Need an increment??

Receive an email with the title "I need an increment". The above figure is actually the content of the email. It is simple yet it is so true.

A simple question. If you do not have a family to support and you are earning RM3000 monthly, how much can you save per month? RM1500? RM500? or RM0? That is the reason I always encourage people to save partially and invest partially. You have to always prepare for such situation mentioned above from being happened.

Someone might ask if you do not have enough to spend, why bother to buy insurance? If the family doesn't buy insurance, they will have extra RM600 to spend. Well, no doubt about it. However, if we think from another perspective, you'll know why we should buy insurance. For example, if the breadwinner of the family (the father) meet with an accident and admitted into hospital for 3 months. If he does not own an insurance and the company he is working with required him to take unpaid leave, how does the family going to survive? Borrow from relatives and friends, request donation from the public or even the government? Well, I think you have the answer right?

Besides that, the inflation rate DOES NOT grow proportionally with the rate of your salary increment. When the price of petrol increases, does your salary increase? When the price of sugar, does your salary increase? If you are expecting your boss to increase your salary when the prices of other things increase, there are only 3 possibilities.

1. You are the boss.

2. You meet with a very very very good boss.

3. You are dreaming. Please wake up :)

This is the reason why you need to do financial planning. You need to allocate money for your expenses, savings and investment.

Developing good financial planning will help you to reach financial freedom easily and earlier than others.

Rich

According to one of the industry player, comparing the amount you have tucked away with that of individuals of your same age simply to gauge how “successful” your savings strategies are is not a good benchmark.

From the saying above, we can say that there is no need for you to compare yourself with others. Everyone has different income levels, different financial goals and different lifestyles. For example, if monthly salary of Person A is RM 2000 and monthly salary of Person B is only RM3500, the amount of savings for both persons might be the same. But in most cases, the saving amount of both persons will be different. Besides that, if one person likes to socialized around while another person prefers to stay indoor, their monthly expenses will be different and this would differ the saving amount for them. The status of life is also another contribution to saving amount. The living expenses for those staying in cities are different from those staying in villages. You can see it clearly when you compare the price of the food such as chicken rice, nasi goreng, noodles and others in both places. Of course if you compare the Gardenia bread in both places, you won't spot any difference. Generally, Malaysia enjoys one of the highest savings rates in the world at 34%. But do you know how much savings rates in US? According to the reference, during the economic boom that took place between 2005 and 2008, a credit-fueled consumer spending craze effectively brought the US savings rate to zero. So does this means we are richer than those in US? Then who is Bill Gates and Warren Buffet?

This concept applies to richness as well. Many people are pursuing richness in their life. But do we know how are we classifying as rich? If I have 1 million, is it means I'm rich? To Bill Gates, 1 million is nothing to him. But to those poor people, 1 million means a lot for them. There are a lot of people working very hard to earn money in order to become rich. But to most of them, they do not set a target amount for them to reach or even overpass. They just want to be richer than the person next door, the person they dislike and others. They end up working and working, working for their whole life in order to become rich.

Comparing your richness with others might be a good motivation for you to work hard. However, is it necessary??


Reference:
http://biz.thestar.com.my/news/story.asp?file=/2009/7/25/business/4381424&sec=business

EPF

EPF?? What's that??

Some of use might dun really noe wat is EPF. EPF, aka Employees' Provident Fund, is actually a compulsory programme that provides retirement benefits for employee through management of their savings in an efficient and reliable manner. Currently, the employees contribute either 8% or 11% of their monthly income while the employers contribute 12% of the income. Therefore, we can say that each employee has saved at least 20% of their monthly income for their retirement. 

From the government's effort in making EPF a compulsory programme, we have seen that how important the role of everyone in preparing retirement plan. We should not take for granted that since our government has made EPF a compulsory programme, therefore it is unnecessary for us to prepare retirement plan ourselves. Although the Employees' Provident Fund (EPF) Board will declare dividend annually for the members, is the sum enough for the employees to enjoy the retirement life? This year, the Employees' Provident Fund (EPF) Board declare a 4.5% dividend for the members. The figure looks good during the economic crisis. However, according to past history, we can see that the dividend declared has been progressively declining since 1987. [This is the information that I get from wikipedia. Trying to get a more reliable source of information. Will update once i get the result]

So u might be wondering how should we prepare our retirement planning? There are a lot of websites provide financial calculator to help u to calculate the total amount that u need for retirement. U might b surprise when u calculate the amount. The following link will assist u in calculating the retirement amount that u need. 

http://www.publicmutual.com.my/application/calculator/retirement/ret.aspx

Get a scary amount?? Panic?? Calm down and relax. Wat u should do is to prepare urself a retirement planning and start executing the plan. Long-term investment might be a solution to start with. 

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. =)