Inovatif

Category: Personal Finance

  • 5 Reasons Why You Shouldn’t Pay Off House Loan Early

    5 Reasons Why You Shouldn’t Pay Off House Loan Early

    If you have some extra cash lying around, we tend to use it to pay off house loan early so that we won’t be bogged down with loans well into our retirement. This is because housing loan can now go until 40 years or until we are aged 70.

    Isn’t it a good thing then to settle our debts earlier?

    Well I’m sure you have heard of the term, bad debt and good debt. Bad debt refers to debt that has a high interest rate, such as credit card and personal loan. It can reach double figures, with credit card interest in the range of 15% to 18% per annum, while personal loan is around the 10% range.

    The interest rates are kind of fixed, so if you have extra cash – it is better to clear off your credit card and personal loan. Unless you can find an investment that can give a return which is higher than 18%. And consistently giving out that kind of high returns.

    Whereas a good debt is having an interest rate that is low, but appreciates in value. Just like a house is. The current interest rate for loans in Malaysia is 4% to 6%, but your house value could go up by 10%.

    If you have bought a house in the 1990’s or 2000’s, the house price have increased several times over.

    So here’s a few reasons why you shouldn’t pay off house loan early.

    1. Low Interest Rates

    Yes, the primary reason is that the interest rate for housing loan is one of the lowest, if not the lowest. Compare that with the double digits that a credit card or personal loan, and you know that you are using loans for a good thing.

    You should just enjoy the facility that the banks have given you, and take full advantage of it.

    2. Invest For Higher Returns

    Let’s say you have extra cash around RM100,000 and are considering to dump it all in your housing loan. But there’s a potential to make 8% return on the investment, which gives you an extra RM8,000.

    In this case, you should go for that investment instead and let it compound annually. Using Rule of 72, the RM100,000 would have doubled to RM200,000 after nine years, provided that the 8% return is consistent throughout the years.

    You shouldn’t pay off house loan early, if you can find a good investment.

    3. Higher Return On Equity

    For example, a property worth RM1 million which gets a rental income of RM50,000 a year, is fetching a 5% yield. If you buy the property without a loan, your return rate is 5%. When you get 90% financing from banks, your equity is RM100,000. So your return on equity is 50% (RM50,000/RM100,000). 

    If your rental yield of 5% plus all future capital appreciation is higher than the mortgage interest, the leverage effect allows you to get a higher return.

    As you slowly pay down your outstanding principal, you build up the equity of the property. With a higher stake, your return rate comes down. That’s the reason that the more you pay down your mortgage, the return comes down too due to lower leverage.

    4. Extra Payment Not Liquid

    The equity value or extra funds that you put in your property is not liquid. You can’t take it out straight away, like you normally would when putting in your savings account. You might need to wait few days or weeks to cash out.

    Another way to unlock your property is by refinancing. But this would involve a new loan agreement, legal fees, admin fees etc. And by the time you get the money, it will be a few months later.

    That’s why you shouldn’t pay off house loan early, since you can’t take it out easily.

    5. Tax Benefit

    When you have rental income on a property that still has a loan, you can write off the mortgage interest when filing taxes. So the more you pay off the principal, the less interest you can deduct. Therefore, you might end up with more tax liability.

    That’s Why You Should Not Pay Off House Loan Early

    Now you understand why you should not pay off house loan early?

    Make sure you also read these:

  • 4 Money Personalities, Find Out Yours

    4 Money Personalities, Find Out Yours

    Have you ever met people with different money personalities? These can be your spouse, parents, colleagues or friends. Is there a single best money personality that each of us should adopt? During a recent wealth seminar that I attended, I learned about these four main types of money personalities.

    Come let’s check out your money personality.

    1. The Money Saver

    This person always feels insecure and wants to save as much as possible. It may be due to past experiences where these individuals have encountered financial difficulties, therefore they have this belief that it’s hard to earn money. Thus, it’s always good to set money aside for rainy days. I would agree that saving is a good habit to inculcate.

    However, if you just save money alone without spending appropriately, then you may miss out on some great experiences in life such as travelling or other fun activities. What’s the purpose of saving then, if we don’t spend it wisely on things that matter to us while still achieving our long-term goals?

    Read: Saving vs Investing, Should I Save Or Invest?

    2. The Money Spender

    This person always wants to buy things and must have the latest gadgets in town. They’ll buy whether they need those items or not and find fulfilment in spending their money. They may or may not have the money, but they’ll always have things to buy when they’re out for shopping. Now it’s even more convenient to spend money via various online shopping platforms available on our smart devices.

    On the contrary, some may have the “you only live once” (YOLO) mentality. This personality of people rather spend their money now rather than delaying it to their later years. However, spending without proper planning and budgeting will cause you to regret it down the line when you no longer have any in flow of funds, as many people don’t have enough retirement savings for their later stages.

    Read: How to Save Money in Malaysia – RM1 Million Goals

    3. The Money Avoider

    This person is not comfortable talking about money and never pays attention to their own personal finances. By not learning and understanding about personal finance or how to manage their money, these individuals may not be able to secure their financial future.

    Not learning about managing money will have serious consequences in life. These personality types often conclude that they’re not good at personal finance. It’s important for this group of individuals to learn about the basics of savings, investing and protection so that they can take more control of their life and be able to reach their own financial security or financial independence.

    Read: 6 Ways To Deal With Inflation

    4. The Money Monk

    investment

    Money monks are individuals that believe that money is the root of all evil or have preconceived negative beliefs about being rich. For example, they may have the belief that rich individuals are greedy and evil.

    However, these rich individuals can make a bigger impact on society by having businesses to solve problems that we’re facing. Some wealthy individuals also channel part of their wealth into philanthropy or contribute money and time to tackle major problems affecting the world.

    Read: Debt-Free vs Retirement Savings: Which to Prioritise?

    4 Money Personality, What’s Yours?

    Which of the above personalities is closest to your current habit of spending money? Personally, I don’t think that there’s one personality that is better than the rest. For me, it’s all about having that awareness of your current money personality.

    What do you need to change about your current money personality? Do you need to read more books about managing money? Or signing up for classes or to seek help from financial professionals to guide you in your money management?

    However, I think you should choose the right money personality that suits your current situation as it can change depending on your circumstances in life. It’s more important to have a balanced personality in managing your money so that you’re able to reach your financial goals and live the life that you desire!

    About the Author

    Goh Chee Yong is a Licensed Financial Planner under Capital Markets Services Representative License (CMSRL) and Bank Negara approved Financial Advisor Representative (FAR). Prior to becoming a financial advisor, he spent eight years working in Big 4 audit firms and multinational corporations. He can be contacted at cygoh@imaxfinancial.com.my

  • Emergence Of Tech-Based Financial Planning Solutions – Is It A Threat Or An Enabler?

    Emergence Of Tech-Based Financial Planning Solutions – Is It A Threat Or An Enabler?

    Islamic finance is growing at a remarkable rate. The impressive performance of Islamic finance is due to the vigorous development of infrastructures focusing on financial support in the industry. Malaysia is a hub for Islamic finance with the dominant sectors being Islamic banking, takaful and Islamic capital market, which includes Islamic financial planning solutions.

    With the growing demands for modern-day Islamic finance, Islamic financial planning solutions is seen as a service that best caters to these ever increasing needs and covers the wealth cycle to cater to the financial needs of individuals.

    Muslims may obtain advice and benefits from Islamic financial planning professionals on a wide range of issues, including cash flow and risk management, investment, self-managed retirement funds, zakat, taxation, takaful and legacy planning. All these tasks require specific knowledge and expertise in legislation, regulations, and market practices.

    Unnerving as it may sound, the importance of Islamic financial planning once again received sporadic attention when COVID-19 severely impacted many Malaysians, especially Muslims. The Movement Control Order (MCO) caused many people to contemplate having proper and structured emergency funds – prompting them to undertake financial planning.

    Technology – Emergent Requirement

    Technology is everywhere and evolving rapidly. Whether we are financial planners or consumers, it will become harder to thrive and survive without technology in constructing holistic financial planning solutions. According to McKinsey Global Survey, consumers have moved dramatically towards technology during the pandemic. The survey results confirm the rapid shift toward interacting with customers through digital channels.

    A piece of automated advice on financial planning solutions and applications is no longer (by right) a threat to financial planners, but rather an enabler for the industry to be competitive. The well-informed clients call for a wide selection of economical and practical financial planning solutions, whether online or through a mobile platform. Responding to this type of consumers, it is imperative to adopt financial technology as a channel for distribution.

    Technology is an agnostic tool that can significantly change the financial planning industry. By using technology, financial management’s efficiency and effectiveness will increase, making it easier for customers to deal with financial institutions through various activities and financial products.

    On the other hand, technology in the context of Islamic financial planning must be seen in compliance with Shariah guidelines.

    The Role Of Technology In Islamic Financial Planning Solutions

    It is essential to understand that financial planning solutions is not simply limited to the distribution of inheritance upon death, buying family takaful or investing in unit trusts. Developing a comprehensive financial plan is a personal journey for a true Muslim, and an excellent Islamic financial planner plays a critical role in this process.

    The client needs to have confidence that financial planners are up-to-date on the current financial planning landscape and current Shariah-compliant financial technology (fintech), diversification of halal investment selections via digital platforms, and other latest solutions to be considered.

    As technology advances, we have been able to automate parts of financial planning services, with vast improvements in the tracking of documents and records of advice. Access to information and keeping clients well-informed regarding their investments are part and parcel of technology’s role. However, without technology to complement, one might find things a little hard going as we drift deeper into the 4th Industrial Revolution.

    To overcome the industry’s technology disruption, financial planners must be nimbler to apprehend new technologies and employ them for innovation on existing solutions that are in great demand.

    For example, a few years back, the emergence of robo-advisor was regarded as a threat in the financial services sector. A robo-advisor is an automated platform running with a computer algorithm functioning to manage assets in investment. During that time, people were uncertain about the role future human advisors would fulfil as usage of robo-advisors gained traction.

    Threat Or Enabler?

    The COVID-19 pandemic is the most significant catalyst for digital transformation, and this change will lead to exciting insights into Islamic financial planning that will reshape its approaches. Technology can never entirely replace a human’s touch and skills.

    In years to come, both humans and technology are vital to serve clients better and modernise our financial planning profession. Technology exists to support, simplify, and create efficiency, instead of threatening the industry. Technology allows financial planners and clients to have a more engaging and meaningful advice conversations.

    A more robust framework of competency and consistent efforts for Islamic financial planners, including technical knowledge on the latest technology, would develop a more agile professional, who will safeguard the public’s interest, uphold the industry’s professionalism, and ultimately receive the rewards in the Hereafter.

    About the Author

    Dr Haji Shahizan Haji Md Noh is a licensed Islamic Financial Advisor (IFAR) for ASWA Advisory. He obtained his Doctor of Philosophy in Economics and Muamalat Administration from Universiti Sains Islam Malaysia (USIM). He also holds a Certified Qualification in Islamic Finance (CQIF) from IBFIM and Islamic Financial Planner (IFP) from the Financial Planning Association of Malaysia (FPAM). As an experienced practitioner, he has served numerous institutions in different aspects.

  • The Importance Of Family Foundation When Trust Crumbles

    The Importance Of Family Foundation When Trust Crumbles

    The following story is based on an actual series of events with some names and circumstances fictionalised and any similarity to the name, character or history of any person is entirely coincidental and unintentional. We will be looking at how a family foundation can help when trust crumbles within a family.

    Uncle Tan was shaken. It had just been revealed to him that something was not right in the books of the family’s hardware business.

    “It can’t be!” Uncle Tan was in denial even though San, the third of five children, showed him the books where the numbers didn’t add up. What was unbelievable to Uncle Tan was not the books but the accusation that Da Ge, his eldest son, has been putting his hand in the till.

    Business Runs In The Family

    Patriarch Tan has been happy and contented with Da Ge ably stepping into his shoes. As what one steeped in traditions would want, his number one offspring fitted to a ‘T’ the role of running the family business so that the 72-year-old founder could take a back seat and enjoy his golden years.

    Seeing how Da Ge has taken the bull by the horns in steering the company through some hiccups in business, Uncle Tan’s confidence in Da Ge grew over time and he showed his pleasure by giving his trusted son a free rein in the operations of the business.

    He was also contemplating on rewarding Da Ge with the largest share of the equity of the company and the rest, equally among the other son and three daughters. This, he felt, would sort of make up for the lack of attention for his first-born who grew up with scant fatherly love and attention.

    As one not attuned to showing affection, he neglected Da Ge and just focused on building up his business in his younger days. To him, his affection could be shown later by rightfully transferring his significant wealth to the eldest male offspring.

    And as Da Ge won his father’s heart with his business acumen, it blindsided Uncle Tan to his wayward ways. Easy success and access to cash from business transactions got to Da Ge and he became a spendthrift, splashing his money on wine, women and song and ego-tripping with his growing popularity and following by his cohorts of fan-friends.

    Tackling The Root Cause

    San got wind of the missing cash from his former classmate, who was keeping books for the company. After trying to talk to his brother but to no avail, he decided to bring the matter to his father.

    Knowing that his father would be in disbelief that his trustworthy son would be capable of endangering the financial health of the business, San thought it was best to go to his father with a solution rather than just the problem.

    He knew his father would be more receptive to a proposition for the betterment of the business rather than be presented with the problem that stemmed from his ‘trustworthy’ son.

    He could see that his father, when troubled that the foundation of trust had crumbled, welcomed his proposition that offered a solution. The older Tan was eager to meet San’s estate-planner friend to find out more about Family Foundation which would better resolve matters with Da Ge. He finally agreed to establish his own Family Foundation with a set of values and rules that ensured continuity and protection of capital.

    A Family Foundation can be established to hold and manage assets for the benefit of your family. It offers the benefits of a Trust and the structure of an independent company with protection of assets not available in others.

    The Importance Of Family Foundation

    For the Tan family, the Family Foundation offered an immediate resolution of the delicate situation rather than leaving the decision making on family business matters solely in the hands of Da Ker.

    The Founder of the family business, in this case Uncle Tan, can assume the role of Chairman of a Council to be set up under the Family Foundation. His five children can be appointed as members of the Council, who will be charged with managing the Family Foundation.

    Decision Making

    The Council assumes the task of decision making for the family business through the Council members’ vote of resolutions tabled for their consideration. This effectively makes it a collective decision-making involving relevant members of the family including the Founder instead of resting it in the hands of a sole family member.

    Family Governance

    Family governance is possible with the crafting of a Family Charter and the formation of a Family Council as it effectively becomes a platform or a forum for Family Council Members to voice their views, thus avoiding miscommunication or misunderstanding pertaining to the family business. It also facilitates the establishment of common rules and procedures to follow to minimise any possible disputes.

    Ring Fencing Family Wealth

    The Family Foundation serves as an essential instrument to safeguard business succession only among family members. This is achieved through ring fencing that keeps out outsiders and unwelcomed parties. This preserves the family business for the multi-generation of family members.

    Wealth Distribution

    Through deliberation and consultation, the Council can agree to a mutually beneficial wealth distribution formula. This pre-determined formula of shareholding in the family business based on identified scenarios will avert any possible future family squabbles that can break up the family.

    With Uncle Tan having his say and expressing his wish on succession and wealth distribution, his children being part of the decision-making process will see the distribution as fair.

    Comprehensive estate planning solutions such as the above can be achieved by consulting an experienced estate planner working with an established company such as Rockwills.

    About Rockwills International Group

    Rockwills International Group, now in its 27th year, pioneered professional will writing in 1995 and has since evolved into the leading estate planning specialist in the country. It is today the largest provider of solutions and support services in the areas of trusts, succession, management and distribution of wealth. It has shareholders’ funds exceeding RM50 million. It has done over 280,000 wills and 15,000 trusts and hold more than RM25 billion in assets under trust.

  • 6 Ways To Deal With Inflation

    6 Ways To Deal With Inflation

    Inflation literally makes us all poorer by eroding the value of our money. The problems we have been facing in the two-and-a-half years due to the pandemic has made matters worse, as we have find ways to deal with inflation.

    As the cost of living continue to rise, what should we prioritize when it comes to our monetary budget? Will we have to retire later? Do we have to change our children’s tertiary education plans?

    In a Facebook livestream on 7 September 2022, conducted in conjunction with World Financial Planning Day 2022 (WFPD2022) by SmartFinance (SmartFinance.my) with the support of the Financial Planning Association of Malaysia (FPAM), Rajen Devadason, a licensed financial planner, offers some strategies we can use to deal with inflation.

    Here is his tips on how to deal with inflation:

    1. If You Don’t Have A Budget, Please Create One

    If a budget only exists in your head, you are strongly urged to have it written down, whether on paper or as lined items on a spreadsheet. Getting the tactile sensation of writing things down will get you more invested in the numbers and provide you with a road map of your finances.

    2. Prioritize Nourishment

    When it comes to budgeting for yourself and your family, do not compromise on nutrition. Make sure nutritious food that meets caloric content is taken care of and no one goes hungry. Everything else can be set aside.

    3. If It Possible To Accelerate The Repayment Of Debt, You Are Advised To Do So

    retirement debt free

    Many of us have debt that flow. So, when interest rates rise, the cost of our borrowings will go up. One way to deal with inflation is to pay down debt you can, as fast as you possibly can.

    Each time you get rid of a liability to your name, the monthly repayment disappears for life (unless you take on an equivalent loan). This will clear up additional cash flow, give you a breathing room and let you do more with your money in an inflationary environment.

    4. Exercise Delayed Gratification

    Used to changing cars every 5 years or going on two overseas vacation a year? Don’t be too quick to spend your earning on the things you want.

    You are likely to have surplus money to save up if you can cut back on some luxuries, until your financial goals are met. Delayed gratification is another way to deal with inflation.

    5. Work Harder, Work Longer, Bring In More Money, And Tighten Your Belt Like You Have Never Done Before

    Image by yanalya on Freepik

    Unless you wish to stay poor, you cannot stay static. Most of us can only improve on our situation by working harder, and then by working smarter. If you are not earning enough, get a second or third stream of income. One of the saving graces is internet connection is now better than 5 years ago, which enables anyone with online access to participate in the gig economy and earn a side income.

    For those who are under the age of 35 and in good health, you’ve got more energy; your youth, stamina and vigor will give you the ability to work beyond your normal 40-hour work week, if you are willing to pay the price.  

    6. Save And Invest More

    Saving and investing are two different things. We save for peace of mind, knowing we will be able to deal with emergencies. Meanwhile, we choose to invest to try – though without guarantees – to beat taxes and inflation. If you have been successful, you have grown your money faster than taxes eats into it and faster also than inflation. 

    With so much going on in the world; the pandemic, geopolitical conflict, economic crisis etc, there is tremendous volatility, especially for the riskier investment spaces. Nevertheless, volatility is the friend of the long-term, life-long, consistent investor and saver.   

    As such, those who are wise enough to work harder, rework their budget, build up their surpluses, pay down debt, exercise delayed gratification, and try to save even though it’s very tough. Rajen’s advice is to take advantage of dollar cost averaging.

    To stand to benefit in the long-term, invest in a manner that meets five specific criteria:

    1. Invest in an asset of high quality (that are good hedges against inflation)
    2. That asset should fluctuate in price
    3. Invest in equal amounts
    4. Invest at regular intervals
    5. Invest regardless of market conditions

    Finally, never put all your eggs in one basket. Diversify your investment across three distinct dimensions: diversify across different asset classes, different geographic regions, and over a very long timeline.

    6 Ways To Deal With Inflation

    There you go with 6 ways to deal with inflation that you can start implementing in your daily life. It might not be easy, but it will be worth it in the end.

  • 3 Ways To Increase Your Source Of Income

    3 Ways To Increase Your Source Of Income

    59.7 million results when I searched on Google on ‘multiple streams of income’ on the day this article in written. This is a massive result. With the recent pandemic, many sectors are impacted, and many individuals suffered as a result from loss of their major of source income.

    In this article, I am going to share with you some general big ideas on how to increase your source of income.

    1. Investment Portfolio

    Investment provides you with capital growth or income. Capital growth means the appreciation asset value or difference between the realization value and cost of investment. Income refers to the dividend, rental income or other incomes received by investing in the investment assets.  

    There are many investment options to increase your source of income these days. We have Exchange Traded Fund (ETF), Equity Crowdfunding (ECF) and Peer-to-Peer Lending (P2P) apart from traditional investment classes like property or stocks.

    With new innovative products, you don’t need huge investment to kickstart your investment journey. Some can start from as low as RM100 or you can have a diversify investment portfolio with traditional assets and new investment asset classes.

    Below are some of questions that you can use as guide to ask yourself as follows:

    • What are your financial goals?
    • What is your investment horizon? Is it for Income or Capital Growth?
    • Does the asset class suit my investment profile?
    • What is the amount that I can allocate to start with? Lumpsum or Regular Savings Plan?
    • Can I do it myself or do I need assistance from Licensed Financial Planner or other professionals?


    What is the purpose of building an investment portfolio? Different portfolios are to cater for different needs, for example cash/money market is to cater for emergency and or short-term needs.

    Whereas for medium-term goals could be for holiday, buying house, for marriage and or starting a new family. For the longer-term goals, it is for replacement of active income and or for retirement. That’s how you build up an investment portfolio as a way to increase your source of income.

    Read: 5 Investment Tips For Beginners That You Should Know

    2. Business Income

    There are several types of business income for you to consider like online food business, selling things at online platforms that can earn you additional income. Yes, many businesses are affected due to the pandemic, but you can still increase your source of income via a business income.

    There was 7.5% increase in new businesses being registered in Malaysia year 2020 as compared to prior year based on the information available from Company Commission of Malaysia. Due to many who had lost their jobs or income; therefore, many self-employed or small entrepreneurs have either started their own freelancing or contract services and some had started selling at online social media platforms like Facebook, Instagram and or TikTok.

    Gig economy which meaning temporary and flexible jobs have been on the rise and there are close to 4 million freelance workers in Malaysia.

    Read: Fall of Family Business Empire, Why Family Business Fail?

    3. Leverage On Your Existing Skills To Teach Or Share With Others

    If you have certain skills or experience that you are good at which you can use it, teach or share with other individuals, that will allow you to earn additional income. For example, if you good in singing or master certain language, therefore you can create a course to teach others how to sing virtually either in a group setting or individually, as a way to increase your source of income.

    It may include creating videos or posting photos with are beneficial to certain market segments may land you opportunity either to be involved as key opinion leaders or in the affiliate marketing. It may be teaching others how to cook food or bake a cake or maybe just a hobby of how to grow certain plants via the online platform.

    Read: 5 Different Types of Income

    3 Ways To Increase Your Source Of Income

    What if these additional sources of income allow you to provide yourself and family with better lifestyle and provide you security in the event of uncertainty, would you think that sacrifices that you make now by building your new sources income worth your effort?

    You are the only person is responsible to for your own future rather that relying on others. I would like to end it with a quote from Jeff Bezos, “I knew that if I failed, I wouldn’t regret that, but I knew the one thing I might regret.” Now that you know some of the ways to increase your source of income, which one do you prefer?

    About the Author

    Goh Chee Yong is a Licensed Financial Planner under Capital Markets Services Representative License (CMSRL) and Bank Negara approved Financial Advisor Representative (FAR). Prior to becoming a financial advisor, he spent eight years working in Big 4 audit firms and multinational corporations. He can be contacted at cygoh@imaxfinancial.com.my

  • 5 Easy Steps to Achieving Financial Merdeka

    5 Easy Steps to Achieving Financial Merdeka

    On a Facebook livestream held on 31 August 2022 by SmartFinance (SmartFinance.my) in an effort to promote financial literacy on World Financial Planning Day 2022 (WFPD2022), Linnet Lee, the CEO of the Financial Planning Association of Malaysia (FPAM) shares the five steps anyone can take to achieve financial freedom or financial merdeka.

    Here are the five steps in a nutshell:

    Step 1 – 2:30

    For the first two years you start working, set aside 20-30% of your income to invest in yourself (to buy clothes, gadgets, things you need for work etc.) From the third year onwards, start saving 30% of your gross income for retirement. EPF contributions (employer 12% and employee 11%) already make up 23%, leaving 7% left for you to start investing into retirement in other avenues (stocks, private retirement schemes etc).

    Now let’s move on to the second step to achieving financial merdeka.

    Step 2 – Rule of 72

    investment

    Dividing 72 by the interest or dividend will give you a rather accurate estimation of how many years your money will either double up or shrink by half. Use the rule to help when managing your finances and keep an eye on inflation rate as well.

    For example:

    72/6% (interest/dividend) = 12 years (duration for your money to double up)

    72/5% (inflation)=14 years (duration for your money to shrink by half)

    Step 3 – Rule of 78

    Not all loans are created equal, and this rule is a tip to keep in mind when handling your debts. Financing methods that allocate pre-calculated interest charges are meant to favor the lender over the borrower on short-term loans. The borrower would pay a greater portion of the interest rate in earlier part of the loan cycle than regular loans.

    A car loan, for instance, is calculated using the Rule of 78 (the number comes from the sum of monthly term on a one-year loan, by adding the numbers 1 to 12). What that means is the lender has calculated the interest and put most of interest in first and second year of your loan. Hence, there’s no benefit to paying the loan off early because the interest has already been calculated and you have paid most of it already.

    So, if you have a car loan, don’t be in a hurry to pay it off. It is better to pay on time to avoid the penalty.

    This is different with a housing loan. As you pay off your housing loan, the interest will be calculated based on the outstanding amount for the beginning of that year. It therefore makes sense pay it off quickly because you will be paying less interest.

    Before you do though, check with your bank if there is any penalty rate for paying off earlier.

    Step 4 – Six Months Emergency Money

    Have up to 6 months’ worth of monthly expenses saved up. This will buy you time you need to get back on your feet. When you tap into your emergency fund, be sure to top it up again as soon as you can.

    That said, a credit card should not be treated as emergency money.

    Are you ready for the final step to achieving financial merdeka?

    Step 5 – RM1 Million In Retirement Fund

    If you add RM500 per month to an initial sum of RM1,000, starting from the age of 25 to 61, with an interest or dividend of 7% and an inflation of 3%, you will have RM1 million in 36 years. Assuming you stay in good health, you will be able to fund 20 years in retirement. Of course, this is just a simple calculation. Over the years, you can always add to your retirement fund as you earn more.

    And now we are at the end of the 5 easy steps to achieving financial merdeka.

    Congrats, You Are On The Road To Financial Merdeka

    If you need help working through the numbers, do not wait too long to seek the help of a licensed financial planner. To brush up on your financial literacy and connect with a financial planner, go to SmartFinance.my. Wish you all the best in your pursuit for financial merdeka. 

  • Futureproofing Malaysians With Financial Know-How

    Futureproofing Malaysians With Financial Know-How

    As Malaysians recover from the COVID-19 pandemic, the topic of money is on everyone’s minds for various reasons. These range from rising inflation, which is quickly eroding our purchasing power, to concerns about retirement security as a result of a significant reduction in our savings after two years of the pandemic.

    Many in our community are still struggling to replenish their savings. Those whose savings are at a critical level, have expressed concern about how they will survive when they retire, stating that they need to continue working or start small businesses in order to make ends meet in the years to come. To make matters worse, these vulnerable people are often preyed upon by unscrupulous scammers.

    According to the Royal Malaysian Police (PDRM), a total of 71,833 scams were recorded between 2020 and May 2022, with losses amounting to RM5.2 billion. These include bank scams, loan scams, as well as investment scams which fall under the purview of the Securities Commission Malaysia (SC). The SC received 1,800 complaints and enquiries related to investment scams and unlicensed activities in the first nine months of this year.

    The SC’s work extends well beyond regulating and developing the Malaysian capital market. They are also responsible for safeguarding the interests of investors, by among others, educating investors on how to make better investment decisions by providing them with key financial knowledge and tools, so they can make informed investment decisions.

    They also teach the public how to identify red flags of investment scams and illegal activities in the market. Being more financial literate means that investors can take better control of their own finances and stop them from falling victim to the sweet promises of scammers.

    With these considerations in mind, the SC will be hosting the InvestSmart Fest at the Kuala Lumpur Convention Centre (KLCC) from 14 to 16 October 2022. Themed ‘Silap Labur Duit Lebur’, InvestSmart® Fest is a one-stop event for all your investment needs, showcasing not only a wide array of investment opportunities, but also valuable lessons on financial planning for individuals who would like to improve their financial wellbeing.

    Visitors to InvestSmart Fest can take advantage of InvestSmart®’s #Finplan4u initiative, where they gain free consultations by licensed financial planners on how to better plan their investment and retirement.

    InvestSmart Fest will also be investing in the youth segment, who are regarded as key stakeholders for the long-term sustainability and success of the capital market. According to the findings of the SC’s survey titled “Youth Capital Market Survey: A Malaysian Perspective 2022”, Malaysian youth tend to prioritise emergency funds and savings to support their families and pay off debts above building wealth and investment. Therefore, it is important for younger generations to have a head start in investing and saving so they can enjoy greater financial stability in their later years.

    This year, InvestSmart Fest brings together more than 40 exhibitors, showcasing some of the most cutting-edge technologies, products, services and solutions available in Malaysia’s capital market today. The 3-day event will also feature expert speakers and key opinion leaders, who will share their perspectives on various aspects of Malaysia’s capital market and how investors can stay ahead of the game and plan for the future.

    For more information about the InvestSmart® Fest event, please visit www.investsmartsc.my. Additionally, if you would like to get the latest updates, you may follow their various social media channels at:

    FB: https://www.facebook.com/InvestSmartSC/

    Twitter: https://twitter.com/InvestSmart_SC?s=20&t=QqkJ8M5M1gcp_ANbcJ1Phw

    Instagram: https://www.instagram.com/investsmartsc/?hl=en

  • Planning Is Important, Things Can Turn Ugly In An Instant

    Planning Is Important, Things Can Turn Ugly In An Instant

    The following story is based on an actual series of events with some names and circumstances fictionalised and any similarity to the name, character or history of any person is entirely coincidental and unintentional. Hope that we all don’t make the same mistake and full understand that planning is important.

    “It was like robbery!” a distraught Mama Yan said in a high tone as she opened the door for Mandy.

    “They were in uniform and they just barged in,” she continued. “One of them held up a letter and others just came in and started to take the TV and other items.

    “And Sharon, she, she…” her mouth quivered as she looked towards the lone figure lying on the bed in the living room. “Sharon, she tried to get up as if to stop the men and she fell…”

    Mama Yan related that at that moment, everything stopped. A more elderly among the men just shouted “Jangan!”, reached forward and with a few others, helped carried Sharon back to the bed.

    “I just froze and what happened next was a blur. All I can recall now was the elderly officer coming to me, saying something like “…datang pejabat untuk selesai. Kita tidak akan ambil apa apa.”

    Mandy went towards Sharon and in a soft tone said: “Are you alright? Don’t worry, I’ll sort things out…”

    She then turned to Mama Yan and pacified her, assuring her that she would take care of things. Mandy seemed to have figured out what the ‘raid’ was all about and asked for the notice the men left behind.

    Let’s take a closer look at why planning is important.

    Planning Is Important, Things Can Turn Ugly In An Instant

    This incident stemming from failure to settle outstanding payments of property assessment fees is the latest of episodes of non-payment of bills, the last being the disconnection of electricity supply that left the family in darkness just two weeks back.

    Mandy pitied Mama Yan, who was a sharp contrast from what she used to be – a happy contented mother, always beaming with pride that her Sharon, who in her late 30s, was at the prime of her career, having climbed the corporate ladder to be Marketing Director in an MNC.

    Sharon was Mama Yan’s pride and joy as a daughter. Despite being busy, often home late and out to office early, she had never failed to make sure that her mama and wheel chair-bound Pa were well cared for. They never had to worry about finances. Sharon was that ever responsible, dependable, and caring daughter!

    That was until one late afternoon six months ago. A call came in from Sharon’s colleague that she had blacked out and she was being rushed to the hospital.

    A Stroke Of Bad News

    Later, the doctor broke the news to Mama Yan that Sharon had a stroke and the left side of her body was paralysed. Mama Yan’s heart shattered in pieces when she finally got to see Sharon. Tears streamed from Sharon’s eyes. Tried as Sharon could, no words came out from her mouth. Her frustration could only be seen from her eyes.

    Tears welled up too in Mama Yan. Sharon, who always had things in control, was lying there helpless. The pain of seeing the suffering that Sharon was undergoing was after a while replaced by thoughts racing through her mind about Sharon’s future and what would be in store for the family.

    Sharon had taken care of the family well, providing for their financial needs. The live-in maid was a great help in attending to Sharon’s Pa, who even though recovering for the stroke, needed help in movement.

    Can you see now why planning is important?

    Good Times Won’t Last Forever

    Six months have passed. There are no indications how long more Sharon would be bed-ridden. Weighed down by worries of mounting expenses and depleting savings, how to cope with two stroke patients, and a load of unexpected problems, Mandy was the only family friend that Yan could turn to.

    Mandy, however, could only provide help in sorting out certain problems like dealing with municipalities and local Government departments.
    What was of greater concern was that their one-time solid financial pillar had crumbled. Yan has never felt so hapless.

    Mama, amidst tears, said to Mandy: “I have no choice but to see Yong and beg him for financial help now. He is the brother-in-law that I don’t really like but I have no choice.”

    Considering that Sharon had built a successful career and if she has got down to writing a Will to take care of her dependent family, her parents would not be in dire straits if their financial pillar passed on.

    However, in this instance, her plans under the Will could not be effected as she is still alive, but incapacitated.

    Will VS Trust

    Planning is important. Had she set up a Trust, Sharon would have planned well for such an eventuality if not for this cruel twist of fate. She could have placed certain assets she had accumulated in the trust of her appointed licensed trust company.

    In the trust deed or instructions spelled out by the settlor (person setting up the Trust), she could have instructed the amount, frequency of payment for the living expenses of the family, as well as medical expenses, which in the case of Sharon’s family could be substantial as it would be for both her father and her.

    Sharon could have even directed the trustee on how the monies in the trust fund should be invested until her death, after which she could set conditions as to what and how to invest. Such planning will ensure that income is generated while she is incapacitated to meet living and medical expenses.

    The family’s financial pillar would still have been intact in this case as Sharon’s ability to financially provide for her dependent parents has been transferred to a reliable trustee. While the trustee can be an individual, a trust company is recommended as the latter will exist in perpetuity and has experienced and skilled staff with the time and resources on hand to administer the Trust.

    Hope we now understand on why planning is important.

    About Rockwills International Group

    Rockwills International Group, now in its 27th year, pioneered professional will writing in 1995 and has since evolved into the leading estate planning specialist in the country. It is today the largest provider of solutions and support services in the areas of trusts, succession, management and distribution of wealth. It has shareholders’ funds exceeding RM50 million. It has done over 280,000 wills and 15,000 trusts and hold more than RM25 billion in assets under trust.

  • RM5.2 Billion Lost To Scams In Malaysia Over Two Years

    RM5.2 Billion Lost To Scams In Malaysia Over Two Years

    We read about individuals losing money to scams in Malaysia almost on a daily basis. The losses are staggering, and even though the warning signs are all around us, the number of victims keep piling up. According to the Inspector-General of Police, Tan Sri Acryl Sani Abdullah Sani, there were 71,833 fraud cases recorded since 2020 until May 2022, with a loss amounting to RM5.2 billion.

    The most prevalent financial scams in Malaysia as revealed by the Royal Malaysia Police (RMP) are:

    • Bank / Government Impersonation
    • Illegal Loans
    • Money Mules / Account / ATM
    • Card Rental
    • Investment Scams
    • E-Commerce Scams
    • Romance Scams

    Since we want to become a smart investor, we will be taking a closer look at investment scams, with the hope that we are able to identify them and take the necessary actions to avoid becoming a victim.

    Common Types Of Investment Scams In Malaysia

    1. Get Rich Quick on Social Media Platforms

    Usually, the scammer will ask for a small investment with a promise of very hight returns. For example, 100% return in three hours or RM1,000 in 30 minutes. Since the initial ‘investment’ is small, investors would have no problem giving away the money to start.

    Once we see the gains in our account, we will be tempted to put in more money. And when the time to cash out the gains or to take out the capital, normally the scammer will ask us to pay certain fees. By the time we realise that we have been scammed, the damage had already been done.

    2. Clone Firm Scams

    Another famous scam that is going around is done where scammers use legitimate investment firms, but misuse their name and logo to dupe victims. It looks so real that you can’t easily tell them apart.

    For example, the real business is Smart Investor, but the clone uses the name Smart Investment. It even uses the same logo, so you will genuinely
    mistake it for the real deal.

    The Modus Operandi Of Scams In Malaysia

    Operators of illegal internet investment schemes lure unsuspecting victims to make online investments or receive investment advice online, by offering investment opportunities with unusually high returns with zero or very low risk.

    When questioned about their legitimacy, most scammers operators will claim to be foreign operators that do not require licensing from Malaysian regulators to operate their business.

    In truth, these operators have no legitimacy whatsoever; they are not licensed to receive deposits by Bank Negara Malaysia or licensed to offer investment advice from the Securities Commission (SC) related to fund management, securities and futures.

    Unsuspecting victims would then be enticed as scammers will pay them the high returns during the initial stage, and this is used as a tactic to lure and recruit new investors. The survival of this scheme actually depends on new depositors.

    The funds obtained from new depositors will be used to pay dividends to the existing depositors. Therefore, the scheme will fail when there is no contribution of funds from new depositors.

    However, the scam operator will eventually abscond deposits collected when they feel that the scheme is about to fail, thus leaving the depositors at the losing end.

    With So Many Legitimate Investment Schemes, Why Do People Still Fall For Scams In Malaysia?

    “Scammers employ various means to manipulate their victims including promising high-returns, illusion of safety and inducing fear-of-missing-out (FOMO),” said Bryan Zeng, CEO of FA Advisory, a financial planning service provider.

    Bryan Zeng, CEO of FA Advisory

    On the other hand, legitimate investment schemes are highly regulated with clear guidelines on what is permissible or not. These guidelines are designed to protect the investors but may make the legitimate investment appear as less attractive.

    But then again, the promise of getting rich quick in these situations is hard to resist. Scammers will promise crazily high returns in a very short time, which makes no sense once you think about it. But at the spur of the moment, we feel that it is too good to pass on such an opportunity – and we tend to make decisions based on our emotions.

    As emotional beings, we are often easily manipulated when we are at our most vulnerable, which makes us easy prey for scammers. When we are not able to think clearly, that is when we make ill-informed decisions that will come back to haunt us.

    Always remember the old adage: “If something is too good to be true, it is most likely a lie.”

    Hence, a healthy dose of scepticism, emotional restrain, and critical thinking can go a long way. You can also check with the relevant authorities before investing or depositing money into someone else’s bank account.

    Some useful links:

    Those are just some of the facts that you should know about the scams in Malaysia, hope we are well-educated enough to detect and avoid it.

    Make sure you also read:

    With knowledge, we can actually avoid from becoming a victim of scams in Malaysia.