Savings

In my last post, I mentioned that one should have a total of 6 to 12 months of living expenses in the bank. Recently I came across this news in The Star on 19^th Feb 2009.

According to the latest findings from Citi’s Financial Quotient (FIN-Q) 2008 survey, only two in five (39%) Malaysians actually save. Less than 28% make and stick to a monthly budget. From the finding, Malaysians are reported having 11 weeks of savings in reserve. This means that Malaysian can live up to 11 weeks using their saving without any income. There are 21% of people whose saving would last for only for weeks.

From the survey, it is reported that a majority of Malaysians saved up to 20% of their monthly income which exclude the 11% in the Employees’ Provident Fund (EPF). There are 12% of Malaysians who do not save anything at all.

This is actually quite risky as if one were terminated from his/her job, he/she has to find the source of income within one month. One can argue that given the time constraint, then the person will go full force to look for the income. However, reality is cruel. No matter how well u plan, the activities do not happen as u wish. So why dun we prepare early??

If save too much money in the bank, the interest rate is actually quite low and u might b suffering a loss. If save too little money in the bank and the rest of money is put in investment, the investors might be suffering a loss in the investment. According to financial expert, one should have at least 6 months of living expenses as the savings to prepare and protect urself from any unforeseen activities. So have u prepare enough savings to sustain urself for at least 6 months???

Investment

Now we are facing economic recession. What will u do if u have extra cash? Put in the bank or invest them???

Last year, the government has assured that the money in the bank is 100 percent guaranteed. This means that the possibility of the account holders to lose the money in their account is almost 0%. Therefore, the risk is very minimal. However, should u put ur money in the bank? Let’s look at the table below and the value is based on 2008 December data. 

Interest (%)	3.5
Inflation (%)	4.4
Return (%)	-0.9

Interest rate is the rate that the bank offers to the clients. For example, if u put RM1000 in the fixed deposit which offers u 3.5% as the interest rate for one year, then the total amount u will get after 1 year is RM1035. 

Inflation is a rise in the general level of prices. For example, the cost of a machine is RM1000. If the inflation rate is 4.4%, then the cost of a machine is RM1044.

So from the example above, we can see that the RM1000 is the same value one year ago. However, after one year, the value of RM1000 is different. If one saves the RM1000 in the bank in order to buy the machine 1 year later, he/she actually needs to pay RM9 extra to buy the machine.

Therefore, should we juz take out all of money from the bank? According to financial expert, one should have a total of 6 to 12 month of living expenses in the bank. For example, if u spend RM1000 monthly, then u should have at least RM6000 in the bank. This is because if u were terminated from ur work, u can still afford to live for at least 6 monthly while u r trying to get urself another job.

If the extra cash will not be used in 3 years time, we should consider use the money for investment. There are many investment vehicles such as mutual fund and investment-linked insurance which can help u to manage ur wealth. Although there is risk that the investors might lose their money, in the long run, the investors still can earn back their money.

If u do not have any insurance, then u should consider buying investment-linked insurance which comprises of insurance and investment. The aim of insurance is to protect u n ur family when misfortune happens to u. At least there is a sum of money to help although the money might not b enough, it is still better than nothing.

If u do have insurance, u can consider buying the investment-linked insurance o mutual fund. It depends on u. Mutual fund is for investment purpose. There are many types of funds in the market which allow the investors to choose their preference. For example, some investors prefer to invest in China market, some prefer to invest in European market. Then the investors can choose the funds that cater their preference and needs.

Can we really invest during the economic recession?? Warren Buffet, one of the richest guys in the world, says that we should be fearful when others are greedy and be greedy when others are fearful. So wat’s ur decision after u read this post??? Hope tat it will help u to manage ur wealth wisely. =)

ISE rule

ISE or ISA?? Dun worry, this blog is about finance. So it is not ISA, it is ISE.

So wat does ISE stands for??? Income-Saving-Expense.

When we get our income, we tend to spend it first. Then we'll oni save the remaining. For example, if our income is 500 and we spend 450, then we'll save the remaining 50 in either bank account or else where. So the formula is 

Income - Expense = Saving

However, this rule is not really correct. Because if we have money, we tend to spend more. For example, if we see something we like, then we spend our money on the thing. I'm not saying tat we should not enjoy ourselves. Just tat we should have some limitation. If we enjoy now and we suffer later, is it really worth it? Y not keep some money first to make sure u can enjoy ur future life?? 

So the correct rule is

Income - Saving = Expense

Just imagine, one day if u r facing problem of income loss, at least your saving can help u. If u dun have saving at tat time, wat r u going to do? Borrow from family members o frens? Well, isn't it ur saving will be a better choice? 

This weekend is going to be long. Enjoy ur weekend. =)

First post in blogspot

Hi everyone,

This is my first post in blogspot. From the name of the blog, i think u can guess easily wat this blog is about. Yes, this is a blog on the financial tips for Malaysians. 

Currently i'm working part time as financial advisor (insurance agent + mutual fund consultant). I choose both of this profession because my love towards finance. To be honest, I love finance very much and love to know more ppl who are expert in finance. 

Hopefully this blog will provide useful information to u. I'll update this blog weekly (hopefully =P) by sharing any financial information which is definitely useful for u. 

Have a nice day. =)