Budget 2011

Our Prime Minister Datuk Seri Najib Tun Razak just tabled Budget 2011 on 15^th October 2010 and it has become a hot topic for Malaysians. Thus, is this budget good or bad for Malaysians?

One of the highlights in the Budget 2011 is Government-Linked Investment Companies (GLIC) will be allowed to increase investment in overseas market to explore opportunities for better returns. For example, the Employees Provident Fund’s (EPF) investment overseas is currently at 7% and will be raised up to 20% of the total assets managed. I think all the employees will be happy about this news. However, the budget has also introduced another provident fund which is known as Private Pension Fund (PPF) that caused dismay among the employees. This is because according to the ministry’s economic and international division under secretary, Datuk Dr. Mohd. Irwan Siregar Abdullah, the EPF dividends would be gradually scaled down to encourage contributors to bring their money to the PPF. I would not mind if the return of PPF is high. The problem with PPF is the return is not guaranteed. EPF is used for our retirement purpose and there is research done saying that EPF is just enough for the retirees to use up to 5 years. With the implementation of Budget 2011, can most of the Malaysians afford to retire at the age of 55?

The other highlight is the government proposes the import duty on approximately 300 goods preferred by tourists and locals at 5% to 30% be abolished to promote Malaysia as a shopping haven in Asia by providing branded goods at competitive prices. Not only tourists, even the citizens are encouraged to spend. Besides that, Budget 2011 proposes that the sales tax will be exempted on all types of mobile phones. Again, this is to encourage the local to spend the money. The economy will be stimulated as there is money flow in the market. I can see that the government has been trying to stimulate the economy by encouraging money spending. However, I feel that some Malaysians might misuse. The lower price of branded goods and mobile phone will encourage impulsive buying especially those consumers below 30 years old. Although they are lower price, I believe many will still use credit card to buy them. Insolvency Department has reviewed that 50% of the credit card holders who had been declared bankruptcy were those below 30. Once declared bankruptcy, their lives will be tough. If the prices are lower, is the percentage of those credit card holders, who are 30 years old, been declared bankruptcy going to increase?

Skim Rumah Pertamaku has also been introduced in Budget 2011. This program is introduced as the government is aware of the difficulties faced by the Malaysians particularly young adults who have just joined the workforce with income less than RM3, 000 to own a house. The house must be below RM220, 000. Under this program, those house buyers who fulfill the criteria will obtain a 100% loan without having to pay the 10% down payment. I think that this is only beneficial to those who do not intend to buy a house in Kuala Lumpur, Petaling Jaya, Penang, Johor Bahru. We can hardly find houses below RM220, 000 in the places mentioned above. For those who wish to locate property at these places, this would not do them any help. But then maybe it will help the property market at the other areas as they might wish to enjoy the benefit offered by the government. Moreover, most of the developers have marked up the price of the property and house buyers usually can borrow 90% of the house loan. They are only required to pay a few percent (normally less than 5%) of the house price as the down payment.

This is my personal view on the Budget 2011. I only focus on those related to finance field as this is the Window to Financial World. I hope you can share with me if you have different view on the budget. Thanks. J

Reference:

[1]http://thestar.com.my/news/story.asp?file=/2010/10/15/budget/20101015174503&sec=budget

[2]http://thestar.com.my/news/story.asp?file=/2010/10/20/nation/20101020145928&sec=nation

[3]http://skorcareer.com.my/blog/is-your-epf-money-enough-for-retirement/2009/08/04/

[4]http://thestar.com.my/news/story.asp?sec=nation&file=/2010/7/19/nation/6690491

Save for your future 为未来而储蓄

It has been some time I have updated my blog. How are you guys?? I am back from National Service and my mind is still not function properly. Therefore I would like to share something light. I read one joke in newspaper last few days. Just follow the joke below.

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There were 2 housewives chatting in the café.

Housewife A: My husband is so superb. He won lottery. With just a few Ringgit, he won a few thousands back. We are planning for a trip overseas.

Housewife B: Congratulation. However, my husband is more wonderful. After paying one month of insurance premium, he gave me RM100, 000. I can do whatever I want with the money.

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From the not so interesting joke, we can see the importance of having insurance to your loved one. Isn’t it better to leave something for your loved one if anything occurs instead of trouble and sadness only? This is the real world. Everyone and everything need to deal with money nowadays. Although insurance is important, we have to still be careful when choosing our insurance company. For more information, you can always contact me. Thanks. J

已经有段时间没有更新我的部落格了，还是感谢大家没遗忘我的部落格。大家最近还好吗？最近才刚从国民服务回来，脑袋还有点不灵光，所以就来点随性的分享。前几天在报章上看到一则笑话，觉得有点意思，就决定在此分享。

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有两个家庭主妇在家餐厅谈天。

家庭主妇甲：我丈夫真厉害，最近刚中了万字票。才用区区几块钱，就赢得了几千块。我们还打算用这笔钱去外国度假呢。

家庭主妇乙：恭喜恭喜，但我丈夫才厉害呢。只是还了一个月的保费，就给我了RM100,000. 现在我能随心所欲地用这笔钱。

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从这个不是很好笑的笑话中，我们能看到拥有一份保险对您的至亲爱人的重要性。与其只留下烦恼和悲伤给他们，倒不如留笔钱给他们。这是个现实的社会，无论什么东西都需要钱，没有钱的确是万万不能的。虽然保险非常重要，但是我们也要小心地选择保险公司哦。如果想了解更多保险详情，不妨联络我。谢谢。J

Mutual Fund

Many people have asked me regarding unit trust and therefore, I would like to share unit trust in this post. If talking about unit trust, this financial product seems less famous than insurance in Malaysia. However, the comments that people give on unit trust is far better than insurance.

What is unit trust? Unit trust is a financial vehicle which the investors will invest the money into a fund and the fund (pool of money) will be managed by the professional. For example, Mr A, Mr. B and Mr. C invest RM1,000 each into a fund and the fund (RM3000) will be invested by the professional appointed by the unit trust company. The fund will be invested according to the objective of the fund set by the company. For example, the objective of the Public Ittikal Fund is to achieve steady capital growth over the medium to long term period by investing in a portfolio of investments that complies with Shariah Principles. Thus, the fund manager will invest the fund into those companies that can comply to the objectives.

Given detailed description of unit trust, what are the benefits of investing in unit trust? One of the benefits is the fund is managed by the professional. As mentioned in my previous posts, the investors are always advised to do research or their homework before investment. The investors have to study the background and the financial statements of the companies. If you have the time and expertise in doing the research, I would strongly recommend you to invest in stock market rather than unit trust. However, if you are not sure on how to do the research, why not invest in unit trust and let the professional team to invest the fund for you. You will not face any problem also if you are interested in investing in foreign countries. The professional will invest for you and you can just sit back and relax. Besides that, it offers diversification to the investors. Unit trust is a financial product to invest in different companies from different sectors which suits the objective of the fund. For example, Public Islamic Sector Select Fund invests in those Shariah compliant index linked, blue chip and growth stocks. A blue chip stock is the stock of a well-established company which has stable earnings and no extensive liabilities. For example, the blue chip companies in Malaysia are Maybank from Finance sector, Tenaga from Trading/Services Sector, IOI Corporation from Plantation sector. Recently most of the companies in Finance sector suffer huge loss compare to others. Therefore, if you only invest in those companies in Finance sector, I think you will know your fate. The loss will be reduced if you diverse your investment and unit trust offers this benefit.

With only RM1,000, you can start your initial investment with unit trust. After the initial investment, you can just invest RM100 for the same fund. It is only as simple as that. Does it means we can always obtain return from our investment? Actually it depends on the fund performance and the market performance. If both the market and the fund are perform badly, the investor will suffer loss as well. However, if the market and the fund are perform well, then the investor will earn the return. You can always check the annual fund performance. I have seen some fund actually generate return to the investors while some of the funds are causing loss to the investors. However, the risk of investing in unit trust is lower comparing to investing in stock market.

There is risks in doing any type of investment. No doubt there is risk in unit trust investment as well. However, if you judge from the benefits that I have shared, you can see that the risk is minimized. Besides that, if the market performance is bad, most of the investment tools will suffer loss as well. We should not ignore this factor. Thus, make your wise choice in deciding the investment vehicle. :)

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.

Early Investment vs Late Investment

I have been encouraged people to do investment in my previous posts. Besides earning some part time income from my clients who invest with me, it is also good for yourself. I always encourage people to do investment at a younger age or early investment. Why? The reason is simple. I’ll use table to illustrate it.

I will use 2 persons as comparison. For example, Person A do an early investment and Person B do a late investment. Both person investment for 30 years. The annual return for the investment is 4%.

Person A do an early investment by investing RM1000 annually for 10 years. After 10 years, he decides to stop investing due to other commitment.

Person B does the same things as what Person A does. The difference is that Person B start investing 10 years later than Person A.

At the end, Person A invests RM 10,000 and he gets RM 27,359.13 while Person B invests RM20,000 and he gets RM 30, 969.20. You can see although their investment period is the same, the amount they invest and the total they return at the end are different. Person B receive around RM 4000 more than Person A but he invests RM10,000 more than Person A. What the conclusion? I believe you know it. No doubt I only assume that both persons keep earning from their investment which is impossible in reality. However, the main message that I wish to convey is we should start investment as earlier as possible. Instead of me nagging here discussing the figures in the table, maybe it will be better if you can look at both the tables and give some thought at it.

Investment is the only way you can make money as your slave instead of you becoming the slave of money.

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.