Inovatif

Category: Personal Finance

  • A Guide on Applying for A Housing Loan in Malaysia

    A Guide on Applying for A Housing Loan in Malaysia

    “Your loan application has been rejected.” If you had this said to you when you applied for a housing loan in Malaysia, then read on.

    Getting this response to your mortgage loan may be daunting and make you feel like a lost cause but don’t give up hope! There are several ways to navigate the murky waters of mortgage loan application – here are some points to look into to maximise your odds of obtaining approval for future mortgage loan applications:

    1. Check Your Debt Service Ratio

    This is one of the preliminary checks for financial institutions, with your debt service ratio (DSR) used to determine whether you’re able to afford the loan repayments. If the DSR is within their threshold given a range of income, it passes one stage of the mortgage loan application.

    The formula to calculate DSR is:

    DSR = Total monthly liability commitments / total monthly nett income

    Monthly Net income = Gross Income – Total Deductions (EPF, SOCSO, tax etc)

    Monthly Commitments = new loan application amount + car loan + personal loan + credit cards + mortgage loan

    Once the DSR has been determined, each bank will have their respective guidelines for the maximum allowable DSR threshold given a range of incomes.

    It’s typically determined by income level, but it may also be affected by your net worth and even things as arbitrary as educational background, age and nature of employment and sector.

    For example, some banks may recognise 100% of investment property rental income, and some may only consider 50% of the rental income.

    The calculation may differ also when it comes to variable income earners and the nature of the job. For instance some banks may take 80% of the six-month average income of an insurance agent, while others may take only 60%.

    2. Get Your Documents in Order

    Banks always look for a clear and complete set of documents for assessment. For any bank to process any mortgage or loan application, they require supporting documents including proof to validate your income sources and employment.

    For a salaried employee, the banks would like to see that you contribute to EPF and your income taxes via your payslips and tax submissions.

    For variable income earners, do keep a record of at least six months’ worth of income/payout statements and supporting transactions into your bank account(s).

    For the self-employed or business owners, ensure that your business documentation and accounting of bank balances are up to date as this will assist the loan officer to get any loans approved. In most cases, the bank would like to see a business with at least two to three years of operations supported by audited profit and loss and bank statement transactions to evaluate the ability to service the loan.

    3. Don’t Apply for Loans Immediately

    If you are a fresh graduate looking to submit a bank loan application, don’t apply immediately for a mortgage or credit facility once you receive your first payslip.

    While it may be tempting to get on the credit ladder, banks typically want to see a minimum of three to six months of permanent employment supported by your salary payslip, along with EPF and tax deductions (if applicable). 

    In the case of the self-employed or commission earners, banks look for stability in income and usually need to see a minimum of six months of payments to be certain that you can service the loan.

    4. Don’t Go Bankrupt!

    It goes without saying but if you are declared bankrupt, you won’t be able to secure any loans or credit facilities with any financial institution. Your status of bankruptcy can be obtained by checking the Malaysian Department of Insolvency (MDI) or searching on CTOS.

    5. Issuing Bad Cheques

    If cheques that you issue bounce back three times, this is a huge red flag. A bad cheque is commonly referred to as a bounced cheque, and refers to a cheque issued by an account holder, dishonoured and returned by the drawee bank when it is issued from an account with insufficient balances or a blacklisted account under the Credit Bureau by Bank Negara Malaysia. 

    Banks usually view this as a precautionary signal and will reject the mortgage loan application and other pending loan applications.

    6. Maintain a Good Credit Score

    Maintaining a good record and positive status in CCRIS and CTOS is essential. Banks use CCRIS and CTOS as a reference to evaluate credit pattern behaviours and adverse reporting that will illustrate credit payment ability and servicing financial commitments.

    The Central Credit Reference Information System (CCRIS) is a system created by Bank Negara Malaysia that maintains the repayment track record for the last 12 months of all credit facilities of participating financial institutions in Malaysia.

    Any late payment or prolonged late payments of over six months will be flagged as a “Special Attention “ account in CCRIS. This indicates a red flag for banks.

    CTOS is a privately-owned credit reporting agency that provides credit reporting and also has access to information such as bankruptcy, legal action and case statuses, individual’s business ownerships, shareholding and directorships.

    They can also retrieve information from utility and telecommunication companies if you have outstanding bills (even if it’s only RM50!) and which can be a cause for banks to reject your loan application!

    7. Ensure your Quantitative Elements are Solid

    In this day and age, every bank has its own algorithm and software to calculate an individual’s score. This can be a subjective matter as software calculates the scoring according to quantitative and qualitative elements, which may not be the same as the algorithm and systems used by other banks.

    The quantitative elements include DSR calculation, the net worth of an individual or profit and loss of a company and also refers to CCRIS records. Qualitative elements include factors such as age and educational background.

    Your score will differ across each bank as they use different algorithms and systems. As a mortgage loan applicant, you can improve your profile by ensuring the quantitative aspects are covered and within their requirements.

    8. Not Having Any Credit History

    A poor credit score is not the only reason lenders reject mortgage loan applications. Having no credit history makes banks uncertain of your ability to pay.

    It’s advisable to build up a clean credit history, and it’s normally best to start this by applying for a credit card application or taking up a small loan. 

    With a smaller credit card facility or loan (that is consistently paid!), this may create a higher approval rate for your mortgage loan in the future because the perceived chances of defaulting on payment are lower.

    9. Late Payment of Instalments

    A poor track record of loan repayments gives a bad impression to potential lenders and might impact your future application. So try your best not to be late and settle your credit card bills, car loan instalments and other commitments on time.

    One way to do this is to set a payment reminder on your calendar or other forms of reminders on your mobile devices.

    10. Bank Risk Appetite

    Lastly, it is important to note that all banks have different risk appetites. There are instances where a bank has their own non-preferred segments; this could include people working in a niche industry, not meeting the minimum age, or not having a strong educational background requirement.

    You may get rejected for holding too many credit cards and you may also get rejected for not holding any credit card. In addition, a rejection could also be due to the mortgage financing not being within their particular area, developer, property type or market segment.

    Treat applying for any mortgage or loan like you’re going for a job interview. With a little financial planning help in money management, preparation of supporting documents and maintaining a clean profile in CCRIS and CTOS you stand a better chance of getting your mortgage loan approved by the right bank.

    About the Author

    Rozanna Rashid is a Licensed Financial Planner (CFP, IFP) that has an MSc in Real Estate Economics & Finance from the London School of Economics & Political Science. Her background is in corporate banking and Islamic finance and she can be contacted at rozanna@alpine-advisory.com

  • Understanding Your Assets And Liabilities

    Understanding Your Assets And Liabilities

    Many of you will know the difference between assets and liabilities, but allow me to explain for those that don’t. An asset is something that potentially goes up in value over time, such as a limited edition timepiece, property, or blue chip shares. Liabilities are what’s owed to other parties such as banks or even friends and family, which can include your house or car loan, or study loans. The difference between your assets and liabilities is what’s known as your net worth.

    But why does this matter? Consider this – if you stop working today, how long can you survive financially? Many people have lost their jobs or faced pay cuts during the Covid-19 pandemic, and the hardest hit are usually entry-level employees who have just started their careers. Most, if not all, would have accumulated some assets if they consistently saved and invested from their first paycheck, while others may have car loans or credit card loans to settle. 

    Some may have filial responsibilities and need to support their family and loved ones with their entry-level pay. According to a Jobstreet salary report, the minimum income level for fresh graduates before the pandemic was between RM1,949 to RM2,836, which is very low considering the time-cost requirements to get an education. No matter the situation, you must repay your commitments, and if you’re unable to, the worst case scenario is being declared bankrupt and forfeiting your assets to the bank! It’s crucial for fresh graduates to have basic financial knowledge, and take proper action to safeguard their own finances.

    Good Assets vs Bad Assets

    Although your net worth is your true wealth, this isn’t the be-all and end-all. There are many other financial areas we must look at; assets and liabilities are only one part of the equation. Generally, there are good and bad assets but of course, whether or not it’s a good asset depends on the owner’s perception, so there are no hard and fast rules to judge whether an asset is good or bad. 

    For instance, an investment property that has been successfully rented out for the past 10 years might be deemed as a good asset, but when it loses its ability to be rented, then it suddenly becomes a bad asset.  Impatient or desperate owners may try to sell the property before finding out the underlying reason for the failure to secure a new tenant. 

    Another common example is a car, which many perceive as a liability. However, this has changed since technology revolutionised the taxi industry, with the emergence and eventual merger of the Uber and Grab ride-sharing platforms. For many gig workers, the traditional perception of a car being a liability changed as it became a tool to generate active income instead of solely required for travelling to work. As you can see, what can be considered a good or bad asset is somewhat subjective, but all it takes is a little assessment to judge for yourself.

    Understanding Various Forms of Debts

    Apart from assets, you also need to review your debt. In the market, there are numerous forms of debt, such as personal debt, corporate debt, or even government debt, and so on. Let’s focus on some of the debt that fresh graduates are more likely to carry, which may include student loans, credit card debts, hire purchase (car loans), and mortgages (housing loan). 

    These four types of loan are common among fresh graduates, and are typically the type of debts that people start acquiring in their 20s. Of course, the ideal scenario is not getting into these but it’s more likely than not! As these loans come at different costs to the consumer, you must fully understand the respective terms and conditions before taking on these debts.

    Managing Money by Understanding Assets and Liabilities 

    Once you’re mindful of what assets and liabilities are available, you can start learning how to maximise opportunities. For example, if you love shopping, get a credit card with cash-back or rewards points and use them when purchasing daily necessities. Needless to say, you should be conscious of your budget and settle the bill in full before the due date! In the long run, not only does timely credit card repayments build your credit score, but more importantly, it becomes ingrained as part of your money habits!

    How to grow your net worth?

    Now that you know the difference between assets and liabilities, you should start planning how to grow your net worth? As a fresh graduate, the road is likely to be long but not unattainable so do try some of these tips to speed up the journey:

    • Reduce your debt

      Since debt is the major factor dragging down your net worth, it’s advisable to keep this to a minimum. As a benchmark, your total debt should be around 50% out of your total assets. If you’re at a higher debt level, consider allocating more of your income to reducing it.

    • Expenses

      This may seem obvious but your daily expenses can pile up, especially if you don’t differentiate between needs and wants. Spend on what you truly need rather than what you want. If you buy too much of what you want, you may not have enough to buy what you need.

    • Savings

      Once you have successfully lowered down your expenses, you’ll definitely see your savings increase. If you are working in the Klang Valley, a good benchmark to aim for is a saving rate of 30% from your gross income. Anything more than this is amazing!

    • Investing

      Once you have built up your savings for a rainy day, start looking at investing elsewhere since keeping your money in bank deposits will hardly beat inflation. In the long run, you’ll potentially see your assets grow steadily if you do it right, and increase your net worth as a result.

    In short, clear your debts, spend wisely and invest sensibly. Bear in mind though, it’s easier said than done!

    About the Author

    Wong Chee Yang is a financial advisor representative and is dedicated to promoting financial literacy amongst fellow Malaysians. He can be contacted at cywong@finwealth.com.my.

  • The Importance of Financial Planning

    The Importance of Financial Planning

    Have you ever thought about what would happen if Malaysia’s government re-implements the Movement Control Order (MCO)? With the upward trend of Covid-19 cases in Malaysia, this is a big possibility.

    Be honest for a second – are you well-prepared for the next MCO? Many seasoned working adults in Malaysia are struggling to manage their cash flow, let alone fresh graduates or youths.

    This highlights the importance of financial planning and being financially literate from an early age.

    A survey conducted by AKPK in 2019 shows that only 24% of Malaysians are able to survive on their savings for up to three months, while just 10% are able to sustain for six months or more!

    Are you among the 76% of Malaysians who won’t be able to cover expenses for more than three months? If so, what can you do to improve your cash flow?

    Differentiate between “needs” and “wants”

    Many Malaysians lack financial knowledge in general, especially in the area of financial planning. A study conducted by the Financial Education Network (FEN) showed that Malaysians are not confident about their own financial knowledge.

    Although 76% have set a personal budget, two out of five people were unable to stick to it. 

    In addition, one in every five Malaysian working adults couldn’t save any income in the last six months, while three in every 10 needed to borrow money to buy essential goods.

    In other words, these people had to rely on credit cards, government incentives or even loans just to buy food!

    To restructure your personal finances, you must learn how to differentiate between ‘needs’ and ‘wants’. For example, food, rent, petrol and insurance fall under needs.

    Conversely coffee, streaming services, the latest smartphones, and other luxury goods are not necessary to survive. If you are spending more on wants than needs, you should consider reviewing your cash flow and potentially cut down on luxury expenses.

    You could explore carpooling or taking public transport, or cooking at home to reduce spending on dining outside.

    Make saving a habit

    The rising cost of living in Malaysia, especially in cities, has forced many young working adults to become more frugal.

    Even with extra jobs, many are still unable to allocate any earnings to their savings, with a 2017 Bank Negara Malaysia survey revealing that 75% of the Malaysians are unable to raise RM1,000 in emergencies. 

    Due to poor saving habits, many youngsters rely heavily on credit cards to finance their needs and wants. As a result, they may fall deeper and deeper into credit card debt. When they fail to settle their balance, it becomes a debt that carries forward to the next month’s bill with compounded daily interest. In simple terms, they’re spending their future income in order to support their lifestyle.

    When planning your personal finances, I strongly encourage you to set a budget and always keep track of your expenses, and avoid using a credit card if possible. Below is a rough allocation budget I would recommend:

    30% Savings and investment
    50% Necessities
    10% Commitments
    10% Insurance and protection
    100% Total take home income

    It is advisable to allocate at least 10% to 30% of your income to savings and investments. These savings serve as emergency funds for you to cover the cost of getting sick, accidents and more.

    You should also look into exploring small investments that can help to grow their wealth. I highly recommend that you save or invest before spending so that you won’t spend all your income. 

    Do also allocate at least 10% of your income for commitments such as PTPTN loans to reduce the principal and compounded interest. Another 10% should be allocated for protection, as you are human and unable to foresee unfortunate incidents in your future.

    By purchasing insurance, this offers peace of mind and a reduction of your financial burden during times of sicknesses or unfortunate events.

    If it’s too good to be true, it probably is!

    High-return investments always sound good on paper, which is why it continues to attract many people, young and old alike. However, if you aren’t able to self-engage in comprehensive and thorough financial planning, you may lack a clear understanding of financial risks and returns.

    This makes you prone to errors of judgment, which leads to high-risk or unwise financial decisions. 

    It’s very easy to fall into investment traps and suffer huge losses. Many are also jumping into the deep end of trading in forex and bitcoin, or worse still – pyramid schemes and other scams.

    Without proper financial planning or knowledge and understanding, it’s easy to be misled by shiny numbers and figures without considering the risk or feasibility of such schemes.

    Don’t be susceptible to financial traps and irrational financial decisions – read and learn everything you can about investing before jumping in to avoid becoming another statistic.

    In a nutshell, it’s incredibly important for you to learn how to manage your cash flow and have your own simplified financial plan.

    By better understanding your cash flow analysis, you can re-allocate your income wisely.

    Always remember to save before you spend and understand the financial risks and returns before investing into anything. Be sure to avoid investing in platforms or schemes that aren’t legally recognised by the Securities Commission Malaysia. 

    Finally, remember that it’s never too early to start your financial planning journey!

    About the Author

    Edmond Tang Zhen Han is a certified financial planner that is passionate about helping people achieve financial literacy in order for them to reach financial freedom. He can be contacted at edmondtangzh@genexus.com.my

  • Why Cash Flow is More Important than Investing

    Why Cash Flow is More Important than Investing

    My personal belief is that the money you earn should be put towards enriching your life sustainably, over the long-term, and not a short-term blast with long-term setbacks.

    Ask anyone whether they would like better finances, and the answer is almost always a resounding ‘YES’.

    Follow up that question with “How do you feel about your current finances?” and you’ll likely get a mix of a neutral to a negative response.

    So why is there this disconnect between what people want and what is currently happening?

    You could answer this with a myriad of reasons from various angles and perspectives. Today, however, we’re going to look at the one aspect of personal finance that I feel is the most important to your quality of life.

    As someone who has very recently left his 20s, I look back on my youth and experience with my clients so far – and I have to say that if there’s one critical skill to pick up regarding your personal finance, it’s cash flow management.

    Yes, cash flow management and not investment, contrary to popular belief!

    If life is a car journey, then cash flow management is your fuel management and efficiency, whereas investment is your engine.

    A powerful engine that devours fuel may only get you so far, whereas a small engine may chug along and eventually get you to your destination.

    I’d recommend ensuring that you can at least get to your destination (comfortable retirement) first, then only worry about how fast to get there.

    Why Is Cash Flow Important?

    Someone with good cash flow will be more flexible in day-to-day expenditure like eating at a nice restaurant or treating themselves to new gadgets.

    With good planning, a lot of them also have more capacity for life events such as weddings, children, holidays, or even big purchases such as cars and property.

    They can build up to bigger emergency funds, sustain more setbacks (like Covid-19), make more investments, grow their net worth and so on.

    On the emotional side, people with good cash flow have better peace of mind. They’re less worried, happier and sleep better. They get to focus on living life.

    You might think I’m describing a rich person, but I’ve met people earning upwards of RM10,000 monthly who are struggling with crippling debt.

    The effect of this financial stress really shows. On the flip side, I’ve also met people earning below RM5,000, classified as B40, who are diligently allocating money into their emergency funds, investments, their first property purchase fund, and so on.

    The difference in happiness and outlook of life between them is very clear.

    Your finances should positively impact your life instead of causing you more trouble, wouldn’t you agree?

    I’ll say that there are more factors involved in having your cash flow provide a positive impact on your life – but my point is that you should very much focus on good cash flow first before delving into other aspects of personal finance.

    Keep things simple, especially if you’re not someone who enjoys living and breathing the topic of finance.

    How to Maintain Good Cash Flow

    In essence, cash flow is your income versus your expenditure. At the end of the month, do you have a surplus of income after deducting expenses, and if yes, how much?

    The more you have, the ‘healthier’ your cash flow.

    Step 1

    Recognise how much resource is available to you. How much nett income do you have on a monthly basis? This is usually your net salary, plus any business income. You must know this, and know this very well.

    Step 2

    Follow the simple method of deducting all necessary living expenses first.

    These are things like rent, loan repayments, house bills and groceries.

    Be very honest with yourself though, as there are a lot of ‘commitments’ or monthly instalment repayments that are actually not considered ‘necessary’. For example, an instalment plan for a new smartphone is not necessary. 

    An argument can be made that repayment plans for the popular water filters are also not necessary. Personal loans for holidays or weddings are not necessary.

    Some property purchases are also unnecessary if they’re detrimental to your personal finances (and you aren’t buying them to stay in). At the end of the day, you have to be frank with yourself as to what’s really necessary and what isn’t.

    Step 3

    Allocate some money towards your future. Some of you may have a bucket list of things to do, and no doubt that will require funds. A common goal for many is to provide quality education for their children.

    And finally, at the end of the day, there comes a point where you’ll want to retire and enjoy life. All these need funds, so the more you have prepared, the more you can do. 

    Imagine yourself at age 60. Imagine the life that you want to have at that time, and set aside the finances for it.

    Start as soon as you can, because every month or every year that goes by without you doing this is wasted time where you made zero progress towards building your life.

    If we refer to the car journey analogy from earlier, skipping Step 3 is not moving your car at all!

    Step 4

    Manage your day-to-day expenses. This is where you can affect the most change, and where a lot of ‘budgeting’ is usually done.

    Think about it, you can change how many coffees you buy per week, but you’ll find it much harder to change something like your mortgage repayment. 

    I’d suggest keeping track of your expenses in an app or spreadsheet if you prefer.

    You don’t need to track every single expense if that’s not your thing, but at least know how much your total spending is.

    Knowing where your money goes is very important, and doubly so when your income is smaller. Any surplus or savings from Step 4 can then be channelled into Step 2 or 3.

    Admittedly, Step 4 is the most difficult. For some of us, this requires a lot of effort and willpower. But the thing is if it were easy, everyone would be living the life of their dreams and we’d have a very different world.

    Please also remember not to do Step 4 before Step 2 or Step 3, because that will cause massive problems down the road.

    Try your best, and seek professional assistance if necessary.

    To summarise, you can visualise the steps with the following formula, worked from left to right:

    Total Income – Essential Living Expenses – Savings for Future = Balance for Discretionary Expenses

    Finally, remember that you don’t need to be perfectly managing your finances, but you do have to start somewhere.

    What you need to do is start with something that you can handle first, both in terms of time and commitment.

    It’s like someone seeking to eat healthier. He/she should change one meal at a time and not force every meal to be a salad (because the chances of giving up are high!).

    Your financial journey is a marathon, so make sure you can go the distance. All the best!

    About the Author

    Ian Wong is a licensed financial planner with eight years of experience in the industry. He specialises in making personal finance simple, practical, and accessible to people from all walks of life. He can be contacted at ian.wong@ipp.com.my.

  • Improve Your Personal Cash Flow

    Improve Your Personal Cash Flow

    When financial planning comes to mind, most of us don’t think about personal cash flow management. It’s actually a fundamentally important process where spending is broken down and analysed if used efficiently.

    Yet, it’s also often avoided or put off because it’s tedious and could even get depressing when we realise we have to cut down on expenditures!

    In most cases, changing spending behaviour is difficult without sufficient motivation, emotional value, and discipline. This is where financial goal setting and prioritising goes hand in hand with cash flow management.

    Once you have identified your desired goals, it then comes down to prioritising as you might not have enough resources to reach all of them.

    Cash flow management will then help to ensure you allocate your income appropriately, and most importantly, maintain a positive cash flow as without one, there is no way you can begin to achieve any of your financial goals.

    To kick off your financial planning journey to improve cash flow management, it would be prudent to start with creating a monthly budget. To take it a step further, start recording your expenses for comparison against your budget.

    This shouldn’t be as challenging these days due to the availability of mobile apps.

    Ultimately, this effort will give you insights into your spending patterns, and the amount of flexible income at the end of the day. If you find a shortfall in allocating toward your financial goals, perhaps it’s time to scale back on some lifestyle choices and try to find areas where financial fat could be trimmed.

    Give yourself a simple financial health check as you review your cash flow every few months. Some basic ratios to follow are:

    • Liquidity Ratio
    • Savings Ratio
    • Debt Service Ratio

    Liquidity Ratio = Total Cash Reserves / Total Monthly Expenses 

    This monitors your emergency cash reserves to pay for monthly expenses in the event of unforeseen circumstances.

    Typically, a liquidity ratio between 3 to 6 is recommended, which means you’ll have a buffer of 3-6 months. However, in a bad economy, it may be sensible to double this ratio to 6 to 12 (buffer of 6-12 months) in the event of retrenchment or unemployment.

    Cash Reserves come from your savings accounts and assets that can be very quickly converted to cash such as money market funds.

    Savings Ratio = Monthly Savings / Gross Monthly Income

    This indicates if you are on track to meet your own financial goal allocations. As a rule of thumb, it’s recommended to aim for a ratio of 0.1-0.2, which means you are saving at least 10-20% of your monthly income on top of your EPF contributions.

    If this seems difficult, a common tip is to set aside savings first as a mandatory commitment instead of leaving it for the balances under flexible income. 

    Debt Service Ratio = All Debt Repayment / Net Monthly Income 

    This tells you how much of your income is taken up by debt service obligations, or if you can afford to handle more financial commitments.

    This is particularly useful as nowadays, it is so easy to sign up for instalment plans without considering the longer-term impact it has on your cash flow. To be safe, you should ideally keep this ratio below 0.35 (35%).

    Finally, to secure your progress towards achieving your financial goals, you mustn’t forget about managing as much risk as possible. At a minimum, you should have a personal hospitalisation plan in place as a backup and for additional medical treatment options.

    Without one, a major trip to the hospital could instantly wipe out your savings and you may even require financial support from other family members, which could completely decimate your cash flow management. Other major considerations are debt cancellation and income protection which will provide an additional safety net while you accumulate your wealth.

    All in all, this article highlights the importance of cash flow management and why it’s a cornerstone in the financial planning process. It provides you with a spending structure to stay prepared and keeps you on track on your financial roadmap.

    It’s not easy to change spending behaviours and you could even consider engaging a licensed financial planner to help you explore what motivates you and keep you accountable. A planner may help develop financial planning strategies with you but remember, change always starts with yourself!

    About the author

    Jon Ti is a licensed financial planner who coaches families with their financial management and helps them focus on improving their long-term financial behaviour. He can be contacted at yhti@ascendur.com

  • Life Lessons Learnt From Investing

    Life Lessons Learnt From Investing

    Investment has been a big part of my personal finance journey. And with that, there have been a lot of life lessons learnt from investing

    There are so many things we can learn about investing in modern society (share market, private equities, debt, commodities, properties, mutual funds, derivatives, robo-advisors, crowdfunding, digital assets, etc) that it seems far-fetched to ever think of mastering them all.

    One of the things I was mulling on was the similarities between investing and life itself, while it was interesting to see that how we invest tends to reflect how we live our lives. Here are five life lessons that I’ve observed from my own investing journey.

    1. Hard Work Pays Off (Eventually!)

    All seasoned investors know that proper analysis is key to successful investments. Although all investment comes with risks, it’s important to make sure that the reward is worth the risk taken.

    If you want your long-term investment to pay off in the end, you must put in the work to ensure that:

    • Your investments is aligned with your investing principles
    • You’re comfortable with your asset allocation and not taking on too much risk
    • You know exactly what investments we are entering into (e.g. equities, ETFs, robo-advisors, StashAway Simple, ASNB funds, mutual funds, etc)

    Similarly in life, you work for what you want. Successful people don’t get to where they are overnight. It takes years of hard work, building the foundation in knowledge and experience, to eventually master something in life.

    An important caveat is that the effort put in must be something that contributes to the goal or the hard work will be worthless.

    This is like looking to invest in property but analysing the materials used to build the place. Not exactly useless, but definitely pointless for the purpose of an investment property!

    2. Diversification vs Focus

    All investment professionals mention the need to diversify your investments. It’s a valid argument for you to distribute and lower your risk across different assets.

    If one asset class/industry drops in value, your other investments can help to alleviate the damage.

    However, the counterargument to that is that your returns are also muted in conjunction with lower risks.

    If you had the power to accurately predict the movements of your investments this year (and no one does!), wouldn’t you have focused on glove stocks in May 2020 which saw 3x – 5x growth in only four months? Of course, the risk is that you may also have lost all your capital if this didn’t work out. Is it worth it?

    We are also often faced with the same in other aspects of life such as:

    • Studies (double/triple degree, ACCA, doctor, law, psychology etc.)
    • Career path (work and side hustle, or go all-in and start a business)
    • Employment (stay in one job for a long time or continue job hopping)
    • Skills (master a single skill or learn multiple skills)
    • Holiday (save and go somewhere far and exotic, or go on several cheaper trips nearby)

    3. People Will Talk, Regardless

    In investing, all market news and announcements are met with either a positive or negative view. Short-term traders will trade based on news, whilst fundamentalists will always look at the news with a long-term view in mind.

    As long as an investor believes that negative news will not affect his long-term prospects, then noise in the market from forums, news and analysts will be ignored.

    Conversely, even if positive news keeps pushing prices higher, the investor will assess the company based on his / her gauge to ensure that the investment remains sound.

    In life, all decisions you make will be met with judgmental eyes and “advice” from family, friends, colleagues, or even people you’ve just met! It takes a lot of mental discipline to shut out the noise and focus on what you want to do in life.

    Remember, even if you get “advice” from others, ultimately you are the one that decides what action to take.

    4. Be Clear on Your Goal and Know When to Cut Losses

    When investing, you should know the reasons behind why you bought into a particular asset, share or business.

    Each investment carries their own goals, be it for capital preservation, income generation or capital gains. Keep your eyes fixed on the goal. If the investment turns sour, cut your losses and move on to the next.

    The epitome of this is when you discover your purpose in life and focus all your energy into achieving it. Of course, we plan for things we want to achieve in life and go for it a little at a time.

    For example, building an emergency fund, accumulating your first RM100k, getting the next promotion at work and so on.

    On the other hand, you also need to acknowledge when you’ve given it your all and things just don’t work.

    Knowing when to cut losses is a valuable skill in life to save time to work on something more worthy. I’ll be the first to acknowledge that I’m very bad at cutting losses when it matters, meaning I usually suffer more than I should! 

    5. Luck is a Factor of Success

    The Roman philosopher Seneca famously said “Luck is what happens when preparation meets opportunity”.

    Whilst the majority of life and investments hold true to tried and tested principles, I believe that there is a part where luck is purely just that… luck.

    In investing, you don’t control market movements. It’s made up of various different gears (business direction, scandal, market makers, insider movements, retail investors, traders, fund managers, etc) that are set into motion every time the market is active. In most cases, you invest without knowing which way the market will go.

    By pure luck, if the gears decide to move in your favour, the prices will move in our estimated direction earlier than expected. 

    It’s similar to other aspects of my life which I attribute to pure luck:

    • When my speaker broke down and I happened to have enough credit card points to get a new one
    • The time when I wasn’t able to stay in Australia after graduation but managed to land a decent job in Malaysia
    • Surviving a major car crash due to driver fatigue
    • Landing a dream job but having to put up with a terrible boss

    Some may call it attraction or guidance by a higher power of sorts.

    All in all, I’d say it’s luck and it plays a big part in our lives to get us around. So don’t be too down on yourself if luck isn’t going your way – the tide will eventually turn at some point!

    About the author 

    This article was originally published at betweenthemoney.com, a personal finance website by Jason Loh that focuses on money matters and investment topics for Malaysians.

  • Does Money Make You Happier?

    Does Money Make You Happier?

    Is there something that we’re afraid of talking about?

    YES. We’re all afraid to talk about money.

    We were taught and trained to be polite when talking about personal finances. Most of us feel awkward when we’re approached by someone to talk about it, and tend to be alert and sensitive when asked about our personal finances.

    This taboo in treating money as a touchy subject hinders people from learning about it.

    Despite this, many young people nowadays turn to social media to learn about making money, growing money and many other money-related issues.

    There is nothing wrong with this, only the potential consequences of your actions thereafter. Most of these money questions on social media lead you to take some form of action.

    As a result, you might have SKIPPED and MISSED the opportunity to understand your relationship with money and your purpose of money.

    To gain a different perspective, you should ask the following questions:

    1. What does money mean to you?
    2. Does money make you happier?
    3. What have you done to grow your happiness by leveraging on money?

    What is Financial Happiness and Why is it Important?

    Finnian Kelly, the financial happiness expert, defines Financial Happiness as a philosophy and a practice that guides you into an intentional relationship with money.

    With this intentional relationship, you can unlock the financial confidence to enjoy your life NOW while also feeling excited about your big vision and plans for your future. 

    Managing money can be simple. Most of the time we merely focus on how we earn it, save it, invest it, and protect it. Nevertheless, the underlying purpose – happiness, is in actual fact the ultimate factor that motivates and drives us to work better in these areas.

    In life, we spend money and put in time and effort to pursue happiness. According to psychologists David Myers and Ed Diener, there is a scientific correlation between money and happiness.

    From a data-driven perspective, money can buy happiness, but only up to a certain point. In reinforcing this, happiness economics studies in various countries by leading economists also led to similar conclusions.

    This perspective is compatible with what was suggested by Tal Ben-Shahar, professor of the most popular course at Harvard, “How to Be Happier” who describes happiness as the ultimate currency. With the progress of the times, Financial Happiness is becoming a trend.

    Principles to Achieve Financial Happiness

    Good information alone will not drive you towards Financial Happiness; you need to take action. Here are a few general principles to practice towards this goal:

    1. Focus on habits that increase your financial happiness

    • Keep your eyes on small expenses – building good spending habits are important but it is more practical to increase your awareness on small expenses incurred, for example the supposedly RM1 unlimited premium music subscription fees. Small leaks will sink a great ship, so stay alert on small purchases that can eventually help you save a big sum of money.
    • Grow your personal capital – resources such as time, energy, talent, network and money represent your personal capital that are vital in your wealth building process. Most of the time, you’ll start by trading time and energy for money. With time and better exposure, you’ll probably have more options. Your wealth creation journey can be easier if you can identify important and meaningful resources to grow and sustain yourself from an early age. So take action now to develop your blueprint to build, expand and manage your personal capital required for long term wealth building.
    • Connect with your inner self – a profound body-mind interconnection is crucial. Maintaining physical and mental health will enhance your abilities and strengths. Once your relationship with your inner self improves, your relationships with nature and people around you will strengthen as well. 

    2. A happy present leads to a happy future

    Dwelling on the past will affect your achievements in the present and failing to concentrate your efforts on the now might affect your future happiness. To have a balanced orientation in life, you must embrace your past, present and future. 

    • Don’t underestimate what you can do TODAY – big things have small beginnings. You must discipline yourself to focus on practicing the habits mentioned above. Your persistence will determine your future.
    • Don’t be too optimistic about the future – many only start thinking about financial planning at a later age and are optimistic that the future will bring a better job or better income. However, no one has a crystal ball to see what the future holds. As such, you should take action now and do the best you can, and select the best options available to you right now.

    3. Establish ‘financial goals’ as a positive strategy  

    Never be afraid to speak out about what you want – all of us know what we actually like and dislike; what we want and don’t want.

    The reason less people speak about it is because many are scared of knowing what is needed of them to fulfil their wants. It’s always good to establish specific “financial goals” and use them as your yardstick for future success.

    4. Stay curious, stay simple

    Curiosity and simplicity are the keys to happiness. Curiosity allows us to explore new opportunities while simplicity keeps our thinking process grounded. People prefer simplicity and are always looking for easier ways to achieve what they want.

    The simplest way to practice this is to always stay alert to new information, find out more by asking appropriate questions and make simple decisions as we go along the way. Connecting curiosity and simplicity in your financial matters will lead you to more possibilities and an easier route to achieve Financial Happiness.

    5. Balancing egoism and altruism

    Proper discovery about yourself and your own values will empower you to continue to create value for others while not sacrificing your own position.

    Uphold the principle that the more money you create and accumulate, the more you will be able to benefit others. This will streamline your decision-making process and add more value to those around you.  

    So, if your peers are searching for ways to grow wealth or are seemingly successful, don’t jump to the conclusion that they’re doing better.

    All of us deserve a unique financial journey. So does money make you happier? Ultimately, your small steps today will lead you closer to the Financial Happiness that you dream of. For easier practice, you might want to start practising from top to bottom and you will realise the importance that these principles should rank bottom to top once you successfully adopt it!

    About the Author

    Jess Hon is a Licensed Financial Planner and can be contacted at jesshon@finwealth.com.my.

  • 5 Ways To Protect Your Family Through Responsible Financial Planning

    5 Ways To Protect Your Family Through Responsible Financial Planning

    Every single breadwinner works hard for the family, regardless of stress at work or business. We work to raise up our family’s standard of living and to provide for our children’s education, retirement and legacy. The importance of financial planning is just like the importance of car maintenance. It keeps your car in good condition and helps it last longer. Similarly, this is how you’d protect your family through financial planning. With that, here’s a family financial planning guide to get you started:

    1. Get the Right Type of Insurance

    Many are being encouraged to sign up for different policies with fancy features. How do you identify what is necessary and what is excessive during financial planning? Let’s look at some examples: 

    • Medical insurance with an annual limit of at least RM1,000,000
    • Critical illness insurance to supplement the limitation of medical insurance and replacement of lost income
    • Life insurance policy which can settle all debts and provide living funds for your family

    Is there a difference between an assured sum of RM100,000 and RM500,000 on your critical illness or life insurance? Let’s assume your annual income is RM60,000 (monthly income RM5,000):

    Scenario 1:

    RM100,000 paid out in the event of diagnosed critical illness or death can barely match your income for 1.5 years. Alternatively, you could place this last source of income RM100,000 in a fixed deposit with 2% interest per annum as your “passive income”.

    Scenario 2:

    RM500,000 paid out in the event of diagnosed critical illness or death could match your income for 8.5 years (RM500,000/RM60,000) or you may invest RM500,000 in any form of investment with a return of 10% per annum as your “passive income”. You have more investment choices to generate passive income instead of just placing it in fixed deposit.

    Capital

    Return on Investment (ROI)

    Annual Income

    RM100,000

    2x

    RM2,000

    RM500,000

    10x

    RM50,000

    Using the formula above, the more you earn, the more you need to protect your family with a 10x return on your annual income when considering life and critical illness insurance.

    2. Diversify Risk on Asset Classes

    Are your assets spread out across the business, fixed deposit, insurance policy, shares and unit trusts, properties and single currencies? What is your allocation between liquid (easy to sell) and illiquid (difficult to sell) assets? I recommend that you try to maintain a 50:50 ratio to ensure flexibility. These are important questions that must be asked during financial planning.

    For example, many fall into the trap of buying too many properties which limits your liquidity and may affect your cash flow in the event of an emergency like Covid-19! Nobody could’ve predicted this pandemic, and many have struggled to liquidate assets like properties. It’s safe to assume they would not be in such a tough position if they had previously stuck to the 50:50 ratio and assessed their financial standing prior to taking on these long-term commitments.

    3. Assess your Dependency Risk

    Do your earnings heavily rely on active income? Are there investments that can generate passive income? Do you have cash in hand to last for 3-6 months of household expenses in the event that you lose your job? Financial planning will involve assessing these areas of concern.

    If you run a business, does your company have enough cash to cover 3-6 months of overhead costs? Is there a dependency risk on a few customers or suppliers? You may feel the impact during a crisis, with many businesses affected which can trigger tensions linked to credit terms and suppliers. Eventually, all these dependent risks could lead to the winding up of your company.

    Whether you are an employee or entrepreneur, always consider your dependency risk before buying or investing in anything.

    4. Writing a Will or Setting Up a Living Trust for Family

    Unfortunately, most people don’t prepare for sudden death or being admitted for surgery. I’ve received a few emergency calls to write a will for parents in a critical stage. Some couldn’t even sign off on their will due to being in a coma or passing away before the will was ready for signing. This led to assets being frozen during the estate clearance while the family was left waiting for funds to carry on with their lives!

    Another example of a worst-case scenario is if both parents die prematurely in an accident while their kids are still under the age of 18, which makes estate distribution even more complicated. Who will be your estate executor? How well will he/she manage your estate fund for your kids? Is there a chance that your estate could be compromised by bad actors? These scenarios are unlikely, but demonstrate the need to set up a living trust on top of writing a will during financial planning in order to protect your family. This ensures your family receives a fixed amount for living expenses and children’s education.

    Structured distribution will also ensure that the funds are not spent all at once. For instance, can you imagine what the average 18-year-old would do if they inherited RM1,000,000? There’s a good chance it’d be spent on travel, a luxury vehicle, and just living the good life. Setting up a living trust mitigates this risk and ensures that funds are distributed in a timely and sensible manner.

    5. Engage a Licensed Financial Planner

    You don’t need to be loaded to engage a professional in financial planning. You can expect your assets to be well planned, allocated and distributed, as they would know everything about your financial standing. From your risk profile to your family relationship chart, he/she will draft a customised financial plan for you from A-Z!

    More importantly, dealing with one licensed financial advisor who is professionally qualified, independent and unbiased is better than dealing with many different agents who may prioritise selling their financial products instead of your financial health! After all, you’re not just doing this for yourself, but to protect your family.

    About the author

    Jordan Peh Kian Hong (FAR CMSRL RFP B.BA) is a FA Director, Licensed Financial Planner and Bank Negara-approved Financial Adviser Representative with approximately 20 years of experience in financial services. He can be contacted at jordan@yesfinancial.co

  • To Withdraw or To Not Withdraw: EPF Account 1

    To Withdraw or To Not Withdraw: EPF Account 1

    Since the beginning of the Movement Control Order (MCO) in Malaysia, we’ve seen how the COVID-19 pandemic has affected countless individuals and businesses.

    The government has done their part to inject assistance and stimulus, and there’s also been the enabling of EPF Account 2 withdrawals via iLestari, which has now been expanded to Account 1 via iSinar.

    From the perspective of a working professional, I understand why industry leaders are discouraging Malaysians not to withdraw their retirement savings.

    However, from the perspective of a layman, if a withdrawal means I can ensure my family will have a roof over our heads, meals on the table, education and other basic necessities taken care of, why not right? After all, it’s my money anyway.

    Whether you are considering to withdraw or not, here are four tips to help you navigate these trying times:

    1. Review your Cash Flow and Debt

    Sort your debt from those with the highest rate of interest down to the lowest. If credit card debt at 18% interest yearly is weighing you down, speak to the bank about converting the credit card debt to a term loan.

    If you have another credit card that you’re not using, consider doing a balance transfer and split the payment to a maximum of 12-month instalments.

    Calculate and see which works best for you and your cash flow situation.

    Either way, it’s still a better option than being stuck as you’ll pay less than the default 18% interest yearly.

    2. Maximise the Returns of your EPF Withdrawals and Savings

    Do a forecast from January to June 2021 to see how much you are short of. Trim the expenses you don’t need.

    If there’s a surplus from the EPF withdrawals or other savings, reinvest the funds back into investment platforms that yield a higher return on average than what you can expect from the EPF. Always make your money work for you.

    However, if this is not an option, do leave your retirement funds in your EPF account as their average returns are still much better than fixed deposit and savings accounts.

    3. Get a Professional Financial Planner

    There are over 1,000 licensed financial planners in Malaysia. It might be prudent to reach out and see how they can help you with your financial dilemmas.

    Sometimes, viewing an issue through the lens of a third party can give you alternative perspectives that you may not have thought about previously.

    If you do decide to withdraw from your EPF Account 1, be sure to work out a plan to replenish the amount you have taken, instead of just waiting for future salary deductions to do the job.

    4. Innovate and Create

    Tap into your inner strength and discover your talents. Turn it into a side hustle and create additional sources of income.

    Withdrawing your life or retirement savings should not be the only strategy for survival. A pilot I know is now a Certified KonMari Consultant, while an oil and gas practitioner has turned to freelance copywriting.

    What about you?

    Covid-19 has shown us that things we used to take for granted can change in the blink of an eye. What used to work has now been replaced by the new normal.

    Perhaps this is the season to recalibrate ourselves and enter the season of transformation. Trust that the pain we are all going through has a purpose and allow the wisdom to guide us towards a breakthrough.

    You will survive this. Have faith.

    About the Author

    Aisya Rahman is a Financial Advisor and Islamic Financial Advisor, approved and licensed by Bank Negara Malaysia and the Securities Commission Malaysia. She can be contacted at aisya@harveston.com.my or her website.

  • Financial Planning for Fresh Graduates

    Financial Planning for Fresh Graduates

    Congratulations on your recent graduation! You are now entering into another exciting stage in life as a fresh graduate and are ready to start building wealth. This is just like building your dream house. Let’s start with financial planning for fresh graduates.

    You have to start building a strong foundation, so that your wealth is solid and stable. Here are three steps you can take to start your journey:

    1. Change Your Money Management Mindset

    Wealth accumulation is all about having the right mindset in terms of money management. Let’s start by accessing your way of handling money.

    Equation 1

    • Income – Saving = Expenses  

    Equation 2

    • Income – Expenses = Saving

    Which equation do you apply in your life? Your answer will reveal where your PRIORITY lies in managing money. In equation 1, you prioritise SAVING before spending. In equation 2, you prioritise SPENDING before saving. Eventually, you might end up saving nothing.

    For you to accumulate wealth, you have to pay yourself first every time you receive an income. It’s recommended to start saving (and investing) at least 10% of your income, and then gradually increase this percentage to 30% and beyond as your income continues to grow.

    The secret to wealth accumulation is all about spending below your means, saving and investing your money, and to continue repeating this with every pay raise you get!

    However, why are people prone to spend first instead of saving money? We are living in a digital era where our decisions and behaviour are easily manipulated via social media marketing, without us even realising it.

    I bet you can relate to the following scenarios:

    • When the latest technology gadget is launched, you are magnetised to purchase it to keep up with the trend
    • After viewing your friend’s Instagram story, you might make an impulsive decision to book a flight ticket for vacation
    • You are spending, dressing, behaving in certain ways to impress others

    The above scenarios are examples of social validation. We’re social animals and will do whatever it takes to belong to a social group. Therefore, you are likely to spend your hard-earned money just to keep up with trends and stay updated among your peers.

    Realising your worth is more than your social appearance can help in breaking social validation patterns. Sit down and think about who you really are and what defines you. Once you’ve cleared this up, you’ll start to make better decisions for your financial and mental health.

    2. Build An Emergency Fund

    Emergency funds are a financial safety net for unexpected events like losing your job. Not having a financial cushion might lead you into bad debts such as personal loans and credit card defaults. The biggest enemy of wealth accumulation is bad debt, because it is impossible for you to accumulate wealth while serving high interest bad debt.

    According to the RinggitPlus Malaysian Financial Literacy Survey (RMFLS 2020), 53% of Malaysians would not be able to survive for more than three months with their current savings. What will happen to them after exhausting their savings?

    The Covid-19 pandemic has put the importance of emergency funds firmly in the spotlight, so it’s important that you build up your own in order to survive unexpected events. But how big of an emergency fund do you need?

    If you are single with no dependents, aim to prepare an emergency fund with at least six months of monthly expenses. For example, if your monthly expenses (loans, food and beverages, transportation, accommodation, insurance, etc) is RM3,000, you should have at least RM18,000 on hand at all times.

    If you have dependents like your parents, spouse, or kids, prepare an emergency fund that can cover at least 12 months of expenses. Let’s say your loans and living costs total RM5,000 each month – this means you should have RM60,000 available in case of emergencies.

    3. Risk Management

    Life does not come with guarantees. The Covid-19 pandemic has shown us that anyone is vulnerable. Accidents can happen. Health issues may arise due to lifestyle choices, stress, and family history. When something unexpected happens, the last thing you want to worry about is money.

    In order to protect and grow your wealth, you need to mitigate your risks. Generally, there are a few types of insurance that’s advisable to have, depending on your situation. 

    Types of Insurance Purpose
    Medical Insurance Pays for your medical bills
    Critical Illness Insurance Lump sum money payable to you upon diagnosis of critical illness.
    Acts as income replacement
    Life Insurance Lump sum money payable to your beneficiaries upon death. 
    This is especially for those with dependent (parents, spouse, kids)
    Disability Insurance Lump sum money payable to you upon disability.
    Acts as income replacement

    By following the three steps above, you’re well on your way to building the right foundation in wealth accumulation. Once your foundation is solid, the next step is to understand and set your wealth accumulation goals like house purchase or retirement, as well choosing the right strategies and solutions to achieve your goals. However, Rome was not built in a day; be patient and take your wealth accumulation journey one step at a time!

    About the Author

    Kuah Soo Yee is a Licensed Financial Planner (CFP) who is passionate about helping people make sound financial decisions and achieve their financial goals. She can be contacted at soo.yee@ipp.com.my