two children are working for him.
Both Mr Tan and his wife intend for the companies to continue to be owned by the family for many generations to come. The solution would be for Mr Tan and his wife to create a trust by settling in it their shares in the two companies.
An independent trust company should be appointed as the trustee to hold the shares of the two companies for the benefit of the children and their lineal descendants.
During the lifetime of Mr Tan and his wife, they have sole ownership control over the companies and upon their passing or disability, the two children will be given control, and thereafter suitable and qualified descendants will be appointed as successors.
The trust should spell out the detailed succession and distribution plan so that control remains within the family.
With a proper business succession plan, the ownership of the two companies will be fragmented which would lead to in-fighting among the descendants which in turn may cause the companies’ business to be disrupted.
In the same trust, Mr Tan and his wife can instruct the dividends received by the trust to be used to pay for the tertiary education of the descendants that is related to the business of the companies. This would ensure that there would be continuity of suitable and qualified successors in the business.
Don’t Procrastinate Estate Planning
Kenney Khew, CFP Philip Wealth Planners
Estate planning is important throughout our cycle of life, regardless whether you’re in your 20s, 30s, 40s or 50s. Many tend to have the misconception that only the rich should think about distributing their wealth, while others may even feel uncomfortable to broach the subject when you’re still alive!
That aside, wealth planning is crucial as it allows you to leave your hard-earned wealth to the beneficiaries of your choice in the shortest time possible with very few hassles and setback through the application of a grant of probate (testate).
In the case of Intestate (not having made a Will before one dies), the deceased’s family will need to apply for a Letter of Administration by choosing an Administrator to determine the value of the estate, and get two sureties (guarantors) to unlock the frozen assets.
Should we want to leave a legacy for our children, there are certain aspects to consider:
Your appointment of trusted Executors – A valid Will should spell out the appointment of executors to carry out your wishes so that wealth is properly distributed to your loved ones as soon as possible, and the best person is a trust corporation or professional trustee, and it is important to look for a qualified person who is professional, independent and knowledgeable;
Your choice of guardian for your children below the age of 21 – With the choice of guardians in your hand, you can be sure that your children will be well taken care of;
Your choice of beneficiaries and their entitlements – how much of your wealth is to be distributed to your beneficiaries upon your demise has to be clearly stated in your Will (normally in the form of percentage);
Testamentary Trust – a testamentary kicks in upon your death and allows your young children and ageing parents to receive a sum of money for living expenses and school fees. In these circumstances, you will need to entrust the trustees to carry out your wishes accordingly.
Will custodian – in this case, a will custodian is very important as it is pointless to write a Will only for your loved ones to not be able to locate your Will. The safekeeping of the Will and its easy retrieval are vital in order to ensure your wealth is distributed to your beneficiaries with no hassle.
Witnesses – once the Will has been drawn up, it is not effective until it has been signed in the presence of two witnesses. These witnesses have to be present at the same time when the Will is signed to confirm that you are of sound mind, that the Will is made voluntarily and without pressure from another person, and that the Will was not signed when you are intoxicated or drunk.
A Will is a Must!
Kevin K.M. Neoh, CFP CERT TM, MBA VKA Wealth Planners Sdn Bhd
When it comes to effective estate planning, you mainly need to consider the position of the estate (i.e. if there will be anything left to be given away to the beneficiary).
If the person has more debts than assets, then this person would die insolvent, which means that it does not matter if the person has written a legit or complete Will or not, since most of the estate would be used to repay his outstanding debts.
Next comes tax matters. It is important to ensure that we keep proper filing and do our tax filings well, and have no outstanding and unpaid dues.
The basic form that we need to consider when it comes to estate planning is perhaps writing a Will. A will is simply a legal document and we will need an executor to carry out the wishes of the testator.
Appointing executors, therefore, is a very important matter because if the appointed executor is not capable or have a good sense of responsibility, the entire process may go haywire and worse, the interests of the beneficiaries may not be protected.
In my article published in August 2017 entitled “Have You Prepared Your Will?” I dealt with the general process of making a will, the advantages of having a will made, and some questions that I have answered from my clients over the years with regards to the will-writing process.
I have since then received further queries on whether it is necessary or mandatory for one to use the services of a law firm, or a professional will-writer for the purposes of writing a will. This article will deal with that question from a legal and practical perspective.
Firstly, the law does not compel you to appoint a law firm or a professional will-writer to have your will written.
Unlike applying for Letters of Administration or a Grant of Probate where the services of a lawyer are required for the purposes of filing the requisite applications in Court, will-writing can be done by the individual.
However, when you undertake the will-writing process without the services of a professional, it is prudent that you are fully aware of the requirements and intricacies of the laws relating to inheritance, in particular, the Distribution Act 1958, The Wills Act 1959 and the Probate and Administration Act 1960.
Will Writing: Dos and Don’ts
The worst thing you can do is to use a standard template obtained from the internet, which could eventually lead to various problems, including your will being challenged.
Neither should you use templates given to you by friends as their wills may have been drafted under different circumstances from yours.
It is important to remember that a lack of clarity and vital omissions in your will can lead to disputes between your family members and unnecessary protracted and costly litigation.
If you wish to intentionally leave out a particular family member from your will, it is advisable that you set out expressly that you wish for this person to be excluded and give reasons for that exclusion. This will reduce the chances of a successful challenge in Court.
There have even been circumstances where the Courts have gone against the contents of the Will, and pursuant to the Inheritance (Family Provision) Act 1971, made provisions for other members of the family, where the Court was of the opinion that the deceased had not made reasonable provisions for the maintenance of a particular dependent.
When the Court makes such a decision to contradict or go against the contents of a will, the Court will consider all circumstances, including the assets and income of the dependent, the conduct and relationship of the dependent with the deceased, the size of the estate, and the interest of the named beneficiaries.
If you are unwell or are under heavy medication for a prolonged sickness, it is advisable that you get your doctor to confirm your state of mind when your will is being signed, as there have been instances where a will has been challenged on the grounds that the deceased was of unsound mind or under heavy medication, and therefore, making it impossible for the deceased to have known what document he or she was signing, let alone the contents of the said document.
The Courts have in the past dealt with disputes where family members have challenged a will on the basis that the contents of the will had been altered, the signature of the deceased had been forged and that the execution of the will was not properly witnessed.
It is prudent to note here that wills do not need to be stamped, but there is a requirement in law for the will to be properly witnessed.
I have read lots of articles about this matter and have heard many people say that will-writing is a simple matter that any lay person should be able to handle on their own.
However, I am cautious about taking such a position as it may not be as simple as it seems, as I have described above.
Knowledge is Key
Firstly, you must be very clear in expressing your intentions in writing. It is advisable to appoint a professional, who will be able to craft your thoughts and intention on paper, rather than to be left with a document that is ambiguous, and thus open to challenge in the future.
It is also necessary for you to constantly review and update the contents of your will. This is important as you may have sold some of your properties and may want to omit those properties from your will.
In other circumstances, the status of your relationships may have changed and you may want your will to reflect that. It is important to make those changes and have it properly documents.
There have been circumstances where family members have produced two different wills by the deceased in Court and have challenged the authenticity of later will.
It is my opinion that one should not look too lightly at the will writing process. From a litigation lawyer’s perspective, a badly drafted will can mean years of protracted, costly litigation and years of turmoil and dispute between warring family members.
It is important that one does not leave a legacy of strife and for that, I would advise that the services of a professional be sought for the purposes of writing your will.
About the author
SHARMILA RAVENDRAN is the founder of the law firm, Messrs Ravindran located in Mont Kiara, Kuala Lumpur. She has more than 14 years of experience in the legal industry servicing clients that include local and foreign companies. She is now actively involved in corporate advisory work and commercial litigation and is a Panel Adjudicator with the Kuala Lumpur Regional Centre for Arbitration. She also sits on the Bar Council Child Rights Committee and is the Legal Director for Lean in Malaysia. She can be contacted at sharm@ravindran.com.my.
Lee-Wang’s story is not unusual these days. He and his family have been living in Asia for more than 25 years. But as his business expands globally, he spends more and more time shuttling between countries.
The globetrotting businessman is in the process of getting his citizenship through a Portuguese golden visa programme that offers a real estate investment route to gaining residency and potential citizenship in the country and hence European citizenship.
A big driver is for his two children to have the ease of travel a European passport offers in the future. The golden visa programme in Portugal is the most popular in Europe.
Portugal Golden Visa Programme
It was launched by the Portuguese government in 2012 to stimulate investment into Portugal and has since encouraged several billion Euros in real estate investment and over 2,000 family applications each year.
An investment of €500,000 is required in real estate in Portugal. The property, either residential or commercial, can be rented for income. Any number of properties can combine to make up the €500,000 minimum investment.
Joint buyers can pool investments into one property. The property can be mortgaged for any investment exceeding the minimum.
Portugal has a very favourable tax regime for anyone considering living in the country. No taxes are charged on overseas income for the first 10 years.
For those non-resident individuals, tax is charged at 28% on income derived in the country. This can be reduced with expenses for rental income.
Capital gains tax is 28% and there are allowances for costs and depreciation. There is no inheritance tax in Portugal. Applicants can apply for permanent residency after five years and Portuguese citizenship after six years.
Global residency and citizenship programmes have been in existence since the 1980s. The demand for the benefits of such programmes expanded rapidly in recent years. The new golden visa programmes in Europe and the Caribbean have wide appeal across many countries.
However, not every country and programme are the same. There are significant differences relating to investment level, family qualification, permanent residency, minimum stay, citizenship and passports, and not to mention, the differing economic states and real estate investment prospects in each country.
The EU Context
Colorful Isolated Europe in Watercolor
A number of European countries offer golden visas through investment in real estate, government bonds and donations. A citizen of any EU country is a citizen of the EU. Citizenship and a passport from any EU country allow the holder to live, work, study or travel visa free to any EU country because they are a European citizen.
A resident of any Schengen countries can travel freely throughout the Schengen zone without border controls even though they may not have a European passport.
The Schengen Area is the area comprising 26 European countries that have abolished passport and any other type of border control at their common borders, also referred to as internal borders. It mostly functions as a single country for international travel purposes, with a common visa policy.
Based on experiences, some of the motivations behind global residency and citizenship planning are:
Investment Return
Most programmes offer real estate investment as the route to gaining a golden visa from that country. Long, medium and often short-term investment horizons lead to significant capital gains for real estate.
Safe Haven Investment
The USA and Europe remain safe havens for investment with clear property ownership laws, democratically elected governments and established taxation rules.
The laws of the Caribbean countries offering citizenship programmes are based on UK law with democratically elected governments.
Legacy for Family
Once the investment is made and the visas, residency cards and citizenship are granted then the ties and contacts with that country begin to increase.
Children can be included, they eventually move on perhaps for an education, eventual jobs, eventual citizenship and the next generations have firm roots which they have either put down or have the option to do so.
Education for Children
Once permanent residency is established by living full time in the country, children can be educated under either the state or private education system.
Looking to the future, as European citizens, children can gain access to universities in English speaking countries such as the UK at European and not international rates (a substantial saving).
Some Caribbean countries offer higher education offering ease of access to universities in the USA.
Ease of Travel
A golden visa will lead to a residency card or eventually citizenship and a second passport. In all cases this can significantly improve an applicant’s ease of travelling throughout the world.
A European passport allows the holder to live, work and travel anywhere in the EU including countries outside the Schengen Zone, such as Switzerland, the UK and Ireland.
Second Passport
The second passport and citizenship option arise from all the Caribbean programmes and several golden visa programs in Europe.
Taxation
Taxation is a big concern for most wealthy investors. This is an area where more detailed planning will be needed. The Caribbean countries offer low or no taxation on overseas income.
In Europe, some countries such as Portugal impose no further taxation on overseas income for the first 10 years of residency.
No doubt, there are changing times ahead, with residency and citizenship planning or getting a Plan B already becoming an essential part of an offshore wealth management strategy for high net-worth individuals.
On a final note, beware of fraud. The demand for second citizenships has created opportunities for fraud and misrepresentation.
Be sure to perform the necessary due diligence or hire a qualified advisor or consultant specialising in such programmes. Get the right advice that is balanced and independent.
About the author
YH Wong has over two decades of experience in the financial services industry. His clients include high net worth investors and boutique institutions such as family offices and investment partnerships in the region. He is currently a senior partner with Satori Consultancy Ltd, a financial services company regulated by the Mauritian Financial Services Commission. He can be reached at yhwong@satoriconsultancy.com.
Debt seems to give a negative impression. Sometimes it even gives people the chills just by hearing the word. But what is debt? Both layman and business dictionaries define debt as something that someone has given permission to borrow but with conditions to repay.
Now when it comes to organisations around the world, debt is used as an engine that creates financial leverage and multiplies yield on investment; provided returns generated by debt exceed its cost because the interest paid on debt can be written off as expenses.
Looking at this, is debt a good thing? Does debt put you in a better position or worse? Does debt make you RICHER or POORER? The answer is: “It depends!”
Poor Debt
We have seen tremendous growth in lifestyle expenditure. The unfortunate part of this culture is the increase of debts which makes people poorer. Let’s take the credit card as an example; 40% of credit card holders’ debt revolve around their credit, which means they only pay the minimum or part of the due amount after spending in full every month.
This trend has been rising for some time now. When you spend beyond your means and revolve unnecessarily, especially on lifestyle lavishness, you are paying a high price for your indulgences as the payback for your expenditure is compounded by a whopping 18% per annum.
To make matters worse, most of these lifestyle extravagances depreciate in value.
Responding to this trend, the personal loan product emerged as another form of new age credit. It gives easy cash access as it requires no asset pledged or charged as security. Many people are attracted to this sudden access to large volumes of cash that can be used for anything desired.
What’s more, its fixed low monthly payback instalment makes borrowers believe they have more control of their finances this way. The personal loan is another lending facility that gives the after effect of one week of pure enjoyment and five to seven years of dreadful commitment.
Running a debt on a credit card and personal loan is EXPENSIVE. It will cost you three to four times MORE than a home loan / mortgage.
In a nutshell, a poor debt is basically spending your future money for current or past expenditure and it does not generate anything for your future.
Rich Debt
Please see the situation below on how a debt that can make you richer.
John buys the same asset worth RM1M, and after three years, he also sold it at RM1.2M and made a handsome profit of 20%. He paid the entire asset of RM1M in cash. This was his capital outlay.
Amanda buys an asset worth RM1M, and after three years, she sells it for RM1.2M, making a handsome profit of 20%. She had the cash to buy the asset but she took a loan to finance 90% of the asset. Her capital outlay was only RM100,000.
Who is a smarter investor? Who made more money? Who is financially more resilient?
Amanda only used RM100,000 to make RM200,000 in three years.
While on the other hand John used RM1,000,000 to make RM200,000 over three years.
Amanda applied the power of SMART Leveraging. Amanda leveraged using debt, which she intentionally created, and a debt that is clearly controllable both in paying down and its desired outcome to increase her ROI (return of investment) percentage from 20% to 200%.
On top of that, she had funds for emergencies and additional money to invest on other opportunities that give better ROI than a savings plan. Doesn’t that make more financial sense? Amanda successfully leveraged her way for higher gains.
So, What is the Power of SMART Leveraging?
To simplify it, let’s say you have an objective to achieve, you know how to achieve it but all you need is something to leverage on to make it happen. A mortgage is a cost-effective way of borrowing. Interest rates on mortgage is no doubt the cheapest form of borrowing available in the market because it is secured with property.
What this is creating is that you are now boosting your wealth with effective returns. Just like the example of Amanda and John − Amanda has successfully increased her wealth by using only 10% of the asset value to give her a return of 200% after three years.
We borrow to buy our homes. We borrow to buy cars, which is a depreciating asset but at times, a necessity. We also borrow to buy lifestyle indulgence goods.
Most of the time we borrow to do things that are not financially productive. SMART Leveraging can be incredibly productive when it is understood and used properly.
Therefore, equip yourself with the right financial knowledge and start using mortgages as a wealth creation tool. It can be used as arbitrage to leverage what you don’t have and yet benefit based on the total current value of the property when it appreciates over time.
The key here is;
A mortgage allows us to leverage and leverage allows us to do more with less.
Lately, after Sri Lanka became bankrupt, numerous messages have been circulating on social media claiming that Malaysia will go bankrupt next.
You might have seen them on FB, Insta, and Tik Tok or forwarded WhatsApp messages that we are doomed next.
But do these claims hold? Let’s examine the numbers.
How Does A Country Go Bankrupt?
A country’s economy collapses when it has no or zero cash reserve, exports and economic activities.
In Sri Lanka’s case, rampant corruption, economic mismanagement and meddling with the constitution by the ruling elite have led Sri Lanka to bankruptcy, affecting millions of citizens in the island nation.
They are now facing fuel and food shortages, high inflation and endless political turmoil. Sri Lanka is now drowning in its worst-ever economic crisis and pleading for other nations’ help to keep its economy afloat.
Following a 70% drop in foreign exchange reserves since January 2020, Sri Lanka has struggled to pay for essential imports such as food and fuel. Its foreign currency reserves fell to US$2.31 billion in February, a fall of US$779 million from December 2021 through January 2022.
What led to these dire situations was a series of unfortunate events.
Here Are Some YouTube Videos Which Explain The Crisis In Detail:
To summarise the videos, some key factors diagnose the health of a nation’s economy. Let’s have a look.
Foreign Exchange Reserve
Sri Lanka’s Foreign Exchange Reserve
Malaysia’s Foreign Exchange Reserve
Foreign reserves are the foreign currencies a country’s central bank holds as backup funds in an emergency, such as a rapid devaluation of its currency.
It is good practice to hold foreign exchange reserves in a currency that is not directly connected to the country’s currency. Therefore, most reserves are held in U.S. dollars, the most traded currency in the world.
Countries use foreign currency reserves to keep a fixed rate value of their currency, maintain competitively priced exports, remain liquid in case of crisis, pay external debts and provide confidence for investors. Therefore, an increasing foreign exchange reserve is ideal. Malaysia, in comparison to Sri Lanka, has a strong foreign reserve which has been increasing while Sri Lanka’s foreign reserve has been declining.
Balance Of Trade
Sri Lanka’s Balance of Trade
Malaysia’s Balance of Trade
Balance of trade (BOT) is measured as the difference between the value of a country’s exports and the value of a country’s imports for a given period.
A positive trade balance (surplus) is when exports exceed imports, while a negative trade balance (deficit) is when exports are less than imports. A trade surplus does not necessarily indicate a healthy economy, nor does a trade deficit necessarily indicate a weak economy.
While a trade surplus helps in creating employment and economic growth, it may also lead to higher prices and interest rates within an economy. When based solely on trade effects, a trade surplus means high demand for a country’s goods in the global market, which pushes the price of those goods higher and leads to a direct strengthening of the domestic currency. On the other hand, a trade deficit can be beneficial to countries that import heavily and simultaneously invest in economic development.
Malaysia, an export nation, has a consistent trade surplus, while Sri Lanka has had a trade deficit for the past years. Unfortunately, Sri Lanka did not invest heavily in economic development activities.
Malaysia’s Export Category
Sri Lanka’s Export Category
Moreover, Malaysia’s exports are varied, well diversified and highly valued, mainly contributed by the Electric and Electronics industry, Oil and Gas and palm oil. Sri Lanka’s exports, on the other hand, are highly dependent on the low-value clothing and agriculture industry, and their GDP heavily relies on tourism.
Government Debt To GDP
Sri Lanka’s Government Debt to GDP in Percentage
Malaysia’s Government Debt to GDP in Percentage
The debt-to-GDP ratio compares a country’s debt to its gross domestic product (GDP). The ratio indicates a country’s ability to pay back its debts by comparing what it owes with its production.
The higher the debt-to-GDP ratio, the higher its risk of default and the less likely the country will pay back its debt.
Even though Malaysia has gone through a series of economic and financial recession crises before, it has never failed to pay interest and mature debts, proving Malaysia’s reputation and capability as a debtor with a good repayment record.
Article 98 (1) (b) of the Federal Constitution stipulates that the Government must prioritise debt charges over other operating expenses. The External Borrowing Act 1963 provides that offshore borrowings cannot exceed RM35 billion. As of the end -of June 2022, this debt amounted to RM29.4 billion.
The Provisional Measures for Government Financing (Coronavirus Disease 2019 (COVID-19)) (Amendment) Act 2021 stipulates that the statutory limit of Government debt cannot exceed 65% of GDP. At the end of June 2022, statutory debt accounted for 60.4% of GDP.
In addition, 97% of the Federal Government’s total debt is in the Ringgit denomination. This reflects prudent debt management as exposure to foreign exchange risk is minimal.
Is Malaysia Going To Go Bankrupt?
Based on Malaysia’s economy, the big answer is NO.
However, as I explored more about the circumstance which led to the Sri Lanka crisis, I couldn’t help noticing parallels between the political and economic situation in Sri Lanka and Malaysia. The situation in Sri Lanka warns us about where we could be headed if we don’t address similar structural problems in Malaysia.
We can avert the crisis Sri Lanka faces if we are willing to learn the lessons the island nation offers.
The problem in Malaysia is social economics, which is stagnant. To elaborate more on social economics problems, here is the list:
Lack of proper economic policy and implementation of the policy
Lack of policies to control fake demand induced inflation, especially in the property market
Lack of technological innovation and skills appreciation in STEM
Lack of policies to ensure proper business ethics and transparencies in the business industry
Lack of law enforcement leading to rampant corruption
Lack of political stability
Therefore, we, the Rakyat should exercise our rights by electing competent leaders at the next general elections to ensure Malaysia does not go down the path taken by Sri Lanka.
