Retirement planning

Happy Chinese New Year. J

Everyone will be celebrating New Year annually. When New Year is approaching, it also indicates that we are one year older. No matter we like it or not, it is just a fact. Years past by until one point we will reach one stage which is known as retirement. At the retirement stage, I believe that most of the retirees have to depend on the savings or Employee Provident Fund (EPF) that they have. However, the question is the financial resources enough for them to spend at the retirement age?

Frankly, there are application software available in the internet that will help you to calculate the amount you need at the retirement age. You can find the application in Public Mutual website as well. I have seen that there are a lot of people trying to avoid calculating the amount for retirement because knowing the amount you need at retirement is very scary. You should remember that not much jobs are there for you to apply and sad to say that, you have to depend on yourself. Your kids might help you but they will have their financial worries as well. No doubt knowing the amount is very scary, that’s why you have to start doing your retirement planning as early as possible.

After working hard for the past 30 or even 40 years, you would prefer to have a more comfortable lifestyle. Maybe you would to prefer to do something that you have missed out during your young age. Doing community service? Reading? Travelling around? These activities will not generate any income for you yet you need to spend some money for these activities. How are you going to carry those activities if you even do not have enough financial resources for yourself?

Question might arise especially from those who are still far from retirement. To them, the financial resource should be used for buying car, property or even used for investment instead of retirement planning. However, the earlier you do your retirement planning, the better it is. I am not suggesting you put 100% of your financial resources into retirement planning but you should allocate a portion of it. How many percent you should allocate for retirement planning? It actually depends on you. Why there are a lot of financial planners encourage people to start retirement planning even when they are very young? When you are getting older, illness seems to become your best friends. No insurance company is willing to take the risk unless you are willing to pay more. I believe that many parents would not want to be another financial burden to their children. That is the main reason why many are urged to do retirement planning as early as possible.

Life Insurance Association of Malaysia (LIAM) president Ng Lian Lau had estimated that less than 5% are prepared for retirement. [1] According to him, those in 20s think that they are too young to think about retirement. When they are in 30s or 40s, they tend to believe they are doing enough because they have their EPF savings. For those in their 50s, they will feel that it is too late for them. If you are in the mentioned category age group, are you having the same thought?

We will usually regret after we face the problem. You will only regret when you do not have enough financial resource at your retirement age. To ensure that you will not be regretful at your retirement age, start doing your retirement planning now.

Reference

[1] Counting on the nest egg http://www.thestar.com.my/news/story.asp?file=/2007/5/27/nation/17754089&sec=nation&focus=1

Happy Chinese New Year

正财、偏财、横财，财源滚滚；

亲情、爱情、友情，情情如意；

官运、财运、桃花运，运运亨通；

新年快乐，恭喜发财，万事如意，虎年行大运；

Happy Chinese New Year

Have a wonderful and ferocious year of the Tiger

Tax planning

Now it’s time to discuss for the forth element in financial planning which is tax planning. Road tax, income tax and the proposed Goods and Services Tax (GST) are considered tax. No matter you are a kid, student, working adult, senior citizen, you just cannot run away from tax.

Why we have to pay tax? One of the reasons is tax is source of income for the government. According to our Second Finance Minister Husni Ahmad Hanadzlah, tax will reduce the fiscal deficit and will not burden the people and businesses. Of course, there are many other reasons such as the tax impose on the imported car is to encourage the nations to support local automotive industry.

If tax is imposed by the government and how can we do our tax planning? We cannot do anything unless we do it illegally. Well, this post is not going to teach you how to do it illegally but the intention is to let you know how you can do your tax planning.

Check out the yearly budget that has been tabled in the parliament. I will use Budget 2010 as an example for this post and I will show how you can actually do your tax planning base on the budget. Those sentence in bold are some of highlights of Budget 2010.

1. Government reduce the maximum individual income tax rate from 27% to 26%, personal relief increase from RM8,000 to RM9,000 in 2010. By knowing this news in advance, the tax payers can do their planning earlier. Maybe they can invest the extra money or even use the money for entertainment or self-improvement.
   
2. Imposing

   RM50 service tax on each principal credit card and charge card, including those issued free of charge and a service tax of RM25 a year on each supplementary card effective Jan 1, 2010. Imagine if you do not aware of this news and you are still thinking that the banks are issuing those credit cards for free, what will happen? You might be wasting your RM50 for nothing.

3. Individual

   taxpayers will be given tax relief on broadband subscription fee up to RM500 a year from 2010 to 2012. Those tax payers who depend heavily on the internet will be saving some money for subscribing broadband. Again, from the money that they save, they can use for other purposes.

4. Personal

   tax relief raised to RM7,000 from RM6,000 for EPF contribution and life insurance premiums. Why government decides to raise the tax relief for life insurance premiums? This is because it is essential for the nations to do risk management. You can refer to the post on risk management that has been posted earlier.

From the few examples that have been discussed earlier, we can see that it is possible for us to the tax planning. No doubt you need to pay some efforts in order to do the tax planning by reading the newspapers or internet to get the latest news on the country. There is no free lunch in the world so you should start doing your tax planning =)

Investment management

I have been missing for some time. Sorry about that. Currently I am working and therefore have to spend more time on work rather than maintaining my blog. For the time being, I will focus less on my blog because I do not have internet in my house and I am being monitored by CCTV in the office. Sad sad. Today, I will share about investment planning in this post. This post will be very general as I am still not up to the level yet to teach you how to earn guaranteed income from investment. Else, I am the same as those ‘Skim Cepat Kaya’.

Why investment is so important? Without investment, people will be working days and nights to earn money. However, is this the correct way? Shouldn’t we let the money to work for us rather than we work for the money? Human, as the most brilliant creature in the world, should have the intelligent to control money instead of being controlled by money. Warren Buffet has become the second world richest guy in the world through his wisdom in investment. Without investment, maybe he is just like us, working hard daily for more money.

There are many types of investment such as unit trust investment, stock investment, property investment, FOREX investment and others. Each type of investment has its advantages and disadvantages. This depends on the people as different people have different risk tolerant, time and money available. Thus, you should choose the investment vehicle that will help you to reach financial freedom at the end.

Unit trust is suitable for those who do not have much investment knowledge but wish to invest. What you need to do is just give your money to the professional fund managers and they will manage the fund for you. Besides that, diversification is another feature of unit trust. The fund manager will have an investment portfolio which he/she will invest in different companies either in the same industry or different industries. This will help to diverse the risk. Unit trust is an effective tool for those who would like to invest in foreign countries such as China, Taiwan, Singapore and others. There are funds available to invest in those countries. For those who would like to invest overseas, unit trust investment might be a good choice for them.

Stock investment is suitable for those who know the stock market very well. They should know what is dividend, PE ratio, EPS, technical analysis and others in order to help them to make a wise decision before they do any investment. They should always do market analysis themselves rather than just hearing from other stock experts. Even stock experts will lose money if they invest. It would be better if you yourself can do the analysis of the market and the experts’ advice and make the decision. As suggested by Warren Buffet, people should invest in those industries that they are good in instead of investing blindly or following people’s advice.

Property investment is also another investment vehicle that people are focusing on. In China, Taiwan and Hong Kong, those rich become rich are due to property investment. The well-known figure in property investment in Hong Kong is Li Ka Shing. What you can do is just to look for those potential properties that would appreciate. You can buy them and rent them to earn passive income. Once the prices of the properties increase, then you can sell them and earn the money easily.

Investment can help you to earn more money but it can also cause you to lose money. We always hear that no risk no gain. However, we should not forget that got risk got loss. Therefore, use your intelligence and wisdom while making any investment.

I found this article is quite useful and related to this topic. You can get more information here. http://biz.thestar.com.my/news/story.asp?file=/2010/1/16/business/5465232&sec=business

Risk Management

The second element of financial planning is Risk Management. In other countries, risk management is seen as an important element for everyone and have received good response from the people. However, this is quite different in Malaysia. Another term that is best described risk management is insurance. When Malaysian heard about insurance, the first impression is that the insurance agent is cheating money. Well, no doubt some of the agents approach you because of your money. Once they receive your money, you never see them anymore unless there are some new products. But you must be clear that the problem lies on the insurance agents and not on the insurance. This post might be a little offensive because it deals with accident and death. This is real life and I do not mind you shouting 'Touch wood' while going through this post. =)

Why insurance is so important? Just imagine if one day, suddenly Mr. A diagnosed with cancer. He does not have much money for the medical cost. If he has relatives or friends who are willing to borrow him money, then the situation is not so bad. However, if he does not have any insurance and none of his relatives and friends willing to borrow money for his medical cost, then what should he do?If Mr. A buys insurance policy (36 critical illnesses policy) from any insurance company, then his situation will be better. The insurance company will pay him a sum of money when he is diagnosed with cancer. The amount vary depends on your what type of policy you are buying. This will definitely lessen his burden at the initial stage when he can go for his treatment with the money he has. Illness can be cured easily at the initial stage rather than later stage right?

Actually human are very weak. Our lives are in God's hands. We do not know what will happen to us next year or even next minute. Illness, accident or death can happen on anyone at anytime at anywhere. This sounds threatening but this is reality. Someone might ask what can insurance do for us except giving us money? No doubt money is not everything but at least it can free you temporarily from financial crisis, at least it can help to reduce the financial burden of your love one at the initial stage. You will not feel how insurance can help you by reading this post. Maybe you should try and approach those people who really receive money from the insurance company.

There are various types of insurance products offer by the insurance company. It actually depends on the person on which type of insurance product should he/she buys. The rule of thumb when you are getting insurance is to make sure it covers the losses you need to protect. For example, medical and health insurance. This type of insurance will cover all or most if not all of your medical expenses you spent in the hospital as long as the insurance company acknowledges the hospital. Therefore, you do not need worry when you are admitted into the hospital. Those who do not have medical and health insurance or do not realize the importance of medical and health insurance will always agree to this saying, 'A person can died of illness but must not get sick'. This is because the medical cost is really scary!

People will realize the importance of insurance when they really need the insurance. However, most of the time, people will only realize the importance of insurance when they cannot buy the insurance due to the term and conditions. Thus, buy an insurance that can cover the losses you need to protect and make sure you choose the correct insurance agent.

Cash Management

As mentioned in my previous post, I am going to share about the 6 elements in financial planning. Therefore, I will share cash management in this post.



If you are lucky enough and have been given a bag of money, what are you going to do? Spend all the money you have in the bag to buy whatever things you like? Go for holiday? Invest the money? This is what happened when someone wins in the lottery. When someone wins the lottery, the person will first invite relatives and friends for meal. If got extra, then buy something he/she or the family members want very much or take the money and go for gambling. I would say this is the standard way how people spend their money when strike lottery. How I know? This is secret, cannot tell you. =)

If people who strike the lottery have to learn cash management, people who does not strike the lottery even have to learn how to manage cash. A research has been done in US on 602 people between 18 to 34 years old. About 24% of them spend more than what they earn and 31% just enough to pay their expenses. If you can still save 10% of your income, congratulations, you are a lot better than around 50% of the people in US.

The birth of credit card has actually worsen some people's life. No doubt we do not have to bring a lot of cash with us if we have credit card. However, when you are buying things with credit card, you do not feel the pain when you are buying. You will feel the pain only when the statement is sent to you. How true is it? Maybe you can check with those who rely heavily on credit cards.

What need to be done when managing your cash? Well, one should have budget to manage their cash. Budget is a plan for saving and spending. Therefore, it will guide you on how much you can spend and how much you should save for the month. If you have cash machine that can print out money notes for you to do transaction legally, then it is really fine for you not to do any budget. But do you really have? When comes to budgeting, most of the people have fear on budgeting because they think that they have to sacrifice something when they are doing budgeting. This is not really true as you can still spend on anything you like as long as you have save the amount of money according to your budget. The money that you have to save is not RM 1 million or more, it is just 10% of your salary. Many great financial planners out there saying that pay yourself first before you pay to anyone and if you do not have enough to pay others, then make sure you can have your seond stream of income. What they mean by paying yourself is to pay yourself for the future instead of paying yourself now. In simpler term, it means that you should save money for future use instead of paying all your monthly income to house loan, car loan and others. If suddenly you need money urgently, at least you can still have

Budgeting is simply just a guide on how you should manage your income. How much of money should the individual save, invest and spend, maybe you can refer back to my previous post on saving. There are a lot of information of budgeting in the internet as well. What are you waiting for? Start your financial budget now. =)

Financial Planning

After sharing information that I have read in my last few posts, I think it would be better for me to share the fundamental of finance so that you can get a clearer idea.Therefore, I would like to share Financial Planning in this post.

Dream, dream, dream. Who do not have dreams? Everyone of us does have our dream. Kids dream of growing faster so that they do not have to study. Teenages dream of following the current fashion. Adults dreams of having a lot of money to buy their dream car and dream house. Parents dream of providing the best education for their children. Senior citizens dream of enjoying their retirement. We only have dreams and we dare to dream but most of us do not achieve our dream at the end.

Why we cannot achieve our dream at the end? Go for holiday, get yourself your dream car, get yourself your dream house are the dreams. However, all these things require money. That is the reason why everyone should do financial planning. Do you know how much do you spend and save daily? When we are still kids, we tend to save our extra money in our piggy banks. We put 20 cents, 80 cents, 50 cents and sometimes no cents inside it. Yes, the amount is very small, but at the end of the day, we can still have a large amount of money. Nowadays, how many of us still practising the saving habit when they are teenages and adults?

The purpose of this post is just to advise you to start your financial planning before it is too late. As I mentioned earlier, everyone has his/her dream. If you do not have any money for your dream, your dream will just stay as your dream. This concept is also highlighted in the movie. For example, the movie 'UP'.

In this movie, we can see how Mr. Fredickson and his wife have a dream. They dreamt of moving their house to Paradise Fall in South Africa. However, they faced financial problem to achieve their dream. Therefore, they worked hard to earn money in order to achieve their dream. However, Mr. Fredickson's wife passed away. Mr. Fredickson still kept the promise and moved the house to Paradise Fall. From here, we see that there is the element of financial planning. If Mr. Fredickson and his wife did their financial planning earlier and manage their finance well, it is certained that both of them can move the house to Paradise Fall together.

Financial planning is essential for everyone of us and it has six elements which I will share in my next few posts. Even Bill Gates and Warren Buffet, the top two richest person in this world are doing financial planning, who are we to say that financial planning is not important?Nobody will help you to achieve your dream if you do not help yourself to achieve your dream. Same goes to financial planning. Nobody will do financial planning for you if you do not do it yourself.

Investment Strategies

Investment is a vehicle for you to gain wealth. If you put your money in fixed deposit with annual interest 2%, the 2% that you earn is the wealth. If you do not invest it, then you’ll not earn the wealth. However, investment has its risk as well. During economic downturn, the values of shares will drop and you might suffer loss from your investment. Therefore, it is essential for you to decide your investment strategies.

In this post, I’ll share the investment strategies which are suggested by Alan Inn, the co-head of CIMB Private Banking. Although Mr. Alan’s suggestion is targeting on the institutional investors, I do think that individual investors can adopt the strategies as well. There are 3 recommended investment strategies. The first strategy is the investors should pace their investment in equities. Technical price charts suggest that in the short term, equities markets are headed for some corrections. This is because major markets are technically overbought temporarily. In order to understand this, you need to understand the theory of demand and supply. If the demand is high and the supply is low, the values of the things will increase. So assuming Share A is demanded by many investors but the supply is less, the price of share A will increase. However, there is no such thing as the share price will keep increasing infinitely. Once it reaches its peak, then it will come down. Therefore, the investors should pace your equities investments along with possible corrections to minimize the risk.

The second strategy is do not overlook China and Asian equities. According to some of the economists, China is expected to take the lead with US to lead all countries in the world to the road of recovery. With China’s strong fiscal-driven growth, rapid expansion of bank credit, low level of government debt, high household and corporate savings and the government’s willingness to adopt aggressive stimulus policy, these are the evidences that the China will be the first few countries to recover from global economy. Cooperation between China with other Asian’s countries, stronger growth rates and healthier financial position are the factors that Asian equities are expected to outperform the developed world.

Diversify portfolio via superior actively managed funds is the third strategy suggested by him. The investors are advised to diversify the portfolio and do not put all eggs in one basket. Once the basket drops, all eggs will be broken. Therefore, the investors can invest in conservative investment partially, moderate investment partially and aggressive investment partially. This will help to reduce the risks that are face by the investors.



Reference
Still not too late
Second half 2009 market analysis and investing ideas

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

Opportunities in Islamic Equities

Islamic Finance is getting more and more popular nowadays. Many investors are talking about Islamic equity market. So what is Islamic equity market? Islamic equity market is the equity market that is managed using Syariah laws, which means that the market is managed using Islamic rules. Although the market is managed using Islamic rules, this does not mean the market is only for those who are Muslims. The market is opened to all. With the effort of Malaysia to become a major Islamic hub, this has brightened the future of Islamic equities in the country. The raising of other Islamic countries such as those Islamic countries in the Middle East has attracted investors.

Tan Sri Zarinah Anwar, Securities Commission chairman, strongly believes that the Islamic equity market offers strong opportunities for growth. In her speech at the London Sukuk Summit 2009, she shared with the audience that the instrument such as Syariah-compliant exchange-traded funds, real estate investment trusts (REITs) and structured products are attracting strong interest. The interest is so strong that there are some conventional REIT had converted the conventional structure to one that is Syariah-based.

Definitely there are reasons why Syariah-based structure is adopted in the company. According to Axis REIT Managers Bhd chief executive officer-cum-executive director Stewart LaBrooy, the Syariah-compliant status will enable them to broaden the pool of investors. Besides that, it will help to attract the investment from Middle East countries. China-based Xingquan, which is the first company from China to list on the Malaysian stock exchange also applied for and receive pre-initial public offering Syariah-compliant status for its shares. This will attract those individual or institutions investors who are seeking Syariah-compliant investments. If we look around, we can see that there are many companies are going for Syariah-based structure. For example, Public Islamic Bank and Takaful are the companies which are Syariah-compliant.

The companies have seen the future of Islamic market and they are targeting on it. Certainly they have analyzed the opportunities and risks before they make any decision. They will not make any decision that jeopardizes the company. If you are still new to the market and have the intention to invest, why not consider investing in Islamic equity?


Reference
Opportunities in Islamic equities, The Star. (7 July 2009).