You are on page 1of 106

Money Tips Volume 2

How to Invest Profitably, Save More Money and


Retire Early in Malaysia, Even if You are in Heavy
Debt Now

byKCLau
http://KCLau.com

Theelectronicversionofthisbookcanbedownloadedfreeof
charge.
Feelfreetorepublishexcerptsfromthisbook,aslongasyoulink
backtohttp://KCLau.comforattribution.Anditsalsookayto
sharethisebookinitsentiretywithanyoneyouthinkmightbe
interested.Infact,Idbedelighted.IfyoumissedVolume1,
downloadithere:
http://KCLau.com/lp/ebook

www.KCLau.com page2/106

PublishedbyKCLauDotComSdn.Bhd.
Email:book@kclau.com
Website:w ww.KCLau.com

Copyright2016byKCLau

Allrightsreserved.

ThirdEditionJune2016

Thestrategiesoutlinedinthisbookmaynotbesuitablefor
everyindividual,andarenotguaranteedorwarranted,
whetherexpressedorimplied,toproduceanyparticular
results.Theadvice,ideasandsuggestionsarewrittenas
ageneralguideandspecificprofessionaladvicemaybe
necessary.

Nowarranty(whetherexpressedorimplied)ismadewith
respecttotheaccuracy,adequacy,reliability,suitability,
applicabilityorcompletenessoftheinformationcontained
herein,andboththeauthorandthepublisherspecifically
disclaimanyresponsibilityorliabilityforanydamages,lost
profits,lossesorrisks,whetherpersonalorotherwise,
whichisincurredasaconsequence,whetherdirectlyor
indirectly,oftheuseandapplicationofanycontentsofthis
book.

www.KCLau.com page3/106

ANotetotheReader
WhatsYourTimeWorth?
RelativeValueofMoney
ShouldyoufocusonIncreasingincomeorreducing
expenses?
GetRichwithExcessiveDebt
Areyoutrading?Gambling?Speculating?orInvesting?
Dontspendthemoneyyoudonthave,tobuythethingyou
dontneed,topleasethepeopleyoudontlike!
TheMostImportantPayeeofYourEntireLife
Top5RegularMonthlyExpensesWeDontNeed
HowtoQuicklyEvaluateanInvestmentusingtheRuleof72
TimeValueofMoney:ComputingtheValueofSingleSum
Investment
TimeValueofMoney:FindingtheRateofReturntoMeet
FinancialGoals
TimeValueofMoney:ComputingtheValueofaFixedSum
InvestedRegularly
TimeValueofMoney:ComputingtheRetirementFundin
EPFAccountofanEmployee
TimeValueofMoney:HowtoCalculatetheEffectiveAnnual
Rate(EAR)
HowtoCalculateYourInvestmentPortfolioReturn?
WithdrawEPFMoneyforHomeLoanInstallment:Howit
affectsyourRetirementFund
HowRecessionHappens?8TipstoPrepareforit!
KnowingyourenemyInflation!
FinancialSecurity:Howyoufeelit?
Doyouhavetheassetstopayforyourliabilities?
WhatDoYouKnowAboutBankruptcy?

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FinancialConsiderationforNewParentsinMalaysia
CloningYourLifeValuesviaTrust
Top4MethodstoEnjoyTaxReliefforEducationPurpose

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A Note to the Reader

ThisbookisacompilationofthearticlesandideasIvepublished
online,onmywebsite,oronotherpeopleswebsite,newspaper,
magazinesorothertypesofpublication.

Youmighthavecomeacrosssomeoftheideasinthisbook.The
purposeofmakingthisbookistogiveyoutheconvenienceto
accessmywritinginamoreorganizedformat.

ThatswhyIvemadetheelectronicversionfreelydownloadable.
Meanwhile,thereisnophysicalversionavailableatthismoment.
IfyouprefertoreadaREALbook,Ihaveseveralbooks
publishedandyoucanfindtheminmajorbookstores.

Alsoforyourconvenience,Ivemadethesizeofthisbooksmall
enoughtofitintoyourmobiledevicescreen,sothatyoudont
havetodoexcessivehorizontalscrollingtoreadthepages.

Iwillbeupdatingthisbookfromtimetotime,sinceIamwriting
newcontentonaregularbasis.Ireallyurgeyoutosubscribeto
myemailinglistinordernottomissoutanyfutureupdates.
formanyyears.

ThisisVolume2.IfyoumissedthepreviousVolume,which
containentirelydifferentmoneytips,youcandownloadithere:
http://KCLau.com/lp/ebook.

www.KCLau.com page6/106

How to Make Wise Financial Decisions


Based on your Time Worth

Valueofmoneyisalwaystiedtotimeelement.Ifyouwork,you
needtounderstandthebasicconceptthatyouretradingyour
timeformoney.Timeisanonrenewableresource,butmoney?
Youwillbeabletomakemuchmoremoneyifyouunderstand
therelationshipbetweentimeandmoney.Thatswhyoneofthe
fundamentalsubjectsoffinancialplanningisTimeValueof
Money.

SimpleMethodtoCalculateYourHourlyWagewithout
usingtheCalculator
Takeyourtotalgrossincomeperyear,removethelastthree
zerosandhalvetheresult,soRM100,000becomesRM100,
whichhalvedisRM50.SoyourwagesisRM50/hour.Thisisa
verysimplewaytocalculateyourhourlyrateinablink.

Itisbasedon8hoursworkday,5daysworkweek,and4weeks
ofworkingmonth.Trycalculatetherealnumber,itwontbetoo
faraway.

RM100,000/(12monthsx4weeksx5daysx8hours)=
RM52.08
HourlyRate=AnnualSalary/1000/2

ConsideringTax

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However,someportionofthemoneyyoumakeiscontributedto
theIncomeRevenueBoard(IRB)(IncomeTax).Ifyouhourly
rateisRM50andyourhighesttaxbracketisabout20%,your
actualhourlyratewagesisRM42only.
Itwillbemorepracticaltouseyournetincometoestimateyour
timeworth.

KnowingtheApplication

1.Shouldyououtsource,ordoityourself(DIY)?
PeopleloveDIY.Butwecantbeexpertineveryfield.IfyouDIY,
itmightcostyoumorethanhiringanexperttodoitforyou.
InMalaysia,ahousecleaningforeignmaidcostsabout
RM8/hour.Letssayyouaretryingtosavemoneybydoingallthe
cleaningyourself.Youspendthewholedayfrommorningtill
evening,8hoursintotaltocompletethejob.Ifyourhourlyrateis
RM50,youhavejustspentRM400tokeepyourhouseclean.

Ontheotherhand,youcanemployatemporarymaidandpay
herRM8/hour.Shemightgetthejobdonein4hours.Sheisa
professionalhousekeeperandprobablyshecandoabetterand
fasterjobthanyoucan.YouonlyspendRM32.Ifyoumakeuse
ofyourtimeforproductivejob,youmighthaveearnedthe
differenceofRM368.

Mostofthetime,Iwouldhiresomeoneelsetodothelowvalue
jobandfreemyselfuptodothethingsIlovetodo.

Soaskyourselfthesequestions:
shouldyoucookorbuytakeawaypackedfood?

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shouldyouwashyourownclothsorsendittolaundry
service?
shouldyoutypetheletter,printtheinvoiceorhirea
secretary?
Forgetaboutallthosenoncorefunctionthatyouhatetodo.Stop
itimmediately.Therearepeoplewhoaremuchmoreskillful.By
outsourcingthem,youwillhavemoreresourcestobebetter
utilized.

2.Howmanyhoursitworth?
Whenyoubuysomething,youretradingminutesorhoursor
daysofyourlifetopossessthatthing.Sobeforeyoubuythat
nicecloth,doasimplecalculationusingyourhourlyearningto
seewhetheritisworthyourtimespent(onworkingforit,notthe
timespentbuyingit).

IfyoumakeRM10anhourandsomethingcostsRM50,youcan
figurethatittakesfivehoursofyourlifetopayforthatthing.
Nexttimewhenyouaremakingadecisiontobuysomething,ask
yourself,Howmuchtimeisitworth?

Besidethat,thehourlyratealsoapplytootherthingsyoudo
thatsnotproductive.

Example:
Youspendonehourwaitingforyourturntogetthatfree
toy
Youdrive30minutestoasupermarkettogetmilkthatis
50sencheaperthanthegroceriesstorejustnearbyyour
area.

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YouspendanhourcontestingaRM10mistakeonyour
Celcomphonebill.
3.Increaseyourhourlyrate,andbuildincomeontopof
otherspeoplestime.
Sincetimeisalimitedresource,youshouldtryhardtoincrease
yourhourlyrate.TigerWoodsearned$111millionin2006alone.
Hishourlywagesis$55kperhour!

However,thereisalwaysalimitonapersonsearning.Inorder
togrowyourincomefurther,tryimaginethatyouhaveabunchof
associatesthatmakemoneyforyou.Letssaywheneverthey
makeRM10,theywillmakeanotherextraRM1.00foryou.

Icanseethatnowyouarestartingtothinkrich.Indeed,helping
othersmakemoneyisoneofthefastestwaytogetrich.
Ivebeenworkinghardtohelpothersmakemoney.Themore
peopleIhelp,themoremoneyIwillget.Whenyourperspective
change,itisawholenewworldwaitingforyourexploration.

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Relative Value of Money: When, Where and


How Your Money is Valued?

Thevalueofmoneyrelativelydifferdependsonwhere,when
andhowyoumeasureit.Itboilsdowntothefollowingquestionto
relativelydeterminethevalueofmoney.

#1.Whereisyourmoney?
Whereyouputyourmoneydetermineshowmuchvalueithas,in
thefuture.Putitinbank,yourmoneyisrelativelylower
comparedtoputtingitininvestment.Ifyouhaveyourmoneyset
asidelongterminagreatcompany,orinarealpropertylocated
atprimeareas,thevalueofyourmoneyisrelativelyhigher.

Forexample,youhaveRM1000inafixeddepositgivingyou4%
returnp.a.,after10years,thevalueisRM1,480.24.Ifyouinvest
itwiselynow,inaninvestmentvehiclethatgivesyou15%
averagereturnp.a.,thefuturevalueisRM4045.56.Itismuch
higherthanputtingyourmoneyinFD.

So,whereyouputyourmoneyreallymatters.Thepoorremain
poorifnotpoorer,justbecausetheydontknowwheretoput
theirmoney.

#2.Wheredoyouearnandspendyourmoney?
LetssayyouhaveRM1,000inyourpockettospend.Youcando
manythingsorpurchasemanystuffincertainpartsofChina.But

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formerelyRM1,000inAustralia,youmayspenditallonfood
withinafewdays.
Thatswhyyouknowsomepeopleworkhardatothermore
developedcountries,andsavehardsothattheyhavemore
moneywhentheygobacktotheirhomecountries.
IndonesiansworkinMalaysiaasmaids.
SomeIndiansworkersarewillingtowork12hoursaday,364
daysayearinMalaysianasikandarrestaurants.
SomeMalaysiansworkillegallyinUKaskitchenhelpers.
Filipinos,Indonesians,IndiansandSriLankansworkasdomestic
helpersinSingapore.
Thais,Indians,Chineseworkinconstructionindustriesin
SingaporeandMalaysiaasconstructionworkers.
ITprofessionalsfromIndia,China,etcworkinUS,Singapore,
Europeforanumber
ofyearsbefore
movingbacktotheir
homecountries.

Thatswhyitisgreat
tofreeyourself,and
beingmobilewhileat
work,sothatyoucan
earnUSorEurope
dollar,whilelivingin
China.Therelative
valueofmoneyisgivingyouahighpurchasingpower.

#3.Whendoyouearnandspendyourmoney?

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Moneysvalueiscorrelatedtotime.Thatswhythereare
textbooksandcoursesaboutthetimevalueofmoney.RM1,000
nowmaybemanyfoldsmoreinvaluethanRM1k20yearslater.
Thelongeryoucandefer,oraffordtodefer,itisbetterintermsof
increasingthevalueofyourmoney.

Therichknowthatyouneedtoearnmoneyasearlyaspossible,
andspenditaslateaspossible.Thereisnosecretindeed.You
justneedtomakeandsavealotofmoneynow,andspendjusta
littleportionofit.Lateron,youwillhavemoremoneytospend
eventhoughyouworklessthanyouusedtobe.

#4.Howdoyouearnandspendyourmoney?

Johnsincomeis
RM500/hour.ButLims
incomeisRM10/hour.
Johnisbetterpaidthan
Lim.SoJohncaneasily
affordanewRM2500
mobilephone.ButtoLim,
itis250hoursofhard
worktohavethe
purchasingpowerforthesamephone.Soifyouincreaseyour
earningability,yourelativelyhavebettervalue.

Ontheotherhand,ifJohnspends150%ofhisincome(the
additional50%oncreditcarddebt),butLimonlyspends10%of
histotalincome,thevalueofmoneyisdifferentrelatively.For

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Lim,RM1000madeisequaltoRM900saved.ForJohn,
RM1000earnedequalstoRM500owedtothecreditcard
providers.
Now,whatdoyouknowaboutthevalueofmoney?

Nowyouvelearnttherelativevalueofmoney.Ifyouwanttobe
richandfeelfinanciallysecure,
putyourmoneyatabetterinvestmentvehicle,thatgives
youbetterreturnsinthelongrun
earnmoneyofgreatervalueandspendmoneyatplaces
withlowerlivingcost
saveyourmoneynow,andspenditlater.(Latermeans
whenyoureallyneedto)
stoplivingfrompaychecktopaycheck.Livefrugallyand
earnabundantly.

Should you Focus on Increasing Income or


Reducing Expenses?

Cashflowchartinvolvessimplemathematicalcalculation:Saving
=IncomeExpenses.

Savingsistheprioritysinceitappearsfirstintheequation.To
increasesaving,youeitherincreaseincome,reduceexpenses,
ordoingbothatthesametime.Whichoptionrequiresyourmost
attention?

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FocusonReducing
Expenses
Ifyourmainfocusison
cuttingdownyourexpenses,
itisallaboutfrugality.Ifound
thatmanyofthepersonal
financeblogspreachabout
howimportantitistolive
frugally.Isitworthyoureffort?
Whenyoudontknowhowto
increaseyourincome,cutting
downexpensesistheeasiest
routetoincreaseyournetworth.

50thingsyoucandotoreduceexpenses
1. eliminatemobilephone(Iknowyoucantlivewithoutit,
metoo)
2. cancelnewspapers,magazineandotherperiodicals
subscriptions.
3. useenergyefficientlamps
4. purchasegenericprescriptionswhenpossible
5. buyinbulkwhenshoppingforgrocery
6. terminateyourgymmembership
7. readbooksatlibraryinsteadofgoingformovie
8. cutyourvacation
9. stayathomewheneverpossible
10. sticktoyourbudget
11. cancelyourTVsubscription
12. useemailinsteadofphonewheneverpossible

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13. comparebeforeyoumakeanypurchase
14. planmenusfortheweekbeforeyoushopgrocery
15. prepareshoppinglisttoavoidimpulsebuying
16. gotothestorejustonceaweek
17. donotgotorestaurantwhenyouarehungry
18. plantheuseofleftoverfood
19. buyclothingattheendoftheseason
20. shopatdiscountstores
21. buyuseditemwheneverpossible
22. usepublictransportation,ifavailable
23. havegoodhealthhabits
24. avoidsmoking
25. avoiddrinkingalcohol.
26. playboardandcardgames,theyarecheaper
27. attendconcertonlyifitisfree
28. makeyourownhomeaccessories
29. considerlessexpensivehousing
30. Packschoolandworklunches
31. reviewinsurancecoverage.Areyouoverinsured?
32. reducetripsoutsidethehome
33. use10%lessthanusual
34. stopshoppingnotevenwindowshopping
35. changetocheaperbrands
36. lookfordiscountcoupon
37. buyonlywhenyouareofferedrebates
38. drinkplainwateronlywheneveryoudineout.
39. dontkeepmorethantenbuckinyourwallet
40. cutallyourcreditcardexceptone
41. doyourowncarmaintenancesuchaschangingoil
42. stopgoingtoahairstylist

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43. ridesbikeinsteadofcar
44. avoidsillybankfees
45. dontbuyacar
46. justrentasmallroomtostay
47. shareroomandsplittherent
48. staywithyourparents
49. startblogginganditwillcutallyourotherentertainment
50. askfordiscounteverytimebeforeyoupayforsomething

Hardworkandnofun!
Wow!!!Thereisalotofhardwork.Butdoyoureallyhavefun
doingallthosefrugalthings?Icanonlyagreewithitemno.49,
whichhadsavedmealotofmoney.

Howmuchcanyousave?Itislimited.
Nomatterhowhardyoutry,youcanonlycutdownyourcurrent
expensescompletely.Mostpeoplewillcelebrateiftheycancut
10%.30%isalreadytoomuchformostpeopletocompromise
theirlifestyle.Thecruxofthematteris,byconcentratingon
reducingexpense,whatyougetishardwork,nofun,andonlybe
abletosaveasmuchastheamountyoudidntspend.

FocusonIncreasingIncome
Ifyouchangeyourfocustoincreaseyourincomeinsteadof
reducingyourcurrentexpenses,youwillseeawholenewworld
ofopportunities.

25thingsyoucandotoincreaseincomes
1. investinstocks
2. investinrealestate

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3. increaseyourknowledge
4. sellitemsyounolongerneed
5. getaparttimejob
6. rentoutspareroom
7. joinMLM
8. startabusiness
9. learnhowtosell
10. makemoneyonline
11. getaraiseorasecondjob
12. changeyourthinking
13. raiseyourrates
14. getextrawork
15. getmoneyfrompublicaidorcharities,ifyouarequalified
16. gobacktoschooltoacquireadditionalskills
17. buyanestablishedsmallbusiness
18. arrangeabetterfengshuiatyourhomeandyourwork
place
19. startamakemoneyonlineblog
20. investinunittrustfunds
21. takeyourcompanypublic
22. paylesstax
23. learnforextrading
24. investinETF
25. getsponsorshipfromfamilymembers,ifyoudare.

Toughjobbutalotoffun!
Howmuchcanyouprobablyearnandsave?Itisunlimited!
Theskyisthelimit.

Areyouagreatsaveroranincomepursuer?!

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So,howmuchtimedoyouspendinadaytoincreaseyour
income?8hours?12hours?
Isitviabletocutdowntheefforttolivemorefrugal?Andspend
thetimesavedtoactuallyworkoutsomeplanstoincreaseyour
income?
Iamdefinitelyanincomepursuer.Howaboutyou?

The NonRisky Way to Get Rich with


Excessive Debts

Baddebtfreemakesyouafreeman.Butifyouknowhowto
leveragewithgooddebt,thatstheexactsecretofwealthy
people.

Payingdebtislikeanightmaretoordinarypeople.Mostpeople
hatewhenitcomestotheduedateformortgageinstallment,car
loaninstallmentandcreditcarddebt.Probablythereasondebt
getssomuchhatredisbecauseitisassociatedwithbad
consumerdebtmostofthetime.Thosearereallybaddebtsthat
weshouldhateandavoid.Inordertogetrich,makefriendswith
gooddebtsinstead.

HowGoodDebtMakesYouRich
Forillustrationpurposes,Iwillshowyoutwodifferentscenarios
howapersonhandlesdebtthataffectshisfinancialsituation.
Johnearns$10,000eachmonth,spend$5,000andsavethe
other$5,000.Figurebelowshowshiscurrentcashflowandnet
worthcharts.

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Foreasyillustration,letsassumeJohnsonlyassetishishouse
worth$200,000.Hisoutstandingmortgageis$150,000,leaving
himanetworthof$50,000

Scenario1:Buyabiggerhouse
Johnfoundagreatdealtobuyabiggerhousewhichisworth
$500,000.Sohesoldhisexistinghouse,andusethe$50,000

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remainingcashfordownpayment.Afterbuyingthebigger
house,hismortgageinstallmentincreases.Moreover,allother
homerelatedbillsalsoincreasebecauseabiggerhouseneeds
moreelectricityenergysupply,moremaintenanceworks,more
quitrentetc.Thisresultedinhigherexpenses$8,000per
month.Hissurplusdroppedto$2,000permonthonly.

Thefigurebelowshowshisnewcashflowandnetworthcharts.

Scenario2:Buyanother
houseforinvestment
purposes

Insteadofmovingintoa
biggerhouse,John
decidedtoinvestinreal
estatebybuyinganother
houseforrentalincome
andcapitalappreciation.

Thenewhouseisworth
$300,000andhegota
dealthatdoesntrequire
anydownpayment.His
monthlyexpensesriseand
infactitisjustthesame
asmovingintoabigger
houseshowninScenario
1.However,becausethe
newhouseisrentedout

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for$3,000amonth,hisincomerisesto$13,000.Thisallowshim
tocontinuetosave$5,000permonth.Thefigurebelowshows
hisnewcashflowandnetworthchartsaftertheinvestment.

Simplylookingatthenet
worthchart,Scenario1and
Scenario2areidentical.
ButScenario2will
definitelymakesJohna
wealthierpersonbecause
hehasincreasedhiscash
flow.After1year,his
savingisdoubleofthecase
ofmovingintoabigger
house.

Thisisthereasonwhyyou
shouldntbeafraidofdebt.
Aslongasyoucan
generatebetterreturnwith
themoneyyouborrow,you
shouldgetmoreloanto
expandyourinvestment
portfolio.

BadDebtFreevs.
GoodDebtFree
Gooddebtworksforyou.
Baddebtmakesyouits
slave.

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Gooddebtincreasesyourincome.Baddebtdecreasesyour
savings.

Iknowsomepeoplethinkthatmortgageofthehomestheyare
stayinginaregooddebts.Butinfact,itisabadonebecauseit
doesntincreaseyourincome.

Iwanttobebaddebtfree.Atthemeantime,Iwanttolearnhow
toleveragemyinvestmentwithgooddebt.

PleasenotethatifJohnshousesappreciateby10%ayear,itis
calculatedfromthetotalassetsof$500,000.Thismeanshegets
$50,000returnayear.Butifhedidntbuythehouse,howmuch
canhegetfor10%returnfromotherinvestmentsuchasunit
trustfunds?Hecanonlyinvestwiththemonthly$5,000surplus,
whichisjustasmallfractionof$500,000.IfJohnpreferstobe
totallydebtfree,hereducesthechancestogetrichfaster.

Ifyouwanttobetotallydebtfree,itmightcostyouagreat
fortune!

Do You Have the IncomeGenerating Assets


to Fund Your MoneySucking Liabilities?

Asmostpeopleunderstand,themortgageoftheirhomeisthe
liability.Youowethebankmoney.Inreturn,youneedtocharge
yourhousetitletothebankascollateral.Soyouthinkyou

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actuallyhaveanassettopayforyourliability.Youthinkyour
actualhomeistheasset,thatwhenyoucantaffordthe
installment,itcanpayoffyourmortgagebybeingauctionedto
thirdparties.Youareright,butitwontgetyourich.
FortherichpeoplewithhigherfinancialIQ,theyknowthatthe
housetheyarestayinginisactuallyaliability.Itisaluxuryitem.It
takesmoneyoutofyourpocket!Infact,ittakesmoremoneythan
youthink.Besidethemortgageinstallment,youarepayingfor
therenovation,electricalappliances,householdbilletc.

Now,letscomebacktothegoldenquestion:DOYOUHAVE
THEASSETSTOPAYFORYOURLIABILITIES?
Alocalentrepreneurinpreschooleducationwantstohavea
newSclassMercedesBenz.Thatsaliability.Herecruiteda
newtalentedbusinesspartnerandopenedupanother
kindergarten.In3monthstime,thechildcareandeducation
centreisgivinghimRM5000netprofiteverymonth.Hispartner
istakingcareofthecentre,whileheisshoppingforhisnew
luxurycar.Thatsanasset.

Ihavesomedownlineinsuranceagentswhoarevery
independentandmakingsalesweekafterweek.Itrainedthemin
thefirstfewmonthsinbusiness,andtheycanpracticallydo
businessontheirownafterthat.Igotoverridingcommissionfrom
everysaletheymake.Theyaremyassets.Theyhelptopayfor
mycarloan,myliability.

So,doyouhavetheassetstopayforyourliability?

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Are you trading? Gambling? Speculating? or


Investing?

Whenyouarespeculatingorinvesting,itinvolvestrading.
Tradingistheprocessofbuying,orselling.Wedontknowyour
purposebehindthetrade.

Gamblingisanactivitythatmayormaynotinvolvetrading.In
trading,acommoditycanbeboughtandsold.Ingambling,the
ticketorthebetyouwagercantbesold.Gamblingusuallygives
greatestoutcomeintheshortestdurationifitsucceeds.

Trading
Definition:buyingorsellingsecuritiesorcommodities

Gambling
Definition:Thevoluntaryriskingofasumofmoneyonthe
outcomeofagameorotherevent.

Speculating
Definition:Tradingwiththepurposeofmakingprofits.

Investing
Definition:Theactofusingmoneytomakemoremoney

WhenIbuyacompanyshare,Icansellitatanytimeanditis
calledtrading.

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WhenIbuyasharewithoutknowinganythingaboutthe
company,justbasedonmererumors,itiscalledgambling.

WhenIbuyashareandwoulddefinitelysellitweeksormonths
laterwhenithasappreciatedinvalue,itiscalledspeculating.

WhenIbuyashareafterunderstandingthecompanysbusiness
model,futureplanning,cashflowmanagementetcandIamvery
confidentthatitisundervalued,andwillbuymorewhentheprice
drops,itiscalledinvesting.

Areyoutrading?Gambling?Speculating?orInvesting?

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Dont spend the money you dont have, to


buy the thing you dont need, to please
the people you dont like!

Doyoufindyourselfspendingmorethanyouearn?Yetwhen
youlookback,youfindthatyouactuallyspentthatmoneyon
somethingthatyoucouldhavedonewithout.Worsestill,you
spentthatmoneyonsomeoneyoudidnotnecessarilyhaveto
please.

Howcanyouavoidspendingthemoneythatyoudonothave,
thusreducingincidencesofoverspending?Readontofindout.

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10Exampleshowyoucanoverspendunnecessarily

1. AfreshgraduatedecidestobuyanimportedJapanese
car.Asaresult,heusesup50%ofhissalaryforthemonthly
installments,carmaintenanceandpetrol.Heisthenleftwith
another50%forhisothercommitmentsandexpenses.

2. Youimpulsivelyswipeyourcreditcardtopayforthe
latestAppleMacbookyoualwayshadaneyeon.Attheendof
themonth,youfindthatyouareunabletopaytheamountdue.

3. Yourcolleaguejustmovedintoasemidetachedhouse.
Yousoldyourentireinvestmentportfolioandexistingapartment,
tookupabiggermortgagetobuythehousenexttohis.

4. Anofficeladyusesherentiremonthssalarytobuythe
LouisVuittonhandbag,justbecausehercolleagueshowsoff
onetoher.

5. Youwantyourboyfriendtoproposeonlyifhepresents
youwithaTiffanysring.

6. AfathertookupapersonalloanofRM10,000sothathe
cantakehisfamilyforavacationtoAustralia.Althoughhedidnot
needtotakethisholidaygivenhisfinancialsituation,hedidso
becausehisneighbourjustcamebackfromNewZealand.

7. Haveabreastimplanttoimpressthemanyouare
interestedinalthoughheisnotinterested.

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8. Youboughtanexpensivesetofhometheatresystem.
However,yourarelywatchanyDVDathomesinceyouaretoo
busyatwork.Itisjusttoimpressyourfriendswhovisityour
houseonceawhile.

9. BoughtaRolexwatchduringyourtriptoSwitzerlandjust
becauseyourbosssaidthatitwasagreatinvestment.

10. Youspentlotsofmoneyonyourweddingceremonyand
servethebestfood,althoughallyourwifewantedwasa
honeymooninEurope.

Whatisthemoneyyoudonthave?

CreditcardIfyoucantaffordtopayitinfullwhenthecharges
isdue,itisthefuturemoney,notcurrentmoneythatyou
alreadyhave

Mortgageyouusethebanksmoneytobuyahouseandstayin
it,aslongasyouareabletopayitbacktothefinancier.

Personaldebtgettingapersonalloantospendonsomethingis
thestupidestthingtodo.

Loansharkthosewhodonthavecreditcard,withoutproper
documentstoborrowfrombankswilllookforfavoursfromloan
shark.

Easyinstallmentplantopurchaseconsumerproduct

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Whatarethethingsthatyoudontnecessarilyneed?

Car,aplushhouse,gadgetsandotherthingsthatdonotfall
withinyourbudget.Theruleofthumbistospendlessthanone
thirdofyourincomeontheseitems.

Whoarethepeopleyoudontlike?
Friends,colleaguesandrelativeswholiketoshowoff,
thosewholookdownonyou,
thosewhoslapyouontheback.

Youcanhaveathousandreasonstohateanddislikesomebody,
butyoudonthavetohurtyourwallet.

Haveyoueverdonesomethinglikethat?
Wesometimes,unknowingly,spendmoneyoninstant
gratification,onlytoregretmuchlater.Wesometimesalsogivein
toourtemptationstobuythingsthatwedonthavemuchusefor
orthingsthatareimpractical.

Thenexttime,beforeyoudecidetoblowyourcashon
something,trytothinkabouthowmanyhoursoftoilingatwork
thatmoneyequatesto.Thisdoesnotmeanyouneedtostinge
oneverythingthatyouwishtobuy.Onlybuysomethingifyou
reallyneedit.

Althoughthismaysoundlikeeasyadvice,wealwaysendup
faltering.Wespendmorethanthatwecanearnandintheend,
findourselvesstrugglingtomakeendsmeet.

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The Most Important Payee of Your Entire


Life That Most People Forget Until They
are Too Old

Yourmoneycomesinregularlyaslongasyouareearning
moneyactively,orinvestingandgettingmoneypassively.Thats
calledinflowofmoney.

Asmanyotherpeopleonplanetearthinthiscapitalistworld,we
payforsomethingregularlyinourlife.Whichoneisyourpriority?
Yourcreditcarddebt?
Yourmortgage?
Yourcarloan?
Yourparents?
Yourchildren?
Yourmeal?
Yourinsurancepremium?
Yourastrobill?
Yourelectricitybill?
Yourphonebill?

Thelistgoesonandon.Mostpeoplehaveaverylonglist.Mine
isoneofthelongeronetoo.Butmostpeopleomitthemost
importantpayeeoftheirentirelives!

Themostimportantpayee

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Whoisthemostimportantpayee?Youasthepayer,whoshould
youpayfirst?

Theanswerisyou!Thefutureyou!Theretiredyou!Theoldyou!
Amorehealthylistofpayeesshouldconsistofandnotlimitedthe
itemsbelow,astoppriority:
Yourregularinvestment
Yourretirementaccounts
Yoursavingaccounts
Pleasebyallmeans,keepasmuchas30%ofyourtotalincome
forthefutureyou.

Top 5 Regular Monthly Expenses You Dont


Actually Need

ItisundeniablethatthelivingexpensesinMalaysiaaregetting
higheratamuchfasterrate,althoughinflationreportsthatthe
rateislow.Feelingthepressureofpetrolsubsidycut,andrising
costofalmosteverything,fromtollchargestohawkerfoodlife
isdefinitelygettingharder.

Humansareextremelyflexible.Wecancopewiththesituation
withsomecompromiseandsacrifice.Whenmoneyisnolonger
enough,wecanalwaysfindwaystocutsomeexpenses.Being
frugalsimplymeanslivingbelowyourmeans.

However,lessmoneyspentdoesnotindicatelowerqualityof
lifestyle.Becauseoftheadvancementoftechnologyandthe

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Internet,youcanevenspendlesstoenjoythesamebenefit,if
notbetterthanweusedtohave.

IfyouarelivinginMalaysia,herearetopfivemonthlyexpenses
thatcanbecutfromyourbudget:

1.MonthlyAstrobill
IknowmostofusMalaysianshavetheAstroinstalledinour
home.IusedtosubscribetoAstrotooafewyearsago.Nowthe
cheapestpackageismorethanRM50/month!.

Afterhavingitforawhile,Ifoundthatitisreallyawasteof
moneyandtime.Togetyourvalueback,youspendhoursoftime
watchingTV.Butinfact,timeiswastedforunproductive
activities,thatsforpureentertainment.

Ifwatchingmovies,TVseriesorlivesportsissoimportantto
you,therearemanyalternativesthatsfreeofcharge.Youtube
hastonsofentertainingvideosandshortfilms,eventhoughthe
videoqualityisnotasgoodasotherserviceproviders.Butwith
thebroadrangeofusersandcontentproviders,youcanfinda
widevarietyofvideosforyourpureentertainment.Someeven
providevideotutorialandeducationalmaterialsthere.

Therearealsonewservicelikeiflix(theNetflixofSouthEast
Asia)andtheIPTVboxeslike1OTT.Checkthemoutjustfora
fractionofthecostyoupayforAstro.

2.MonthlyNewspaperSubscription

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Doyoustillhavethenewspapersenttoyourhouseevery
morning?NewspapersinMalaysiapublishcontrolledmaterials
andnews.AtypicalChinesenewspaperismorethan100pages!
Thisincludesadvertisement,worldandlocalnews,butmostare
reportingbadnewsandcrimes.

Moreover,youneedaplacetostockyouroldnewspapersand
waitfortherecycleteamtodrivebyandsellthemofafew
ringgits.Thisisapurewasteofpaper,andtrees.

Ioptforamoreenvironmentallyfriendlyoption.Ireadthenews
andarticlesontheInternet.

3.MonthlyFixedLineHomePhone
IamusingtheUnifipackagenowonthe20MBpsplancosting
RM250/month,duetobusinessneeds.Comparingthistoother
developedcountries,wearestillpayingarelativelyveryhighfee
forbroadbandservice.Nevertheless,IstilluseTMUnifibecause
therearereallynocompetitorsallthesetime.However,recently
somemobileconnectionserviceproviderssuchasMaxisand
Digihavecomeupwithbroadbandplans.

Now,atleastwehavesomechoicestoswitchtomobile
broadbands,whichprovideunlimitedusageanywhere,anytime.
IfStreamyxisnotgoingtoabsorbthefixedphonerental,Idont
seeanyattractivenessinitsbroadbandpackageanymore.

4.CreditCardInsurance
Banktelemarketerscallyoufromtimetotimeaskingyouto
subscribeforoneschemeortheother.(hospitalizationincome

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benefit,accidentalplan,etc)Haveyoueversignedupforone?I
neverdo.Buttherearesomewhowillsignupeventually,ifnot,
thetelemarketerswillbeoutofjobs.

Thosewhosignedupprobablyaresoldbecauseofthe
seeminglybetterbenefitsandlimitedoffer.Butdontforgetthat
therearetermsandconditionsthatyoumighthaveoverlooked.
Everytimeyougetthiskindofsalescall,askfortheblackand
whiteofthetermsandconditions.Askthefollowingquestions:
Whatarethetermsandcondition?
Howdoyoucancelitinthefuture?
Whoisgoingtohelpyou,giveyoupersonalservicewhen
itcomesthetimetomakeclaim?
Anothertypeofcreditcardinsuranceisonethathelpsyoucancel
yourcreditcardliability.Thismeansthatwhenthecardholder
passedaway,theliabilitywillbecancelledoff.

Thisbenefitrequiresapremiumofafewringgitsdependingon
whatyourcreditcardbalanceis.Butdoyoureallyneedthis?
Whenyouchargethepurchasesonyourcreditcard,youare
supposedtohavethemoneyreadytopayitoffinthefirstplace.

Ifyousayitisfortheestatecreation,fortheprotectionofyour
family,itshouldbeproperlydonewithinsuranceplanning,not
throughatelemarketerwhosellsyouthisstuff.Theyprobably
neverpurchasetheseprotectionforthemselves.

5.TripstotheBanks

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Thisisanactivitythatcostsyoupetrol,parkingfees,andmost
importantly,acompletewasteoftime.HereishowIhandlemy
bankaccounts,monthlybills,andalsocreditcards.
Setupautodebitinstructiontochargemycreditcardfor
recurringbills,suchaselectricity,mobilephone,
broadband,lifeinsurancepoliciesetc.
Useinternetbankingtodointrabanktransfer(freeof
charge),andinterbanktransfer(costRM0.11).Internet
bankingletsyoupayyourbillsandtransfermoneyfrom
anywhereaslongasyouareconnectedtotheInternet.

So,theonlytriptobanksistowithdrawafewhundredringgits
cashforthewholemonthexpenses,plusdepositingcheque
paymentsthatIreceive.Thesetwotaskscanbedoneusingthe
ATMmachinesandchequedepositmachines.
However,ifyourtransactionrequiresapersonalserviceatthe
counter,youcandoitduringOFFofficehourstoo.How?Some
bankshavebranchesinsideshoppingmallsthatopenfrom11am
to7.30pm.Justplanyourtripandyoudonthavetosqueeze
yourselfinthelongqueueanymore.

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How to Quickly Evaluate an Investment


using the Rule of 72

TheRuleof72isabasicinvestmentrulethatestimatesthe
amountoftimeitwilltaketodoubleyourmoney.Itisgenerally
usedasasimpleandstraightforwardmethodforestimatingan
investmentsdoublingtimeorhalvingtime.

HowtoapplytheRuleof72
Theserulesapplytoexponentialgrowthanddecayrespectively,
andarethereforeusedforcompoundinterestasopposedto
simpleinterestcalculations.

Yearstodouble=72/InterestRate

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Takethepercentageofinterestonyourmoneyanddivideitinto
72.

Forexample,aninterestratecompoundedat9%percentwould
doubleineightyears(72/9=8).

Ifmedicalfeesincreaseat8%perannum,theruleof72gives
72/9=8yearslater,yourmedicalbillwilldoubleanexact
calculationgives8.0432years.Afteranother8years,youwill
needtopay4timesofthemedicalbillcomparedtopresent
situation.
Whenyourunittrustconsultanttoldyouthataparticularfund
gives100%returnin6years.Youroughlyknowthatthefunds
annualized72/6=12%returnperannum.

Ifinflationratesgofrom2%to3%,yourmoneywilllosehalfits
valuein36or24years.

Astockyoubought8yearsagoisonlyworth1/4ofitsprevious
value.Usingruleof72twice,theshareshrinksatarateof18%
p.a.(Fortheinitial4years,itfallstohalfofitsvalue.Waitanother
4years,itfallsfurthertoonlyaquarterremaining)

WhentousetheRuleof71,70and69.3
Theruleof72providesagoodapproximationforannual
compounding,andforcompoundingattypicalrates(from6%to
10%).Buttherearesituationwhereotherruleswillgivemore
accurateanswer.

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lowratesforlowerratethan6%,Ruleof69.3willgiveabetter
resultthanRuleof72.

dailycompoundingSincedailycompoundingiscloseenough
tocontinuouscompounding,formostpurposes69.3or70is
used

higherratesabiggernumeratorwouldbebetter(e.g.for
20%,using76toget3.8yearswouldbeonlyabout0.002off,
whereusing72toget3.6wouldbeabout0.2off).

Thisisbecause,asabove,theruleof72isonlyanapproximation
thatisaccurateforinterestratesfrom6%to10%.Outsidethat
rangetheerrorwillvaryfrom2.4%to14.0%.Foreverythree
percentagepointsawayfrom8%thevalue72couldbeadjusted
by1.

MillionairesEstimation
FelixsCorollaryprovidesamethodofapproximatingthefuture
valueofanannuity(aseriesofregularpayments),usingthe
sameprinciplesastheRuleof72.Thecorollarystatesthatfuture
valueofanannuitywhosepercentageinterestrateandnumber
ofpaymentsmultiplytobe72canbeapproximatedbymultiplying
thesumofthepaymentstimes1.5.

Asanexample,12periodicpaymentsof$1000growingat6%
perperiodwillbeworthapproximately$18,000afterthelast
period.Thiscanbecalculatedbymultiplying1.5timesthe
$12,000ofpayments.ThisisanapplicationofFelixscollorary

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because12times6is72.Likewise,8periodicthousanddollar
paymentsat9%willresultin1.5timesthe$8000,or$12,000.

Themillionairesestimationisasimplesavingscalculator,posing
thequestionHowmuchmustIsaveperyeartohavesaved
$1,080,000?Ofcourse,theannualinterestrateisafactor.In
theoriginalchallenge,thenumber$1,080,000waschosendue
toitsmultiplicativerelationtothenumber72.


UsingFelixscorollary,onecanestimatethatbysavingtwothirds
ofthetotal,inperiodicdeposits,theinterestwilltakecareofthe
rest(since1.5timestwothirdswillequalthedesiredgoal).So
thegoalbecomestosetaside$720,000inequalperiodic
deposits,suchthatitgrowstoapproximatethetargetamountof
$1,080,000.

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Ifyouwanttobeamillionairein12years,justsave$60,000a
yearinaninvestmentvehiclethatgivesyou6%ayear.
Ifyouwanttobeamillionairein6years,justsave$120,000a
yearinaninvestmentvehiclethatgivesyou12%returnper
annum.

SummaryforAction
TheRuleof72isasimplifiedwaytodeterminehowlongan
investmentwilltaketodouble,givenafixedannualrateof
interest.Ibetyoudontwanttobringyourfinancialcalculator
whereveryougo.JustapplytheRuleof72toquicklymakea
roughestimateofaparticularinvestment.Tryestimatetheroute
yourfriendsorfamilymembercanbecomeamillionaireusingthe
FelixsCorollaryandtheRuleof72.

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Time Value of Money: Computing the Value


of Single Sum Investment
Inordertobesmartandcalculativeinpersonalfinancematters,
understandingthetimevalueofmoneyisanessentialpartofthe
learningprocess.

Now,wewillstartwithlearningthecalculationofthevalueof
singlesuminvestment.

CommonProblems

#1.YouhaveRM10,000inafixeddepositaccount,giving3.7%
returnannually.Ifyoudontcashouttheinterestearned,how
muchifthetotalmoneyaccumulatedafter15years?

#2.AliborrowedRM5,000fromaloanshark5monthsago.He
agreedtopaycompoundedinterestof3%permonth,calculated
basedontotalamountowed.ButAlinevermadeanypayment
untilnow.HowmuchshouldtheloansharkclaimfromAli?

Theory
BeforeIlearnthetheoryoftimevalueofmoney(TVM),Iusedto
createspreadsheetusingMicrosoftExceltoautomatethe
repetitivecalculations.Now,saveyourselfthetrouble.Usethis
formula:

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FV(Futurevalue)=futurevalueofinvestmentattheendof
period
PV(Presentvalue)=presentsumofmoneysetasideforthe
investment
i=rateofinterest
n=numberofperiods

Solutions
Example#1:
YouhaveRM10,000inafixeddepositaccount,giving3.7%
returnannually.Ifyoudontcashouttheinterestearned,how
muchifthetotalmoneyaccumulatedafter15years?

PV=RM10,000
i=3.7%perannum
n=15years
FV=?

Usingscientificcalculator,substitutethevaluesintotheformula
FV=RM17245.72

Theeasierwayistouseafinancialcalculator.Youdonthaveto
buyaphysicalfinancialcalculator.Therearemanymobileapps
application.Youcanalsosearchonlinewiththekeywordfuture
valuecalculatortousesomefreeresourcesalreadyputup
there.
Example#2:

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AliborrowedRM5,000fromaloanshark5monthsago.He
agreedtopaycompoundedinterestof3%permonth,calculated
basedontotalamountowed.ButAlinevermadeanypayment
untilnow.HowmuchshouldtheloansharkclaimfromAli?
PV=RM5,000
i=3%permonth
n=5months
FV=?

Substitutethevaluesintotheformula,youwillget
FV=RM5796.37

Youshouldnevermesswithaloanshark.

Exercise
1.AunittrustagenttoldyouthatFundAgiveareturnof10%
perannum.IfyouinvestRM50,000now,howmuchwouldyou
expectthetotalfundvalueofyourinvestmentafter8years?

2.Thecurrentinflationrateisabout3.5%perannum.Nowyou
payRM10.80foracupofStarbuckscoffee.Howmuchwouldit
costswhenyouretireafter23years?

3.LetsassumetheUSdollarisdepreciatingataconstantrateof
1%permonth.Now,USD1equalstoRM4.20.After8months,
howmuchUSdollarcanyougetfromRM5.00?

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Time Value of Money: Finding the Rate of


Return to Meet Financial Goals
Now,wewilllearntofindtherateofreturnrequiredtomeeta
financialgoal.

CommonProblems
#1.YouhavesetasideRM10,000foryourfuturedreamhome
downpayment.YouwanttohaveatleastRM15,000after5
yearstimetopurchaseyourdreamhouse.Whatistherateof
returnrequiredifyouweretoinvesttheinitialRM10,000inorder
togetRM15,000,5yearslater?

#2.YouinvestedRM5,000inabalancedunittrustfundthatgives
anaverageof10%returnperannum.Howlongyoumustkeep
themoneyinvestedinordertohaveRM10,000tofundyour
childstertiaryeducation?

Theory
Usethisformula:

FV(Futurevalue)=futurevalueofinvestmentattheendof
period
PV(Presentvalue)=presentsumofmoneysetasideforthe
investment
i=rateofinterest/rateofreturn
n=numberofperiods

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Itcanbemodifiedtodeterminetherateofreturnrequired.Inthis
case,weknowthevalueofFV,PVandn.Whatwewantto
computeisi.

Youcanusetheinterpolationmethodorthetrialanderror
methodusingexcelspreadsheet.ButIwouldprefertheeasiest
routeusingfinancialcalculator.

Solutions
Example#1:
YouhavesetasideRM10,000foryourfuturedreamhomedown
payment.YouwanttohaveatleastRM15,000after5yearstime
topurchaseyourdreamhouse.Whatistherateofreturn
requiredifyouweretoinvesttheinitialRM10,000inordertoget
RM15,000,5yearslater?

PV=RM10,000
FV=RM15,000
n=5years
i=?


i=8.45%

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Example#2:
YouinvestedRM5,000inabalancedunittrustfundthatgivesan
averageof10%returnperannum.Howlongyoumustkeepthe
moneyinvestedinordertohaveRM10,000tofundyourchilds
tertiaryeducation?
PV=RM5,000
FV=RM10,000
i=10%p.a.
n=?

n=7.27years

Exercise
#1.Aunittrustagenttoldyouthatoneofhiscustomerwho
invested5yearsagohadachieved200%totalreturnthisyear.
Whatistherateofreturnperannum?

#2.Yourmothertoldyouthatacupofcoffeeatthelocalkopitiam
costsRM0.10onlywhensheis20yearsold.Nowsheisretired

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atage55.ThepriceofacupofcoffeenowisRM1.00.Whatis
theaverageinflationrateperyear?

#3.LetssayyouhaveRM100,000inyourinvestmentportfolio.
Duetoconsistentmonitoringandinvestmentresearch,youare
abletogetanaveragereturnof15%p.a.forthepast5years.If
everythinggoesaccordingtoplan,howlongwillittakeforyouto
becomeamillionaire?

Time Value of Money: Computing the Value


of a Fixed Sum Invested Regularly

Forinstance,whenyouaresettingasidearegularandfixed
amountforsaving,orunittrustdollarcostaveragingstrategy,
therewillbeaconstantsumofmoneyinvestedatregular
intervals.Thisseriesofcashflowsisalsoknownasanannuity.

CommonProblems
YouinitiatedabankstandinginstructiontodeductRM200/month
fromyourbankaccountforunittrustinvestment.Therateof
returnisabout15%p.a.Howmuchisthetotalofyour
investmentvalueafter5years?

Youboughtanendowmentpolicy,payingtotalpremiumof
RM988perannum.Youragenttoldyouthattheinsurancepolicy
willmaturein25yearsjustontimeforyourretirementfund.The

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maturitybenefitisprojectedatRM50,000.Whatistherateof
returnperannum?

Youapplyahousingloantofundthepurchaseofyourfirsthome.
ThehousevalueisRM200,000.YoupaidRM20,000down
paymentandfinancetherest.Assumingthebankisofferingyou
afixedloanrateof5.8%p.a.,howmuchisthemonthly
installmentsforloantenureof30years?


Theory
ThisformulagivestheFutureValueofanannuity(assuming
compoundinterest):


wherer=interestraten=numberofperiods.
PaymentamountisnormallyindicatedusingPMT

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Forannuitycalculations,wemustfirstunderstandthetimingof
thepayment.

AnnuitydueAnannuitywithpaymentsmadeatthebeginning
ofeachperiod.Alsocalledadvancepaymentannuity.
Examples:
unittrustdollarcostaveragingstrategy
payingregularinsurancepremium
payingtuitionfeeseverymonth

OrdinaryAnnuityAseriesoffixedpaymentsmadeattheend
ofeachperiodoverafixedamountoftime.
Examples:
housingloaninstallments
carloanorhirepurchaseinstallments
periodicinterestonbondswherethecouponratesare
fixed

Solutions
Example#1:
YouinitiatedabankstandinginstructiontodeductRM200/month
fromyourbankaccountforunittrustinvestment.Therateof
returnisabout15%p.a.Howmuchisthetotalofyour
investmentvalueafter5years?

PV=0
BeginningMode
n=5x12=60months
i=15%p.a./12=1.25%permonth
PMT=RM200/month

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FV=RM17,936.34

Example#2:
Youboughtanendowmentpolicy,payingtotalpremiumof
RM988perannum.Youragenttoldyouthattheinsurancepolicy
willmaturein25yearsjustontimeforyourretirementfund.The
maturitybenefitisprojectedatRM50,000.Whatistheeffective
rateofreturnperannum?

PV=0
BeginningMode
n=25years
PMT=RM988/year
FV=RM50,000
i=?

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i=5.066%p.a.

Example#3:

Youapplyahousingloantofundthepurchaseofyourfirsthome.
ThehousevalueisRM200,000.YoupaidRM20,000down
paymentandfinancetherest.Assumingthebankisofferingyou
aflatloanrateof5.8%p.a.,howmuchisthemonthly
installmentsforloantenureof30years?

PV=RM180,000
EndMode
n=30yearsx12=360months
FV=0
i=5.8%p.a.=0.48333%permonth
PMT=?

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MonthlyinstallmentisRM1056.16.

Exercise
Youwanttobeamillionairein15yearstime.Now,youalready
havealumpsumsavingofRM50,000incash.Aftersomedeep
consideration,youdecidedtoinvesttheRM50,000ina
singlepremiuminvestmentlinkedinsurancepolicy,whichhasa
pasthistoryofgiving12%returnperannum.Besidethe
insurancepolicy,youwillalsosetasideRM1000permonthfor
unittrustinvestmentusingdollarcostaveragingmethod.Whatis
theminimumrateofreturnoftheunittrustportfolio,sothatyou
canachievemillionairestatusin15yearstime?

Time Value of Money: Computing the


Retirement Fund in EPF Account of an
Employee

www.KCLau.com page53/106

TocalculatethetotalretirementfundintheEPF(Employee
ProvidentFund),wehavetomakesomeassumptionsinorderto
computethevalue
theamountofdepositwillincreaseovertimeata
constantrate(thenormalsalaryincrementrate)
interestarepaidatyearendandalwaysatthesamerate

CommonProblems
Youstartedyourcareerasanengineerat24yearsoldwitha
startingpayofRM2500permonth.Contractualbonusisone
additionalmonth.Theaveragesalaryincreaseduringyour
lifetimeisestimatedat7%peryear.EPFpaysanaverage
annualdividendof5%p.a.YourcontributiontoEPFis11%of
yoursalaryand12%iscontributionfromyouremployer.How
muchwillyougetwhenyouretireatage55?

Theory
Usetheformulabelow:


where
i=EPFdividendrate
n=numberofyears
A=initialamountofdeposit
g=rateofsalarygrowth
FV=futurevalueofEPFaccount

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Solutions
Youstartedyourcareerasanengineerat24yearsoldwitha
startingpayofRM2500permonth.Contractualbonusisone
additionalmonth.Theaveragesalaryincreaseduringyour
lifetimeisestimatedat7%peryear.EPFpaysanaverage
annualdividendof5%p.a.YourcontributiontoEPFis11%of
yoursalaryand12%iscontributionfromyouremployer.How
muchwillyougetwhenyouretireatage55?

Firststepistofindoutthevariousvariables.
Theinitialamountofdeposit,A=RM2500x(12+1
months)x(11+12)%
A=2500x13x0.23
=RM7475
Thenumberofyears,n=5524=31years
TheEPFdividendrate,i=5%p.a.=0.05
Thesalarygrowthrate,g=7%p.a.=0.07

Substitutethevariablesintheformulaabove.
ThetotalfundinEPF,FV=RM1.379million

Inordertogiveyouconvenienttools,thereareseveral
webbasedEPFcalculatorsdeveloped.Justgoogleforit.

www.KCLau.com page55/106

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Exercise
Tanstartedhiscareerasanexecutiveinalocalfirmatage18
withastartingpayofRM1200permonth.Theaveragesalary
increaseduringhislifetimeisestimatedat5%peryear.EPF
paysanaverageannualdividendof5%p.a.Hiscontributionto
EPFis11%ofandhiscompanycontributes13%.Howmuchwill
Tanentitledtowithdrawatage50?(AssumingEPFwithdrawal
rulesstillremainthesameasyear2007)

Time Value of Money: How to Calculate the


Effective Annual Rate (EAR)

Thisisprobablythemostimportantlessoneverybodyshould
learnabouthowtocalculatetheactualeffectiveannualrate
(EAR).

CommonProblems
IfyouhavedepositmoneyinaFixedDeposit(FD)account,the
bankerwillaskyouaboutthetermofyourdeposit1month,3
months,6months,1yearorlonger?Thebankgivesdifferent
ratefordifferenttenure.LetssayMaybankisgiving3.7%for12
monthsFD,and3.4%for6monthsFD,whatistheEARfor
6monthsFD?Isitbetterthan12monthsFD?

Theory
Scenario112monthFD

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Referringtothesituationabove,letssayyouaredepositing
RM10,000inFDfor12monthstenure.Attheendoftheterm,
youwillgetyourinitialinvestment(RM10k)plusthe3.7%interest
(RM370)

Return=3.7%p.a.,whichisalsotheEAR.

Scenario26monthFD

Ifyouopttoputthemoneyin6monthsFD,after6months,you
willget
Return=3.4%x(6/12)=1.7%,whichisequaltoRM170
interestearned.

ThenyourenewtheFDwithoutwithdrawingtheinterestearning,
youwillhaveRM10,170intheFDforanother6months.

Attheendoftheyear,yourwillgetanotherearningof1.7%x
RM10,170=RM172.89.
SoyourtotalreturnisRM170+RM172.89=RM342.89

TheEffectiveAnnualRate(EAR)=RM342.89/RM10,000=
3.4289%

ToeasilycalculatetheEAR,usetheformulabelow:

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where
i=nominalannualrate(normallystated)
n=numberofcompoundingperiod(compounding
frequency)
Fortheaboveexample
EAR=[(1+0.034/2)^2]1
=3.4289%

NominalInterestRate
Nominalinterestrateiswhatweusuallyseeonfinancial
products.Mostofthetime,theseratesmaynotbetheactual
annualrate.

Aninterestrateiscallednominalifthefrequencyofcompounding
(e.g.amonth)isnotidenticaltothebasictimeunit(normallya
year).

Example:
interestrateonhousingloan(EARishigherwhenitisdailyrest)
publishedFDratesfordifferentterms(1month,2months,or12
monthsetc)
Themorefrequentyoucompound,thehighertheEAR.

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Whenyouwanttocompareplans,firstyoumustcalculatethe
respectiveEARforeachplan.ThencomparetheEAR.

YoucansearchGoogleforEARconvertor

Exercise

YouhaveRM7,000inFixedDepositwithCIMBBank.YourFDis
renewableeverymonthandCIMBbankprovides3.2%p.a.
interest.YoulettheFDrenewedfor2years.Fromthe3rdyear
onwards,thebankloweredtheFDinterestrateto3.0%p.a.But
youdontneedthemoney,soyouleaveitthereforanother3
years.Whatsthefinalamountyouwillbeabletowithdrawatthe
endof5years?

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How to Calculate Your Investment Portfolio


Return?
Investinginvariousassetclassesandneverbothertotrackand
monitoritsreturn,islikeflirtingwithseveralgirlsatthesametime
andneverbotherwhomwillultimatelybeyourwife.Dontblindly
investandforget.Itislikeflirtingwithoutknowingwhatyouwill
get.

Youjustneedanextrasteptocalculatethereturnofyour
investmentportfolio.

Letssayyouinvestinseveralassetclasses.Yourgold
investmentgivesover100%returnlastyear.Yourstock
investmentturnedsouraftertherecentGeneralElection.The
apartmentyourentedoutgivesyouaconsistentreturnmonth
aftermonthbecauseofyourloyaltenants.Manytypeof
investment,allwithdifferentreturn.Sohowdoyouknowyour
overallinvestmentportfolioisdoing?Isitontrack?

Thisisasimpletutorialonhowtocomputeyourportfolioreturn.
Returnofportfolio=(W1xR1)+(W2xR2)+(W3xR3)+
..(WnxRn)

WhereW1,W2,W3andWnstandfortheweightingsin%of
assets,forasset1ton,intheportfolio.Whereas,R1,R2,R3
andRnarereturnsfortherespectiveassets,1ton,inthe
portfolio.

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Example1:
Morethanhalfisinvestedinrealestates.


Weightofstocks=50k/293k=17.06%
Weightedreturnofstocks=25%x17.06%=4.27%
Overallportfolioreturn=4.27+0.44+1.01+4.10=9.82%

Example2:
Thisisaveryconservativeassetallocation.about73%invested
infixeddeposit.


Example3:
Thisisanbalanceportfolio,investedinfourassetclasswith
equalshare.

www.KCLau.com page62/106

Downloadtheexcelspreadsheet:investmentportfolioreturn
Bytrackingyourportfolioreturn,youwillbeabletoconstructa
properassetallocationtogetthedesiredreturn.

Withdraw EPF Money for Home Loan


Installment: How it affects your
Retirement Fund

EPFwasstartedforthesolepurposeofforcingemployeestoset
asideacertainpercentageoftheirincomefortheirretirement.It
wasgenerallyperceivedthatifthecontributionsweretobeused
forotherpurposes,thiswouldhaveadetrimentalimpactonthe
sizeoftheretirementnestegg.

However,usingthesecontributionstofinanceoutstanding
housingloansisalsoanotherformoflongtermsavingasthe
propertyislikelytoappreciateafterthemortgageissettled.

HowitWorks?
Thistypeofwithdrawalinvolvesyouwithdrawingmoneyfrom
yourAccount2tofinanceyourmonthlyinstallmentsforyour
housingloan,whichwastakenupeithertobuyanewhouseor
buildanewone.

www.KCLau.com page63/106

ContributorsneedtogototheEPFtoapplyforthemonthly
withdrawalonlyonce,andsubsequentpaymentswouldbe
directlycreditedtotheirpersonalaccountseverymonth.

Pleasenotethatthistypeofwithdrawaliscreditedtoyour
personalbankaccount.Itisnotalumpsumwithdrawalthatis
paiddirectlytothefinancier,whichisalsoanotheroptionof
withdrawal.
HowDoesWithdrawingEPFAffectYourRetirementFund?

IfcontributorswithdrawtheirEPFforhousingpurposes,theywill
inturnhavefewerfundsfortheirretirement.However,atleast
theycanbesurethattheyhavearooftoliveunder.Fornow,
propertyisaffordableinMalaysia,butoneneverknowswhatwill
happentothepropertymarketinthefuture.LookingatKorea
andTaiwan,itisalmostimpossibletoownadecenthomeatbig
cityifyouarenotrich.InSingapore,100%oftheirCPF(the
SingaporeequivalentofEPF)canbewithdrawntopaythedown
paymentofhousepurchase,andtheinstallmentcanbepaid
usingCPFtoo.

ThemovetoallowwithdrawalofEPFtofinancehousingloans
wouldbenefitmostEPFcontributors.Contributorswho
previouslyfounditmonetarilytighttobuyapropertycannow
considerdoingsowiththisnewwithdrawalscheme.Thisway,
somecontributorswouldbeabletoownbetterhousesandyet
beabletolessentheirmonthlyfinancialobligations.

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Contributorswhoarecurrentlyhomeownersandarepaying
mortgagecanalsoexperiencebettercashflowaslessmoneyis
spentoutofhandfortheloan.

Thisnewwithdrawalschemeisalsogoodforthosewhoknow
howtomanagemoney.Theycanusethisfacilitytogrowtheir
wealth.Forinstance,consumerdebtintheformofcreditcard
loans,personalloanscanbepaidofftheycaninvestforbetter
returnorevenfundhighereducation.

However,forthosewhoarefinanciallyilliterate,moremoney
equalsmoretrouble.Theywillspendforinstantgratification
withoutthinkingoffutureneeds.Thismaycauseasocialproblem
inthefuturewhenretireehasinadequatefundstoliveon.

5SuggestionstochannelEPFwithdrawalbacktoyour
retirementfund

Withproperknowledge,youcantakeadvantageofthis
withdrawalfacilityandgrowyourretirementfurther.Hereare5
suggestionstochannelyourEPFmoneybacktoyourretirement
fund:
1. BuyunittrustfundthatwilloutperformEPFdividendby
applyingringgitcostaveragingstrategy
2. Investinsharesbuyundervaluedstockswithgood
dividendpayout
3. buyanotherpropertytoreceiverentalincomeafter
retirement
4. buyanannuityplantoreceiveyearlyincomeduring
retirement

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5. Paytowardstheprincipleofyourhousingloan,thus
shortentheloantenureandsaveoninterestcharge.

How Recession Happens and 8 Tips to


Prepare for it!

Aneconomicrecessionissimplydefinedasasignificantdecline
intheeconomicactivityspreadacrosstheeconomythatusually
lastsmorethanafewmonths.Moreeconomicallyspeaking,a
recessionisadeclineinacountrysGrossDomesticProductora
negativerealeconomicgrowthfortwoormoresuccessive
quartersinayear.Thelatterisawidelyknowndefinitionof
recessionsaswellasawidelyacceptedone.

Asevereorlongrecessionisreferredtoasaneconomic
depression.Adevastatingbreakdownofaneconomy
(essentially,aseveredepression,orahyperinflation,depending
onthecircumstances)iscalledaneconomiccollapse.

IsMalaysiaheadingtowardsarecession?Wellneverknowuntil
ithappens.

Whatcausesrecession?
Thereasonsbehindeconomicdownturnsremainlargely
unsolved.However,thereareseveraltraditionalexplanationsto
thephenomenon.

www.KCLau.com page66/106

ThetraditionalexplanationEconomywidechanges
Thetraditionalexplanationspostulatethatrecessionsarecaused
byeventsthathaveaneconomywideimpact,suchasan
increaseininterestrates
declineinconsumerconfidence.
Firmsreduceoutputandlayoffworkers,whichfurther
decreasesdemand,andtheeconomyslowsevenmore.
Causedbyeventsthathurtparticularfirmsorindustries

Economicrecessionscanbecausedbyeventsthatwouldhave
animpactonspecificcompaniesorindustries.Forinstance,a
majorinnovationcanadverselyaffectsomefirms,causingthem
toreduceproduction.Thiswouldinturnleadtoaretrenchment
ofworkers.Ontheotherhands,positivelyimpactedcompanies
wouldneedextrahandsandseekadditionalworkers.

Itnaturallytakestimeforthedisplacedworkerstofindnew
meansofemployment.Duringthisphaseofreallocationa
situationofrecessionmayoccur.

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www.KCLau.com page68/106

Whathappensduringrecession?

#1.RiseofUnemploymentrate
Duringarecession,thereisageneraltrendofrising
unemploymentratesanddecreasingoveralloutput.Withfewer
peoplecontributingtotheeconomy,theoveralleconomyis
boundtobeaffected.Incomegrowthwouldbestalled.While
therewouldbemorepeopleinthemarketlookingfor
employment,thedemandforrecruitingpeopleisfarlesser.

Whenpeopleareearninglowerincomes,theirspendingpower
decreases.Assuch,thereisareductioninspending.Businesses
arelimitedintheirabilitytopassalonganyincreasesinexpenses
intheformofhigherprices.Inordertomovegoodsoffthe
shelves,businessesaremorelikelytoreduceprices.This
eventuallycausesdeflation.

Withpricesdriftingdownwardandcommoditiesbecomingmore
affordable,consumerspendingwillonceagainkickoffand
increase.Theincreaseinconsumerspending,overtime,leadsto
anincreaseinindustrialproduction.Thisinturnimproves
corporateprofitsleadingtoincreasedemploymentandimproved
earnings,etc.Thisishowtheeconomiccycletakesplace.
Thatswhypeoplesayeconomywontgrowthcontinuously
withoutrecession.

#2.Stockmarketplummet
Peoplearegenerallyconservativeduringrecession.Thosewho
losetheirjobsbecauseofrecessionstartsellingofftheir
investmentsbecausetheyneedmoneytosustainwhiletheyget

www.KCLau.com page69/106

anotherjob.Theincreasednumberofpeoplesellingtheirstocks
causesthestockmarkettofallsharply

#3.RealEstateplummet
Duringarecession,peopleturntofiscalconservatism.This
affectstherealestateindustryaswell,asthereislesserdemand
intherealestatemarket.Peopleputoffbuyingandsellingof
propertyduringtheperiodsofeconomicrecession.Another
scenarioiswheretheincreasinglevelsofunemploymentduringa
recessioncauseaffectedhomeownerstoselltheirhometo
accommodatechangingjobdemands.

Ontheotherhand,becauseofthehighersupplyofhouseson
saleascomparedtothelowdemand,aneconomicrecessionwill
forcefullyreducethesellingpricesofhomes.Assuch,the
economicrecessionhasapositiveimpactonpotential
homebuyers.Thisisalsobecausetherearelowermortgage
ratesthatarecausedbychangesininterestrates.

HowARecessionImpactsYourDailyLife?

#1.Loseyourjob
NewspapercolumnistSidneyJ.Harrisdistinguishedtermsthis
way:arecessioniswhenyouloseyourjobadepressionis
whenIlosemine.

#2.Cantaffordtopaybackyourmortgage
Asuddenlossofjobcancauseretrenchedemployeesto
experienceanegativemonthlycashflow.Asimilarsituationcan
alsohappenifyouremployersgobankruptsuddenly.Arrearson

www.KCLau.com page70/106

mortgagecanalsocauseshomestobeauctioned.Ina
worstcasescenario,sometimes,evenafterthehomesaresold
forcefully,peoplestillowethebank,money.

#3.Watchyourinvestmentportfolioshrinkinvalue
Highexposureinequitywillresultinasharpfallinthestock
market.WhenpeopleareInvestingtooaggressivelyinabubble
economy,itisextremelyriskythatonedayyourstockportfolio
justshrink50%withinafewdays.

Howtoprepareforrecession?
#1.Createaworstcasescenario
Createaworstcasecashflowforecast.Predicthowbaditcould
beifyoulostyourjoborifyourbusinessdroppedinsalesby
about50%.

#2.BuildupanEmergencyfund
Prepareanemergencyfundwithenoughmoneytocoveratleast
6monthsofexpenses.

#3.Haveaconsistentlyrebalancedinvestmentportfolio
Thisensuresthatyoulockthecapitalgainofcertainasset
classeswhenitisbooming.

#4.Nomatterwhatfieldofyourprofession,alwaysstriketo
bethebest
Alwaysstrivetobethebest.Avoidbecomingredundantorfat
inyourcompany.Ifyoudonotproveyourworth,youwillbethe
firsttobeledtotheexitdoorduringarecession.

www.KCLau.com page71/106

#5.Diversifyyourincomesource
Pleasebewareifyouareinabusinessthatservesjust12major
customers.Youwillbeatagreatriskduringarecession.For
employees,workoutsomeformsofalternativeincomebesides
themainemployment.

#6.Knowyourfundingsourcesandmanagethe
relationshipproperly
Anotherwaytoprepareyourselfforaslowdownistoknowyour
fundingsourcesandmanagetherelationshipproperly.
Remember,whenfundingsourcestightentheydososelectively
andthisappliestotheirsourcesofbusinessaswellasthe
credits.

#7.Learntoliveonlessthanyourincome
Youmayseepaycutsinyourjobduringaneconomicrecession,
solooknowforwaystotrimyourbudgetasmuchaspossible.

#8.Lastresortcompromiseonyourlifestyle
Wheneverythingdoesntseemtoworkoutforyou,goforthelast
resort:tryreducingyourlifestyledramatically.Sellthatluxurycar.
Movetoasmallerhouse.Cutdownonexpensivedining.

CashisKing
Cashiskingduringrecession.Itisonlyinyourbestfinancial
interesttoacquireassets(stocks,realestate)duringarecession.

Changesininterestratelevelsaremadebythecentralbank
regulator(BankNegara,FederalReserveetc)asawayto
regulatetheeconomy.Inaperiodofeconomicdownturn,interest

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ratesarereducedinanattempttorevivetheeconomy.Thisis
becausereducedinterestratesareusuallyattractiveto
businessesandforpeoplewhowanttoborrowmoneyor
refinanceexistingloansatareducedlevel.Consequently,lower
interestrateswillresultinlowermortgagerates,whichproduce
monthlymortgagepaymentsthatareadvantageousforhome
buyers.

Conclusion
Thereisapossiblerecessionlooming.Somepeoplewillbe
harmedandsubsequently,theeconomywillbeblamed.Theyare
probablyrightnowmaintainingthestatusquoandsimplyhoping
itdoesnthappen.

Preparenowandyouwillfindthatyouwillnotbeaffectedvery
dramatically.Thiswillleaveyouinabetteredge.Preparationfor
arecessionwillenableyoutoreacttochangingtimesandtake
advantageofselectopportunities.

Knowing your Enemy Inflation!

Afteraheavymealatalocalnasikandarrestaurant,Ibought10
senofHacks(yes,thecandy).IstillrememberthatIcouldget3
candiesfor10sen.Lateron,itis5candiesfor20sen.Ithas
beenalongtimeIdidntspendmoneyoncandy.SoIaskedthe
cashierincaseitismoreexpensivealready.AnditisluckythatI
asked,becauseitisselling2for10sennowadays.Thepricerise

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50%after20years.Thatsinflation!However,Hackscandiesare
stillveryaffordable.

Inflationistheriseinthegenerallevelofpricesofgoodsand
servicesinagiveneconomyoveraperiodoftime.Itmayalso
refertotheriseinthepricesofsomemorespecificsetofgoods
orservices.Ineithercase,itismeasuredasthepercentagerate
ofchangeofapriceindex.

Inlaymanterms,severalexplanationofinflationsishowfast
pricesrise,orhowfastyourmoneybecomeslessvaluable.

Whatcauseinflation
Therearetwocampsthatdisagreedstronglyonthemaincauses
ofinflation
Monetaristsarguedthatmoneysupplydominatedall
otherfactorsindetermininginflation
Keynesiansarguedthatitisrealdemandthatcauses
inflation
Buteconomyissuchahugesubjectthatthereisnoonesure
thingthatcausestheother.

Howtocalculateinflation
Avarietyofinflationmeasuresareinuse,becausethereare
manydifferentpriceindices.Twowidelyknownindicesforwhich
inflationratesarecommonlyreportedarethe
ConsumerPriceIndex(CPI)measuresnominal
consumerprices,
GDPdeflatormeasuresthenominalpricesofgoods
andservicesproducedbyagivencountryorregion.

www.KCLau.com page74/106

Inflationiscausingyourmoneytobecomelessvaluable,ifyoudo
nothingaboutit.

BasedonUSCPI,whatcost$1000in1997wouldcost$1309.22
in2007.Also,ifyouweretobuyexactlythesameproductsin
2007and1997,theywouldcostyou$1000and$785.20
respectively.

Howtooutstripinflation
Forsure,ifyoudonothingtoprepareforinflationseffect,your
buyingpowermaydropinthefuture.
#1.Livingbelowyourmeans
Humanbeingisaveryflexiblecreature.Whenthecertain
productsgetmoreexpensive,anditfinallyhurtsourwallet,we
willbeflexibleenoughtouselessofit.Youcaneither
buylessofthemoreexpensivestuff,andmoreoftheless
expensivestuffORletyourstandardoflivingfall

#2.Investforbetterreturns
Youjusthavetogetyourmoneytoworkharder,andgetareturn
thatshigherthaninflationrate.

Intheareaofwealthaccumulation,inflationisanenemythat
approachingyoustepbystepquietly.Bythetimeyounoticethat
andfeelthepainofitsattack,itisprobablytoolate.Thelast
resortistoseeyourstandardoflivingfallunderneath.

www.KCLau.com page75/106

Financial Security: How do You Feel It?


Doesfinancialsecuritysimplymeannothavingtoworryabout
money?
Thatstoosimpletodefinesuchabroadmeaningoffinancial
security.Youmightnothavetoworryaboutmoneyduringa
greattimewherejobsareeverywhere,andyourcountrys
economyisdoingverywell,andearningmoneyissoeasy.But
willyoustartworryingwhenitisrecessiontime?Wouldyou
worryaboutmoneyifyourfamilymemberswerehitbyadeadly
disease?Wouldyouworryaboutmoneyifsuddenlyyouare
unabletoclimboffyourbedinthemorningandneedtostayon
bedfortherestofyourlife?

Financialsecurityisaboutknowingandfeelingsafethat
whateverdisasterarrives,youknowyouwonthavefinancial
trouble.Exceptforsomeextremelyrichfolks,financialsecurity
doesnotseemtobethatsimple.

Canwedefinefinancialsecuritysimplybyputtingupanumber?
Wouldamilliondollarsgiveyousecurity?Oryouwontbefeeling
financiallysecuredunlessyouhave10milliondollarsassets?
Ithinkmerelygivingitanumberdoesntdefineitfairlyneither.

AskTheseQuestionstoTestYourFinancialSecurityLevel
Whathappenstomychildren,myparents,myspouse
andmyfamilyifIpassedawaysuddenly?
Whatifbothyouandyourspousepassedawayatthe
sametime?Willeverythingbewelltakencareof?

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AmIpreparedforthenextrecession?
WhathappensifIlosemyjobtoday?

Ifyouareabletoanswerallthequestionsaboveinapositive
manner,congratulations!Youaredefinitelyfinanciallymore
securethan80%ofthepopulationintheworld.

FiveStatesofmindofBeingFinanciallySecured
Financialsecurityconsistsoffourthings:
Beingdebtfree
Beingincontrolofyourexpenses
Consistentlyincreasingyoursavings/assets/networthon
amonthlybasis
Notbeingforcedtoworkatajobyoudislikejusttopay
thebills

Forabroaderandmorecomprehensivedefinitionofbeing
financiallysecure,Iwouldliketoaddanotherimportant
stateofmind:beingwellthoroughlyprotected.

Whenyouknowandfeelthatyouarefinanciallysecure,hereis
whathappens:

#1.Neverworryaboutdebt
Youdonthavetobedebtfreetofeelsecured.Butknowingthat
nomatterwhathappens,youwillbeabletopayoffyourdebt
makesyoufeelsafe.Letssayyoustillowealotofmortgage
payment.Ifyouloseyourjobtoday,canyoustillpaythe
mortgageforthenext24months?Theanswerisyes,if
youhaveasubstantialreservefund.

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youareacapablepersonandfindinganewjobjust
requireafewweekstime
youhaveothersourceofincome
Whatifacarhitsyoutodayandyouloseyourabilityto
earnanincome?Canyoustillaffordtheloaninstallment?
Theanswerisyesifyouarewellprotectedwithlife
insurance.

#2.BeinginControlofYourExpenses
ItisaverydangerousstatementifyousayIcantcontrolmy
expenses!Yes,Iknowyoucancontrolyourexpenses.
Somepeoplesay:
Ineedtospendthemoneytopleasemywife
Ineedtobuythosethingstopleasemykids
Ineedvacationsbecausemyjobsistoostressful
Ifmoneyisspentonanythingthatsnotwithinyourbudgetplan,
youhavelostcontroloveryourspendinghabit.Alltheaboveare
justcheapexcuses.

Anothersituationiswhenafamilymemberneedsthatmoney
whichisnotwithinyourbudget.Forexamples:
yourmotherneedmedicalaid
yourchildneedsalotofmoneytostudyoverseas,butall
youhadsavedforhimisjustenoughforlocalcolleges.
yourbrotherneedstoborrowfromyoubecausehis
businessisgoingsouth.

Theseareproblemsthatcannotbetackledeasily.Butwith
properplanning,wisedecisionscanbemadetopreventthat.

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Whyshouldyourbrotherriskyourmoneytorescuehis
company?Whycantyourchildcompromisetoenterlocal
colleges?Whydidntyoubuymedicalinsuranceforyourmother
inthefirstplace?

#3.ConsistentlyIncreasingyourNetWorth
Thebestrewardofproperbudgetingistoseeyournetworth
growsdaybyday.Whenyouknowthatyouaregettingricher
everyminute,itjustmotivatesyoutodoevenbetter.
#4.Notbeingforcedtoworkatajobyoudislikejusttopay
thebills
Worktakesup1/3ofyourweekdays.Ifyouarestuckwithajob
youhate,Icanimaginehowmiserableyourlifeis.Ifyouwanta
joyfullife,youshouldhaveajobyouarepassionateabout,
besidehavingaspouseyouaredeeplyinlovewith.

Thefreedomtodowhateveryouwant(legally)issoprecious.I
amnotyetrich,butIfeelsecuredinthisareaaboutjobs.Ihavea
fulllistofwhatIcandotomakemoney,andnoneofthemare
thingsthatIdislike.

ThefactisthatIdontworryaboutlosingmyjob,becauseIhave
manyjobsthatIliketodo.Hereismylist:
FinancialplanningservicesIreallycantseehowitmay
failbecauseIhavehundredsofclients.Thisbusinessisa
longtermrelationshipbetweentheplannerandclients.
Mycustomersaresodiversifiedthatsomeofthemare
engineers,lawyers,businessmen,managersetc.
MusicproductionIdomusicarrangement.SometimesI
amselectiveabouttheprojectsIwanttoworkon.

www.KCLau.com page79/106

MakingmoneyonlineThishasbecomemyfulltime
businessnow.
Liveperformanceoneofmybestfriend,whoisa
professionalpianistoftenasksmetoplaygigs.NowI
seldomperformbecauseIwanttospendmoretimewith
mysonandwifeatnight.Butifeverythingturnsintoa
disaster,Icanstillgoouttoperform,andgivemusic
lessons.
PleasedontfeelthatIambragging.Iamcertainlynotearninga
lotatthismoment.ButIhavefunallthetime,duringworkand
outofwork.Ijustwanttourgeyoutobuildupyourownfinancial
security,inyourownpassionatefields.Youshouldturnyour
passionintomoneymakingmachines,andneverworryabout
losingyourjobanymore.

#5.Beingwellthoroughlyprotected
Whenyouarewellprotected,youcanberestassuredthatall
yourdependentscanstillliveonatthesamelifestyleifyou
passedawaysuddenly.Someareasthatpeopleoftenoverlook:
HaveyourWillwellplannedandwrittenup
Havealivingtrustsetuptoprovideeducation,
maintenance,guardianallowanceincaseofdouble
tragedy
Haveyourbusinesswellprotectedwithkeyperson
assurance,liabilitycancellationplan,andalsoafunded
buysellagreementifnecessary
Haveyourowninsuranceproperlyplanned,andgetthe
bestbenefitwiththemostaffordablepremium

www.KCLau.com page80/106

Haveallyourdependentsinsuredaswell.Pleaserealize
thataseriouslyillfamilymemberwilleatupyournestegg
too.

Wouldyoufeelfinanciallysecureafterdoingalltheabove
suggestion?

What Do You Know About Bankruptcy?


Bankruptcyisawordthatimmediatelybringsanegativevisionto
ourminds.Ithappenseverywhereintheworldandisnotpartial
toacertaincountry,raceornationality.

InMalaysia,thetotalnumberofbankruptcycasesnationwidehas
risenovertheyeartohundredsofthousandsindividuals.
Bankruptcylawexiststohelpboththebankruptandthecreditor.
Itwillstopthecreditorfromharassingthedebtorandit
safeguardstherightsofbothparties.

WhatisBankruptcy?
Simplysaid,itisalegalprocessinitiatedbyanindividualora
companyduetotheinabilitytosettlehisdebts.Bankruptcy
happenswhenapersonisunabletosettlehisdebts(knownasa
debtor)owedtothepeopleorpartywholoanhimthemoney.
Thepeopleorpartywhogaveouttheloanisknownasthe
creditor.Creditorscanbeabankinginstitutionorevena
companygivingouthirepurchaseschemes.

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Toprotecthimselfagainstpossibleharassmentorfromanyother
legalactionsbythecreditors,thedebtormayfileforpersonal
bankruptcy.
Ontheotherhand,thecreditorsmaytakeactionfirstagainstthe
debtorbyservinghimabankruptcynoticetorecoverthemoney
owedbythedebtor.

Beforefilingabankruptcypetitioneitherbythedebtororcreditor,
thefollowingcriteriahavetobemet:
ThesuminvolvedisRM30,000ormore
Thesumofmoneymustbeascertainable(liquidated
sum)
Thereisadefaultperiodofsixmonthsfortheactof
bankruptcytohaveoccurred
Beforethepetitiondate,thedebtormusthaveresidein
Malaysiaforatleastoneyear

HowDoesaPersonBecomeaBankrupt?
Generally,apersonfallsintobankruptcyduetoseveralreasons.
ThosementionedbelowarenotuncommoninMalaysia.

#1.TakingUpaLoan
Therearevariousloansavailabletocaterfordifferentneedsand
wants.Theseloanscanbepersonalloans,studyoreducation
loans,housingloansandevenbuyingacarundera
hirepurchasescheme.

#2.ActingAsaGuarantor

www.KCLau.com page82/106

Aguarantorcanbeasocialguarantororacorporateguarantor.
Apersonwhostoodasaguarantorforloanslikeeducation,
house,carhirepurchase,scholarshipandalsothirdpartyloans
isknownasasocialguarantor.
Acorporateguarantorisapersonwhostoodforloansrelatingto
businessloans,forexampleinabusinesspartnership.

Aguarantorisalsoliabletofacebankruptcywhensummonedby
thecreditors.Thecreditorswillgoaftertheborrowerfirstandif
thatfailstorecovertheamountowed,theywillgoafterthe
guarantortosettlethedebts.

#3.DefaultingOnCreditCardPayment
Theinabilitytopayuptheamountowedinthecreditcard
accountisalsoonereasontogobankrupt.

WhatDoesItMeanToBeaBankrupt?
Whenapersonhasdeclaredbankruptcy,thecourtwillappoint
theDirectorGeneralofInsolvency(DGI)toadministeroverthe
bankruptsassetsinordertosettletheoutstandingdebts.The
DGIwillinitiateaninvestigationtofindanyassetsorproperties
thatbelongtothebankruptandtosellordisposethemtorepay
thecreditors.

ForaMalaysian,beingabankruptistoughfortheindividual.
Amongotherthings,theindividualfacesthefollowinghurdlesor
restrictions:
Hehastogiveupallhisbelongingsandassets.
Heisnotallowedtoopenabankaccountwithoutthe
approvaloftheDGI.

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Heisnotallowedtotraveloutsidefromthecountry
withoutfirstgettingapprovalfromtheDGIorthecourt.
TheDGIwillholdhispassport.
Heisnotallowedtodoanybusinessnorbecomea
companydirectornorevenbepartofthecompanys
management.
Hehastosacrificeacertainpercentageofhismonthly
incometotheDGItorepayhisdebts.

HowToAvoidFromBecomingaBankrupt?
Astraightforwardanswertoavoidbecomingoneofthestatistics
issimplytotakeresponsibilityforonesfinancialaffairor
wellbeing.Itmeansnottotakehugeloanstopurchase
somethingifyoudonothavetheabilitytopaybackthemonthly
installments.Italsomeansbeingincontrolofonesspending
habitsandnottoovercommitontoomanyloansincludinghire
purchase.

Thesamegoesforthesocialguarantorwhodoesnothavethe
resourcesandmeanstosettlethedebtsontheborrowers
behalf.Sothinkrationally(notemotionally)andactcarefully
beforesigningonthedottedlines.

Forthoseintendingtoopenabusiness,doyourresearchwork
properlyandthoroughly.Ensurethatyouhaveenoughfinancial
resourcesandstaminaforthestartupandforthefirstfewyears.
Mostbusinessesdonotmakemoneyinitiallyandmaytakeafew
yearstoshowaprofit.Imaginetheworstscenariohappening
andwhetheryoucansurvivefinancially.Havingjustthestartup

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capitalisnotenough,youneedtohavebackupplansand
supportavailable.

Therearecaseshoweverwhenillfatestrikesandaperson
becomesbankruptduetounforeseencircumstancessuchasa
seriousillness,adebilitatingaccidentorbeingcheatedina
businesspartnership.

Thentherearecaseswhereapersonwillinglyfilesfor
bankruptcyforthesolepurposeofwipingoffallhisunsecured
debts.Thesenongenuinebankruptstakeadvantageofthe
legalprocesstowriteofftheirbaddebtsandtheamountcan
runupintothemillionsbutisstilllivingaluxuriouslifestyle.

HowaPersonisDischargeFromBankruptcy
Abankruptwillbedischargedfrombankruptcywhen
Hehassettledhisdebtsinfulltothecreditors.
Ifthecreditorsaccepttherepaymentschemeofferedby
thebankrupt,thenthebankruptcanmakeanapplication
tothecourttogetanorderofdischarge.
Certificateofdischarge:
TheDGIcanalsousehisdiscretionarypowerto
dischargethebankruptbyissuingacertificateof
discharge.Thisispossibleafteraperiodoffiveyears
fromthedateofbankruptcyeventhoughtherestillremain
unsettleddebts.However,theDGIwillhavecertain
criteriatoevaluatebeforemakinghisjudgmentsuchas
thebankruptsconductorbehavior,theageandthe
financialstatus.
Orderofdischarge:

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Thebankruptcanmakeanapplicationtothecourtto
requestforanorderofdischarge.Thecourtwillreferto
theDGIsreportbeforeanydecisionismadetogranta
dischargeornotortograntadischargewithconditions
attached.

Whenfacedwithdebts,apersonshouldseriouslyconsider
beforechoosingtofileforbankruptcy.Theremaybeotherbetter
optionstochoosefrom.Besidestherestrictionsmentioned
above,thebankruptmayfaceotherpersonalchallenges.His
futureplansandpersonaldevelopmentmaybenegatively
affectedduetohisbankruptreputation.Societynaturallywill
seehiminadifferentlightandtreathimdifferently.Inaddition,it
mayaffecthisabilityoropportunitytoapplyforfutureloansin
ordertoadvancehimselfinhiscareerorbusiness.
Therefore,consideryourselftohavebeenforewarnedonthis
subjectmatter.

Financial Consideration for New Parents in


Malaysia

Onlyafterbeingpromotedtofatherhood,Igottolearnthata
childreallytakesupalotofmytimeandalsomoney.

Pregnancyanddeliverycost

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TheregularcheckupduringpregnancyisbetweenRM50300
pervisitataprivatehospitalinMalaysia,asfrequentasoncea
month.

Mywifehadtogothroughcaesareanbecausemysondidntturn
hisheaddownduringdelivery.Istayedinthehospitalforabout
10daystogetherwithmywifeandmyson.Tokeepthestory
short,wespentaboutRM13,000intotalofhospitalbill.Luckily
hercompanycoversthemedicalbillincaseofcomplication
duringdelivery,weendeduppayingonlyaboutRM3,000.

Usually,anormaldeliverywillcostaboutRM3000atprivate
hospital.Itcostsalotlessifyougotothegovernmenthospital
whichisfullysubsidised.Ofcoursetheonlydifferenceisthelevel
ofservice.YoumayonlyneedtopaylessthanRM100for
deliveryinagovernmenthospital.

MaternityInsuranceCoverage
InMalaysia,thenormalHospitalizationandSurgicalbenefit
insurance(a.k.a.HealthCardorMedicalCard)doesnotcover
pregnancyrelatedhospitalization.
Therearetwoexceptions:

1.Yourcompanymayprovidegroupinsurancebenefitsthat
coversmaternityclaim.Normallyyoucangetthesebenefitsif
youareworkingforMNC(MultinationalCorporationlikeIntel
etc)

2.Someladycareinsuranceplansespeciallydesignedfor
ladyrelatedillnessesandmaternitymaygivesomeminimum

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coverageforchilddelivery,neonataldeathorsomeother
pregnancycomplication.Buttheseinsurancepoliciesnormally
wontpaythemedicalbillsascharged.

ConfinementMonth
ItisatraditionforaChinesemothertobeconfinedfor30days
aftergivingbirth.Thisperiodoftimeallowsthemothertorest
andrejuvenate.

1.Stayingatconfinementcentre
AtypicalconfinementcentrechargesaboutRM25003500.My
wifestayedatAiXinconfinementcentreatBatuMaung,
Penang.Theyemploylocalbabysitterstolookafteryourbaby.
Youwillbeserved5mealsaday.

2.Employaconfinementlady
ThiswillcostaboutRM3000andabove.Youwillneedtoprepare
aplacefortheconfinementladytostay.Normallyshewillhelpto
takecareofthebabyandcooksomespecialfoodforthemother.
Mostconfinementladiesdontdohouseworks.
Ifyourmotherormotherinlawcanreplacetheconfinementlady,
youwillbeabletosaveafewthousandringgits.

Insuranceforthechild
Themostimportantcoverageforyourbabyisthemedical
insurance.Forastandalonemedicalcard,thepremiummaybea
fewhundredringgitsperyear.Somepeopleliketobuythe
packagedplanwherethereislifecoverage,including36critical
illnesses,medicalcardplussomesavingsforfutureeducation.

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Dependsonyourbudget,youcanstartaplanaslowas
RM100/month.

Medicalbills
Forahealthybaby,parentswillstillpaymedicalbillsfor:
1.NormalsicknessRM25100.Itcostsmoreifyouareseeking
consultationsfrompaediatrician.

2.Vaccinationnowadays,therearesomanyvaccination
neededtobeinjectedintoyourbabysbody.Itcausespainon
ourbabyandalsoourpocket.RoughlyoverRM2,000neededto
bespentonfullvaccinationataprivatemedicalcentre.Of
course,everythingislikelytobefreeofchargeifyoubringyour
kidstogovernmentclinicsorhospitals.

NewTaxreliefforparents
Withanewbornbaby,youcanpaylesstax.Severaltaxbenefits
youcangetinclude:
1.ChildreliefRM1000(onlyforoneoftheparent)
2.ChildEducationpolicyRM3000(forbothparents)
3.SkimSimpananPendidikanMalaysia(SSPN)RM3000(for
bothparents)

FamilyProtectionPlanning
Ihavehadmanyclientswhotopuptheirlifeinsurancecoverage
aftertheyhaveababy.Mostwillwriteawillorrewritetheir
WILLstoincludethenewbornbabyasthebeneficiary.

Onethingmostparentsusuallyneglectistosetupafamily
protectiontrust.Thisisaveryusefulandpowerfularrangement

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incaseofdoubletragedy(wherebothparentspassawaydueto
accident).

AnormalprivatetrustcostaroundRM1000.AsimpleWILLis
aroundRM500.Financially,bepreparedtospendaboutRM2000
onetimefeesforthoroughprotection,plusafewhundredringgits
amonthtotopuplifeinsurance.

Caringforthebaby
Aftertheconfinementperiod,youwillhaveanewmemberat
home.Ababyneedsalotofcaring.Youwillhavetoarrangeone
ofthefollowing:

1.Employababysitter
Youcansendyourbabytothebabysitter.ItwillcostRM550800
forweekdaydaycareonly,orRM8001200for24hourcare.Iwill
prefertohavemybabysleepunderthesameroofwithus.My
babyissocuteandlovely.Iwouldntwanthimspendingmostof
thetimeatotherpeopleshome.Ababywillbringalotofjoyto
yourfamily.Whywouldyougivemostofthehappinesstoan
outsider,right?

2.Beingafulltimestayathomeparent
Somenewmotherwillresignfromworkforafewyearstolook
aftertheirbaby.Thisreallymakessensebecausethefirstfew
yearsareverycrucial.Thebabygrowssofast!Ifyougotowork
tooearly(whenyourbabyisstillasleep),andcomebacktoolate
(whenyourbabyalreadyasleep),youwillonlyseehim/hergrow
longer,nottaller.

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3.Maidservice
Anotherpossiblearrangementistoemployaforeignmaid,and
haveaseniorathometowatchoverthemaid.Upfrontfeesof
aboutmorethanRM10,000neededtobepaidtotheforeign
workeragencytoengageamaid.Pleaseexpectthemaidto
arriveabout2monthslater.Youcanchoosemaidfrom
Indonesia,Myanmar,Vietnam,Cambodia,andPhilippines.Some
experiencedmaidswhoarepreviouslytrainedorexperiencedto
takecareofbabyrequiresmorethanRM1000/monthwages.

Prepareforleavefromwork
InMalaysia,anewmotherwillbegiventwomonthspaid
maternityleave.Butthereisnosuchleaveforthefather.You
mayneedtodothenecessarypreparationtobeawayfromwork
forquitealongwhile.

Anotherconsiderationisnottowasteyourannualleave.Ifyou
areanemployee,somehowyouwillneedtotakeemergency
leavetobringyourbabytothedoctorsfromtimetotime.

Thingsforthebaby

1.Food
Sincemysonwasborn,themilkpowderhasincreasedinprices
severaltimes.SomebrandedmilkpowdersuchasEnfalacA+
costRM70/tin.Onecanonlylastaboutaweek.Bepreparedto
spendoverRM250/monthforthebestbabyfoodifthemother
cantorwontbreastfeed.Lateron,whenthebabygrowsover6
months,youcanbuythestep2milkpowderanditwillbealittle
cheaper.

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2.Clothes
Iactuallyseeclothesasawasteofmoney.Ifpossible,getused
clothesfromyourrelativesandfriendsforyourbaby.Used
clothesarenotsonicelooking,butsofterandmorecomfortable.
Ifyoubuytoomanypiecesofclothes,mostofthemwillbeworn
afewtimesonlybecausethebabyreallygrowsrapidly.When
yourbabyis3monthsold,buythe612monthsclothes.When
he/sheis6monthsold,buythe1218monthsclothes.

3.Diapers
TherearesupercheapdiaperlikeTescobrand,andalsothe
mostexpensivebrandeddiaperlikeMamyPoko.Ifpossible,you
canuseclothdiaperwhichwillsavesomemoneyinlongterm.
Weactuallyuseallthediapersmentionedabove.
WeuseMamyPokoatnight,whichcanabsorburineefficiently
andlastfor12hours.Weusethecheaperdiapersduring
daytimewhenwecanhelpmysontochangeregularly.Our
babysitterusestheclothdiapers.

4.Toys
Idontknowaboutotherbabies.Butmysondoesntreallylikehis
toys.Heplaysanewtoyforafewminutesandhewillbebored.
WhathelikesthemostismyiPhone andmybooks.

However,sometoysareworthinvesting.Inevitably,youwillhave
toallocatesomebudgetfortoys.

Preparetosacrificeyourownpersonaltime

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Ababyissodemanding.Mysonneedsalotofattention.Last
time,weusedtoworkorenjoysomefreetimeatnightand
weekend.Butwithababyathome,allyournonworkingtimeis
devotedtoyourbaby.

Anyway,everyminuteisworthspendingonyourbaby.Youwont
realizethewonderandmagicmomentuntilyouhaveababy.

Doyouneedabiggerhome?
Weusedtostayedinasinglestoreyterracehouse.Butbecause
ofhavingababyathome,wefeltthatthereisnotenoughspace
anymore.Wehadmovedtoasemidetachedhousewhenheis2
yearsold.
Putitbrief,ifyourcurrenthomeisnotbabyfriendly,youmight
needtoconsideramoresuitablehouse.Youmayneedmore
rooms,morespace,biggergardenetc.

Someparentsalsopurposelymovetosomebetter
neighbourhoodinordertogiveahealthyenvironmentfortheir
children.Someevenconsiderthepossibilityofgettingintoa
specificwellknownschool.Thisisbecausetheaddressprinted
onyourbabysICisgoingtodeterminewhichpublicschool
he/shewillgotointhefuture.

Totalcostofhavingababy
Thenumbersbelowisjustanestimation.Itisforthepurposeof
givingyouafinancialguidelineifyouareplanningtohaveanew
baby.

Onetimecost:

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1. DeliveryRM3000
2. WillWritingRM1000
3. LivingTrustSetupRM1000
4. ConfinementperiodRM3000

Regularexpenses(permonth)
1. insuranceforthebaby>RM100
2. babysitter/maid>RM550
3. babyfood~RM200
4. medicalbills~RM100
5. clothes/diapers/toys~RM200
So,bepreparedtohaveanetworthcutduringdeliveryand
confinement,andthenacutofatleastRM1000everymonth
fromyourcashflow.

Itistruethatraisingachildmightcausemorethanamillion
ringgits.Butisitworthy?

MyanswerisabigYES!Youcantbuythehappinessofbeinga
parent.Itcertainlycantbemeasuredinmonetaryterms.

Cloning Your Life Values via Private Trust


Thereisamovieaboutcloninghumanbeingsmadein2000titled
The6thDaystarringArnoldSchwarzenegger.Inthe
nottoodistantfuture,whencloningplants,pets,andhuman
organsisaccepted,asinistercorporationhasbegunillegally
duplicatingentirehumanbeings.Beforethathappens,cloninga
personisstillnotpossiblenomatterhowmuchmoneyyouhave.

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Here,wewilldiscussthepossibilityofcloningyourlifevalues,
whichisanessentialpartofleadingapersonslife.

Atthemomentyouleavethisworldwhenitisunplannedand
unexpectedyourheirsunderstandingaboutyourlifevalues
cease.Wouldntitbenicetohaveaseriesoflifetutorialvideos
madeandpassedontoyourchildren,sothattheycanwatchitat
thesuitabletimejustincaseyoucantmakeit?Beforeyouturn
onthevideocamera,letmeshowyouhowyoucanpassonyour
lifevaluesvialivingtrust.

Atrustisanarrangementwhichyoucansetasidecertain
amountofassetstoapartycalledtrustee,tobeusedforthe
benefitsofthebeneficiaries.Thebeautifulpartofatrustisthat
youcandeterminethetermsandconditionswhichthe
beneficiariesmustfulfillbeforetheyareentitledfortheincentive.
Thus,youcancallthesetypeoftrusttheIncentiveTrust.
Someexamples:

ToHaveTimewithFamily
Trustprovision:Eachchildshallreceiveamonthlydistributionif
shecanengageinsuchaprofessionthatallowshertoworkfrom
home.

Toacquireknowledgeandwisdom
Trustprovision:Eachchildshallreceiveadistributionindicated
uponachievingtertiaryeducationBachelorDegree$100,000,
Doctorate$200,000.

PersonalAchievement&HardWork

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Trustprovision:Eachchildshallreceiveanannualdistribution
equalto50%ofhisearnedincomereportedofficiallytheprevious
year.

Tobecreativeandinnovative
Trustprovision:Eachchildshallreceive$100,000forevery
successfulpatentfiled.

Toappreciatemusic
Trustprovision:Eachchildcanclaimforreimbursementforall
thefeeswiththeproofofparticipatinginmusiclessons

Abovearejustafewexamples.Becreative!Andmakesureyou
shareaboutyourlifevalueswhenyouarediscussingtheissueof
settingupatrustwithyourestateplanner.

Top 4 Methods to Enjoy Tax Relief for


Education Purposes
Weallhatetopaytax.Ironically,themoretaxesyoupay,the
wealthieryouare.However,itmightnotnecessarilyso.Because
apersonearnsmorethanyoumightbepayinglesstaxmoney
withpropertaxplanning.Oneoftheareathatyoucangetatax
reliefisforeducationpurpose.

Educationisaliberalconcernbecauseitisaboutempowering
peoplewiththeskills,knowledge,attitudeandaspirationto
developthemselves.Somebelievethatinordertohavea
brighterfuturewithbetterearningcapability,highereducationisa

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must.Here,youwillfindthecompleteguideforaMalaysianon
howtoenjoytaxrelief
ortaxdeductionfor
educationpurposes.

Therearefourareas
thatyoucantake
advantageoftaxrelief
foreducationpurposes:
1.Childeducation
insurancepolicy
MaximumRM3,000
2.SkimSimpananPendidikanNasionalMaximumRM6,000
3.PostgraduateeducationMaximumRM5,000
4.BookpurchaseMaximumRM1,000

#1.ChildEducationInsurancePolicy
Achildeducationpolicyisalifeinsuranceproductspecially
designedasasavingstooltoprovidealumpsumofmoneywhen
yourchildreachestheageforentryintocollege.Ifyouoptfora
payorbenefitrider,aneducationpolicyprovidestheassurance
that,intheeventofanuntimelydemiseoftheparentsorlegal
guardian,thechildwillhaveaccesstofundstohelpfinance
his/hereducationexpenses.Underachildeducationpolicy,the
childisthelifeassured,whiletheparent/legalguardianisthe
policyowner.

Typesofchildeducationpoliciesavailable

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Therearetwomaintypes,i.e.anendowmentor
investmentlinkedpolicy.Thedifferencebetweenthetwoliesin
thestructureaswellasthenatureofinvestments.

1.EndowmentPolicy
Anendowmentpolicycombinesasavingscomponentwith
protectioncoverage.Endowmentpolicymaybeeither
participatingornonparticipating.Asthenameimplies,
nonparticipatingpolicydonotparticipateinthelifeinsurance
fundsprofitsbutallinsurancebenefitsarefullyguaranteed.On
theotherhand,forparticipatingpolicy,aportionofinsurance
benefitsareguaranteed.However,theultimateamountof
benefitsatmaturityarenotguaranteedasthesedependonthe
performanceoftheinsurancecompanysparticipatinglife
insurancefund.

2.Investmentlinkedpolicy
Aninvestmentlinkedpolicycombinestheelementsofinvestment
andprotectionbasedonyourrequirementasthepolicyowner.It
offersflexibilityasyouareabletoincreaseortopupyour
monthlypremiumcontributionasyourincomeimproves.Ifyou
wishtobemoreaggressivewiththeinstrumentsofinvestment,
aninvestmentlinkedpolicywillalsoallowyoutochoosethe
typesoffundsyourmoneywillbeinvestedin.However,likeany
othersimilarinvestment,therearehigherrisksinvolvedandthere
arenoguaranteesonthereturns,whichmaybehigherorlower
thanprojected.

TaxincentiveofRM3,000forChildEducationPolicy

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Oneofthebenefitsofusinglifeinsuranceasasavingstoolfora
childseducationpolicyisthetaxadvantage.Insuranceproceeds
aretaxfreeandyoucanalsoobtainanannualtaxreliefofupto
RM3,000forthepaymentofpremiumsforeducationinsurance,
subjecttoapprovalbytheInlandRevenueBoard.Inorderto
qualifyfortaxrelief,
theeducationplanmustbetakenupbytheparent/legal
guardiananditmustmaturewhenthechildreachesthe
ageofbetween13to25.
Itisalsoimportantthatyouoptforapayerbenefitrider
throughoutthelifeofthepolicy.
Makesurethepolicyhasathewordeducationprinted
inthepolicytitle

anothermethodistopurchaseanendowmentpolicythatthelife
assuredistheparent,butthebeneficiarymustbenominatedto
thechildandmaturebeforethechildreach25yearsold.
Remember,ifyourwifeelectsforseparateassessment,shecan
alsoclaimthesameamountofreliefonherlife,educationand
medicalinsurancepremiumsbutnotonthesamechild.

#2.PTPTNSkimSimpananPendidikanNasional

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PerbadananTabungPendidikanTinggiNasional(PTPTN)
introducedasavingsschemewhichputsemphasisonSavings
TowardsHigherEducation.Besidesensuringannualdividend
returns,theSSPNalsoprovidesspecialfinancialincentivesin
theformofMatchingGrantsespeciallyforlowincomedepositors.

Inaddition,insurancecoverageandpaymentofdeath
compensationisprovidedfreeofchargetoalleligibledepositors.

HowtoOpenaSSPNAccount
Toopenanaccount,theapplicationformmustbesubmittedto
PTPTNcounterandanycollectionagentalongwiththefollowing
documents:
AcopyofthedepositorsMyKad/Military/PoliceIdentity
Card
AcopyofthechildsMyKid/BirthCertificate/MyKadand
Certificationofadoption(iftheSSPNaccountismeant
foranadoptedchild).
ForafamilywhosehouseholdincomedoesnotexceedRM2,000
permonth,thelatestincomestatementofthefamilymustbe
submittedalongwiththeapplicationformandacopyofthe
spousesMyKad/Military/PoliceIdentityCard.

Theminimumtotaldepositforpurposesofopeninganaccount
andincreaseofdepositisRM20foreachnominatedbeneficiarys
account.Depositincreasecanbemadeassoonasthe
membershipcardisreceived.

EligibilitytoapplyforPTPTNeducationfinancing

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ForhouseholdincomeexceedRM2,000permonth,a
minimumdepositofRM3,000isrequired
ForhouseholdincomedoesnotexceedRM2,000per
month,aminimumdepositofRM500isrequired.
Benefits:
TaxreliefonsavingsuptoRM6,000peryear.
FreeinsurancecoverageuptoRM50,000(dollarto
dollar)fordepositorswhohaveanaccumulateddeposit
ofaminimumofRM1,000(Eligibilityforinsurance/death
compensationisonlyfordepositorsbetween18and65
years,whereasdeathcompensationisawardedonlyto
beneficiariesaged1to28years)
Matchinggrantwithamaximumendowmentof
RM10,000perfamily(Afamilywhosehouseholdincome
doesnotexceedRM2,000permonthiseligiblefora
matchinggrantwhenthechildisacceptedintoahigher
learninginstitution)
DepositaslowasRM20atanytimedeemednecessary
andgovernmentguaranteeonsavings
Competitivedividendrateandtaxexemptionondividend

Withdrawal
Withdrawalofsavingscanonlybedoneafterone(1)yearof
savingintheSSPN.Thewithdrawalof10%ofthebalanceinthe
accountorRM500(whicheverislower)onceannuallyisallowed
(afteroneyearofbecomingmember).Withdrawalofupto100%
ofthebalanceoftheaccountisallowedifthebeneficiaryfulfills
oneofthefollowingcriteria:
IsacceptedtoanygovernmentrecognisedIPT

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Withdrawsvoluntarilyfromtheeducationsystemoris
terminatedforspecificreasons
Chronicillnesswithnohopeofrecoverywithdoctors
certification
Permanentdisabilityor
Death

#3.PostGraduateEducation
TopromoteacultureoflifelonglearningamongMalaysians,the
GovernmentproposestaxreliefofuptoRM5,000oneducation
feesbeextendedtoallpostgraduatestudies(Mastersand
Doctorateleve),effectivefromYearofAssessment2008.

EveryindividualareeligibletoclaimaRM5,000reliefeachin
respectivetaxreturnsprovidedthatthepostgraduatestudiesare
atinstitutionsorprofessionalbodiesinMalaysiathatare
recognisedbytheGovernmentorapprovedbytheMinister
undertakenforthepurposeofacquiringlaw,accounting,Islamic
financing,technical,vocational,industrial,scientificor
technologicalskillsorqualifications.

#4.BookHunting
Tofurtherinculcatethereadinghabitandinlinewithlifelong
learning,theGovernmentprovidestaxreliefonthepurchaseof
booksuptoRM1,000peryear.Allthetextbooksforyour
children,oryourownpostgraduatestudiesareeligiblefortax
relief.EventheHarryPotterAndmagazineyoubuyfrombook
storescanbeusedtodeducttax.Butyoumustkeepthebook
purchasereceiptfortaxauditlater,ifyouarelucky.

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Somereminders
buybooksandmagazinefromchainbookstore,suchasPopular,
MPH,BORDERSetc.Youwillnoticethereceiptprovidedby
Popularhave[BK]printedforbookitems.

YoucanevenorderyourbookviatheinternetAmazon,Barnes
andNoble.

Normally,therewontbeanyreceiptproducedwhenyoubuy
magazinesfromlocalbookstall.Ifyouwantyourexpensestobe
taxdeductible,avoidthis.

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www.KCLau.com page104/106

Ifyoufullyutilizedthetaxrelieffortheaboveelaborated4areas:
1.ChildeducationinsurancepolicyMaximumRM3,000
2.SkimSimpananPendidikanNasionalMaximumRM6,000
3.PostgraduateeducationMaximumRM5,000
4.BookpurchaseMaximumRM1,000

ThereisatotalofRM15,000taxrelieftobeclaimed.Iwill
definitelyuseupitemno.1,2,and4.Butforitemno.3,thereisno
cleardefinitionofpostgraduatestudyandlistofcoursesthatis
eligible.Itwouldbeniceifcollegesanduniversitiescanindicate
thetaxreliefeligibilitywhenpromotingtheircoursesforworking
adults.

Ifyourtaxbracketis21%,youwillsaveuptomaximumof
RM3150taxpayableyearly.Lastbutnotleast,Iwouldurgethat
youtakeadvantageofthemallduringyearend.
Purchaseyourchildinsurancepolicyandpayyearlyin
Decemberthepremiumpaidwillbeeligiblefortaxrelief
immediately.Donotethatsomeinsurancecompanyhave
offerforcertaincreditcardsthatyoupayyearlyupfront
withcreditcard,butpaybackthebankin12installment
withoutinterest.
OpenSSPNaccountinDecember,andmaxitupto
RM6,000.
Consolidatethereceiptofbookpurchase,anduseupthe
RM1,000ifyouenjoyreadingbooks.Ifnot,trybuybooks
asgifttootherswheneverpossible.Booksaregreat
birthdaygift.

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Byusingthis"yearend"strategy,youhavekeptthemoneywith
youforafullyearandalreadyreapthefullinvestmentreturn.

TheEndofVolume2

Ifyoufindanyerrorinthisedition,kindlysendanemailto
book@kclau.com

DoyouwanttogetthenextVolumeofthisebookseries?Visit
thispagehttp://kclau.com/lp/ebook/topostacommentandenter
youremailstogetonmyemailinglist,soIcansendyouVolume
3whenitisdone!

Hearfromyousoon.

regards,
KCLau

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