EPF's Akaun Emas - What you need to know

I am for EPF's move to lock in savings until contributor turns to 60. There is word flying around that EPF will run of out money due to our government's overspending but that is largely bollocks. First EPF is independently run by professionals which has performed well over the years. Second EPF is bound a myriad of rules and regulations that bars it from investing recklessly. Third why on earth would our MO1 KowTow to China for funding if it could easily get it from EPF.

Whether you know it or not Malaysia is heading towards being classified as an ageing society by the year 2035 (only 19 years from now). Ageing here mean that individuals above 60 years make up a larger proportion of the total population (>15%). This is evident as life expectancy is rising (more than 75) and fertility is decreasing (an average family now has 2 kids compared to half a dozen 25 years ago). 

Tightening EPF withdrawal rules is not good enough. Hence the move to establish the Akaun Emas. This was done after following the Members Consultation Exercise last year. A total of 94% of respondents overwhelmingly agreed for the EPF to maintain the Age 55 withdrawal, with new contributions from age 55 to 60 to be locked in until age 60, hence the introduction of Akaun Emas.

Okay even a summarized chart might be technical for some folks. Let me help you with that.

[1] Below 50 and At 50 - no changes. You already know what you know now.
        - Seventy per cent of contributions goes into Account 1 and 30% goes into Account 2.
        - You can withdraw from Account 1 at age 55 only.
        - You can withdraw from Account 2 at any age subject to eligibility.
[2] At 55 - starting next year Jan 1 2017, everything will be transferred to Akaun 55.
[3] From 55 to 60 - you can still contribute while working but to the new Akaun Emas.

***The addition of Akaun Emas does NOT impact what we currently have AT ALL. Please don't listen to false rumours/fake news that govt is extending withdrawal to keep it for themselves - all those are bollocks. 

Other important notes:
- You will still get dividends from your Akaun 55 and Akaun Emas even when you are aged 56 to 60.
- There will be no difference in the annual dividend payout % between both accounts to be fair to all EPF members.
- You can still make a full withdrawal from Akaun 55 from age 55 to 60. You cannot however withdraw any amount from Akaun Emas unless you are 60 years old and above.
- At age 60 both Akaun 55 and Akaun Emas will be combined. Name of account not known.
- If you are terminally ill say at age 58 you can withdraw from Akaun Emas under the Incapacitation Withdrawal scheme.

One short disclaimer. Aboi says that moving forward EPF returns will not likely be as good as it was in the last few previous years. Considering that equities markets around are the world are struggling and most funds are under performing. Likewise the low interest rate regime is likely to stay for many years hence impacting the performance of many pension funds globally, not limited to Malaysia. Fixed income investment instruments used to dish out high yields of 8% during the heydays in the 1990s but now yields on MGS and Treasuries have declined to less than 3.3% now - hence the term low interest rate regime thanks to the Financial Crisis of 2007/2008.

I Found Where To Park Money For Emergency Use

After a bad start even for myself (due to being unwell) in 2016, I'm finally back to the blogging sphere. In order to increase frequency of posting I will likely be linking articles, ideas and putting comments where appropriate.

As many of you know I'm an account holder in FSM and have various fund holdings but what I do with my cash? Savings account? Fixed deposit? Hold hard currency? I think money market funds will serve my needs very well. I shall explain.
THE NET INTEREST RATE* ON CASH MANAGEMENT FUND

I got the idea from this FSM article:
http://www.fundsupermart.com.my/main/research/-View-Idea-Of-The-Week-How-to-Save-for-a-Rainy-Day-11-Dec-2015--6606

1. RELATIVELY ATTRACTIVE RETURNS AS COMPARED TO SAVINGS RATE
- Maybank offers - Money market funds ~3.50%.

2. NO LOCK-IN PERIOD & LIQUIDITY
- Fixed deposits rates are higher than savings and possibly money market funds but they suffer from lock-in periods. Not ideal for emergency cash.
- Money market funds have no lock-in period, hence better liquidity and can redeem their money without forfeiting the interests gained.

3. REQUIRE A MINIMUM INVESTMENT AMOUNT ONLY
- Money market funds have low minimum initial investment (RM500) and subsequent amount (RM100).
- All money market funds on Fundsupermart platform are at 0% sales charge.

Other smaller benefits I see by parking cash here are:
Parking facility – I can park your money in this fund while waiting for the right time to invest in unit trusts in FSM.
Visibility of daily interest rate – I will be able to know the interest rates on a daily basis since the fund invests into deposits.
Facilitates the execution of the Regular Savings Plan (RSP) – Monies can be deducted from the fund to buy selected unit trusts on a regular basis.

Is it safe? Yes.
The fund houses that manage these funds, being the Capital Markets Services License holders for Unit Trust Management Company (UTMC), are strictly regulated by the Securities Commission (SC). Also, these funds’ mandate is to invest in money market instruments and deposits of financial institutions with a maturity period of no more than 1 year. As such, these funds provide investors with the similar sense of security that the banks offer.

Investors will be rest assured as these funds have been able to deliver a positive 1-year rolling return with an astounding probability of 100% over the past 4.5 years (ended Dec 2015).

The only thing to remember is that money market funds are not insured under the Perbadanan Insurans Deposit Malaysia scheme so they do carry slightly more risks than savings and fixed deposits.

Savings vs Investments (Unit Trusts)

The primary aim of savings is to protect the real value of money you put away, while investments are meant to grow its value. In short I believe that you need both. Savings for short term use and as an emergency buffer or reserves. Investments for your long term goals and needs (>3 years).

Savings: Savings Accounts / Fixed Deposits
Pros of Savings:
Keeps value of money intact and provide small returns as determined by interest rates. Usually always available when you need it. Minimal risks and usually guaranteed by banks or by the government. Finally it requires very little financial knowledge.

Cons of Savings:
Little increase in value over time. Currency fluctuations and inflation may significantly diminish its value. **
** Banks use your money (from savings account or FD) to provide loans and in return distribute a portion of their profits in the form of interest on your savings. Central banks control the interest rate based on inflation numbers and therefore savings can only return a slightly higher than forecasted rise in cost of living otherwise known as inflation to ensure that the value of your savings does not. This is WHY it is only good as a short term use.


Investments: Equities (shares in company) / Bonds / Property / Unit Trusts
Pros of Investments:
Grows the value of your money and may return several times the amount of your initial investment.
Helps you build a nest egg for your retirement, children's education fund, vacation and etc. Most of the time the value of investment tends to correlate to inflation.

Cons of Investments:
Risk level varies but generally higher than savings. Money usually locked in for a period of time or at least not straight forward to cash out. Requires a good amount of understanding the product and market.


As you know 20% of my portfolio is based on Unit Trusts, a figure which I would like to see increased in the coming years. Here are the benefits I see (from highest order to lowest):

Portfolio Diversification - investor has access to broader range of securities (Malaysia / Asia / Global) than you could if investing on your own. this also minimizes exposure to any one type of risk.

Access to Broader Array of Financial Assets - in Malaysia a normal investors cannot directly invest in government or corporate bonds. Fund Managers have access to those.

Asset Liquidity - you can buy and sell units anytime as compared to trading shares of companies where prices and opportunities to transact depends on availability of both buyers and sellers.

Affordability - require minimal amount of investment as most funds accept both small (for as little as RM 100) and large investments.

Continuous Professional Management - funds run by full time and professional managers who have necessary skills, relevant experience and dedicated resources to maximize investments. **
** NOT all funds are managed well. One must know how to filter good ones out as posted previously http://aboiwealthpot.blogspot.com/2014/10/abois-updates-for-malaysian-equities.html. It will pay extremely WELL if you do your homework.

Global Fund on Equities (shares on company)

Asia Bonds (a type of corporate loan)

Asia Pacific ex Japan Equities (shares on company)

Malaysia only Equities (shares on company)

DIY Financial Planning

Created a simple spreadsheet (rev1.0) to devise some form of self-financial management. You can get it from here: https://www.dropbox.com/s/ani7eo357s0szxl/DIY_Financial_Planning.xlsx?dl=0. Nothing fancy but needs some explanation. The spreadsheet is divided into four sections:

[1] Income Management

[2] EPF Table (Malaysian Pension Fund)

[3] Risk Management

[4] Wealth Generation

Income Management

The most exhaustive among the big four and is important for your monthly and yearly budgeting plan. It is broken down into Income, Expenses, House Affordability Range and Car Affordability Range. Income is straightforward but do make sure you break your income between taxable and non-taxable. From here you can estimate how much you earn yearly in gross income, net take home pay as well as total EPF contributions and taxes you are paying.

In expenses I further drill into day-to-day spending, regular lump sums (monthly), regular lump sums (annually) and occasional lump sums (estimates). The regular lump sums is the critical part here as this probably the bulk of your life commitments. Towards the very end you will notice a column named "Difference". This is computed based on Net Take Home - Total Expense and will conclude if you are overspending hence the need to revisit your "lifestyle".

 

Next is the House Affordability Range. The formula is derived using ratio 4 as the standard. This value is universally accepted in many countries as well as historical figures for a house to be termed as "affordable".  

Similarly there is a Car Affordability Range. There is no standard ratio. This is simply computed by using how much you can afford (Ideal case) and the downpayment value. For the number of payments, it is best to stick at 60 (5 years). Anything longer means you are paying a lot more in terms of interest value.

EPF Table (Malaysian Pension Fund)

The second tab and this is important for your long-term retirement planning; to roughly guess how much you would have at a specific age depending on your current income. You would be able to estimate your yearly gross from the Income Management section earlier. Both average pay rise of 3.00% and EPF estimated returns p.a. at 5.50% are obtained from historical national statistics.

Risk Management

Here is where insurance comes into play. Broken into two parts: Summary of Protection and Inflation Adjusted Medical Costs/Dependency Coverage. I will explain the latter first. You will need to key in the inflation rate, this rate is the medical inflation rate not the usual consumer price index inflation rate. The cost of treating these critical illness is based on Year 2010. I obtain these values from various sources including articles/doctors/medical news and like asking around.

The Personal Accident coverage simply takes into account how much you earn per year * the duration. The duration that you key in for example might be derived from your family's age. E.g. I need to continue to support my kids for 20 years before they grow up to be able to work for themselves.

The Summary section. You will need to summarize all your insurance policies into a single sum. For Life and Health, both are bench marked against the Critical Illness cost for current year 2015. The Medical H&S is bench marked at 200. Likewise the Personal Accident Coverage is bench marked against the Dependency Coverage for year 2015.

Wealth Generation

Honestly the most difficult part. It is not ready yet but you get the idea where I am heading; partly thinking of portfolio style.

I will occasionally update the spreadsheet as I tweak it. Expect new revisions to come up from time to time. Any feedback is appreciated and I can be reached via my email. Again it can be obtained from here. https://www.dropbox.com/s/ani7eo357s0szxl/DIY_Financial_Planning.xlsx?dl=0

Why You Should Not Overlook Cashback Cards

Let me give two examples of cards with cash back.
UOB Bank One Card Visa
Highlights:
[1] Petrol: 5% (All petrol stations)
[2] Cinema: 5% (Golden Screen Cinemas)
[3] Groceries: 2% (Tesco, Aeon Big, Giant, Cold Storage & Jaya Grocer)
[4] Pharmaceutical: 2% (Guardian, Watson & Caring Pharmacy)
[5] Telecommunications: 2% (Maxis, Digi & Celcom)
[6] 0.3% for all other purchases not listed above.
[7] Cash back is capped at RM30 for petrol, RM30 for groceries and RM6 for mobile.
[8] Additional SMART$ rebate 5% for GSC and 2% BHPetrol. Other merchants as well not listed here.
This is simply amazing because all are common merchants. Unfortunately it is not as accessible requiring an annual income of at least RM36000 to be eligible for this card.

OCBC Bank Titanium MasterCard
Highlights:
[1] 1% rebate on all retail spending.
[2] No caps on rebates.
Unknown to many the word 'retail' here is misleading. It actually encompasses absolutely any type of spending, be it on their online retail therapy or buying groceries at the local supermarket.
This card is also is surprisingly accessible. Anyone aged 21 years old and above with an annual income of at least RM24000 can apply for this card.

So how much can you actually save per month? Let me give you an example:
-->Take advantage of UOB card on selective merchants.
RM250 petrol @ BHP: RM250 x 5% = RM12.50 (smart$: RM250 x 2% = RM5.00)
RM100 movies & popcorn @ GSC: RM100 x 5% = RM5.00 (smart$: RM100 x 5% = RM5.00)
RM88 telecomm with Digi: RM88 x 2% = RM1.75
RM200 groceries @ Tesco: RM200 x 2% = RM4.00
-->Use OCBC card for your remaining recurrent expenses
RM400 insurance: RM400 x 1% = RM4.00
RM140 broadband with Streamyx: RM140 x 1% = RM1.40
RM400 meal joints that accept credit cards: RM400 x 1% = RM4.00

In total it's all RM32.65 in cash back rebate & RM10 (smart$ rebate).
How much is that per year? RM511.80

RM500 may not seem much but never underestimate the power of compounding. If you had dump this RM500 every year for 5 years when you are 25-30 years old this is what will turn out in 30 years (60 years old):

Your RM2500 will turn into this:
Fixed Deposit (3% p.a.): RM5860 (more than double)
Bond Fund (5% p.a.): RM10206 (quadruple)
Mixed Asset Conservative Fund (7% p.a.): RM17600 (x7)
Mixed Asset Balanced Fund (8.5% p.a.): RM26318 (x10)
Equity Fund (10% p.a.): RM39146 (x16)
*You followed Aboi's Diversified Portfolio (12% p.a.): RM65940 (x26)
*Know how to switch equity funds / targeted fundamentally sound stock (15% p.a.): RM141800 (x56)
*Possible but you have to be damn good: (18% p.a.): RM299234 (x120)
*Somehow you are so gung hu (20% p.a.): RM487390 (x194)

All from using cash back cards and setting aside RM42.65 per month (offset from rebate savings -> investment fund). SIMPLE OR NOT?

How2 save RM100k in 4-5 years in 'Malaysia'?

Can but tough la .. earn s0 little, expenses s0 high how to save?? I focus on 4 core items based on my observations from typical Malaysian spending habits. Food, petrol, cars & clothing. This is based from my own experience and should not be a definite guide on how to save. Certainly they are many other ways but I'll focus on the four core expenses.

Sometimes the biggest savings you can make is your choices on food. Of course you can BYOF (bring your own food) from home but I myself am not a big fan of this. I would rather eat daily lunches with my co-workers as a chance for bonding and socializing. For kopitiam, order ais kosong or don't order anything, you'll able to slash RM1.00+ per day, that's RM20/month. Try skimp on expensive extras: fried chix, fish, sotong especially mamak places which will cost you a bomb. Based on experience on average, noodles/mee hun/ kuey teow soups are cheaper than other dishes. You can also do it cheap from simple economy rice choices (vege preferably, cheaper) then flavour your rice with other dishes (curry from the fish head curry, etc). It still tastes good without looking cheap.

Fast food places/ restaurants. Again, ask for plain water. These places charge ridiculous prices just for water. So imagine what other drinks would cost you? Get set meals if possible. If go with friends, combine all your foods so you get lots more choices, a lot more satisfying. Yea you get to ninja each other's food for the excuse of (ooi ho chiak la you should try and your friend would do the same for 'paiseh' reasons). If you want to be more 'hardcore', factor in restaurant promotions and discounts. E.g Groupon deals. Savings estimated: RM5000/5years

Petrol. I can hit 475km with just RM65 of Ron95 petrol on my 7 year old 1.3cc MyVi (as of RM2.10/litre price). That's with 60% expressway, 40% city driving. Good news: Petrol prices cost the same AT EVERY PETROL STATION IN MALAYSIA. The government fixes the price. So you don't have to do the added homework of searching around for places selling cheapest petrol, like how they do it in many parts of the world (America, UK, etc). Therefore, the tips on this post are mostly common-sense tips. Don't accelerate quickly unless you have to like avoid an accident. Don't drive too fast, I usually go 2000rpm max regardless of gear. Check tyre pressure, I always top it up when I pump petrol. Dump everything out that is not essential, keep car as light as possible. Avoid rush hour traffic..go to work before 7am and go home before 430pm. And the most underrated tip, stop making circles looking for parking. Park further away and walk. 100-200m won't break your legs. Savings estimated: RM3000/5years

Cars. Malaysians value car a lot because to many it represents status. Fresh grad nak glamour, forking out 90k for Honda City on a 5 year loan. Imagine if you had bought a 2nd hand car say a MyVi for RM40k, that's effectively a RM50k savings stretch over 5 years. That's a lot of money and I mean capital A L O T. Obviously I have long finished paying for my car 2 years ago, I have no intention of changing to another unless it is again as cheap as ~RM40k. Savings estimated: RM50000/5years 

Lastly, clothes will always, ALWAYS look better on the models. Human or non-human. Fact/fakta. You will always tend to have this idea that a certain piece of fabric can turn you into this desirable hottie. It doesn't matter if you're a man or a woman. The thing is, fashion sells image. As in, how their clothes can give you the impression that you're part of something better or greater. Wearing Nike makes you feel sporty, no matter the only running you've done all day is running after the bus. Wear Prada and suddenly you're this chic, glamorous, high maintainable girl. Never mind you're actually an ah lian. But, I can agree that whatever it is you want to achieve, you can do it cheaper & lesser. By doing so online and sniffing around a bit. There's loads of promotions, and warehouse sales and you don't have to keep buying a whole lot of them. Just do the mix and match trick. Savings estimated: RM15000/5years

What about a house? I intentionally left that out. Some argue that is cheaper to get it earlier before it gets more expensive but like all economic cycles, there will be periods of busts. While I can agree that asset prices will never go below zero, what I disagree is prices will go up infinitely. If that is wrong, you can basically discredit entire theories of modern economics or Malaysia has found the holy grail of property investing when even Wall Streets fails to figure it out. I took advantage of getting one during the subprime crisis in 2009 so there is no right or wrong, the timing & price-for-value of the purchase is more important.

From Focus Malaysia Issue 053: Dec06-12, 2013.

Still that's only RM73k. Yes and these are savings that come from spending habits. The remaining RM27k comes from your allocated 5%-10% savings per month. Assume a fresh grad earns RM3.2k/month, try saving RM450/month. Doing that you can still spend all your bonuses. Like many other things in life, saving is an endeavour that many find hard to adopt especially in the beginning. To ease yourself into your money-saving journey, you may wish to start off with a moderate amount (say 5-10% of your wages) so that it does not affect your cash flow to the extent of making you give up altogether. Over time, you can try to increase the amount as the act of saving becomes a habit. Don't say later la..in Malaysia later is always never, you dunno meh??

Private Retirement Schemes in Malaysia Part 1

Quote: Retirement Is A Journey Not A Destination!!

This is a snippet of a full article from my dropbox area. In there, you can access tonnes of documents. I highly recommend you view them, alternatively you can download the entire folder to your own computer. Internet Explorer is known to have issues, please use Chrome or others. You can view from this link: PRS Info @ Nick's Dropbox

What the heck is PRS?
"PRS is an investment scheme that facilitates the accumulation of retirement savings through voluntary contributions. The PRS is designed to complement the Employees Provident Fund (EPF) and is regulated by the Securities Commission Malaysia (SC)." taken from Fundsupermart.

Simply said, PRS is another form of investment option for us to save up for retirement.

Why PRS for Retirement? 
Like it or not, when deciding to invest in PRS, we are actually forcing ourselves to save + invest additionally apart from depending entirely on EPF for retirement. The problem with depending entirely on EPF for your retirement is as below:
1. The average annual return of EPF for the past 5 years is only 5.62% (to slow lahhh...) because…
2. Inflation is about 3-4% and might rise higher in years to come. I assume subsidies will be cut. By extreme case cancelling all government subsidies, inflation would double to 6-8%. I will explain how I get this figure next time.

3. The amount accumulated in EPF when reaching retirement is actually insufficient to cover the expenses of a person who has retired. Again this is highly dependent on your desired lifestyle during retirement.

Case Study 1 - Investing my EPF when I retire (case of too little too late)
Now say for example I retire at 55 with RM1, 000,000 in my EPF account. I decide to withdraw all that money and invest in a fixed deposit earning about 4% a year and live on the yearly returns. That would come up to about RM40 000 per year or RM3000 per month! Not too sure if I can live comfortably with that amount. Remember that’s nearly 25 to 30 years away. Using inflation of about 4% RM3000 is equivalent to RM8000 in 25 years. So I am short of RM5k each month. Seriously, Money No Enough lerrr...

Case Study 2 - Living on EPF (case of being too old fashioned)

I decide not to invest but to withdraw all the money from EPF and keep it under my bed. Instead, I'm going to slowly use that money till I meet my Maker at about 75 years old (if I live longer then 75, then God help me!).
With RM1, 000,000 and 20 years to live, I'm allowed to spend an average of RM4166.67 per month or RM138.89 per day. By the way how much does that loaf of bread cost again or a plate of char koay teow? By that time CKY is RM12/plate. Remember that RM8000? Even in this case study 2 I am still short of nearly RM3800.

Obviously bigger income earners tend to contribute more to EPF and should have sufficient money saved up by retirement. Never the less, wouldn't you prefer to live a better and more comfortable life during retirement?  Would you not prefer to have the extra to go on an annual holiday with your loved ones? I seriously doubt the same can be said for Case Study 1 and Case Study 2!

Quote: The Question isn’t at what AGE to retire but at what income level!!

How much can I save from paying tax if I invest in PRS?

The major selling point of the PRS is non-other than the RM3, 000 tax relief given. For investors who have invested into PRS funds, they are eligible to a maximum of RM3, 000 tax relief per year.

As for me, I will be considering to allocate a small portion for PRS in order to maximize the benefit of tax relief. I will wait until General Election 2013 concludes before diving into a PRS fund. Perhaps you should do the same?

Cheers and Happy Investing!

This is a snippet of a full article from my dropbox area. In there, you can access tonnes of documents. I highly recommend you view them, alternatively you can download the entire folder to your own computer. Internet Explorer is known to have issues, please use Chrome or others. You can view from this link: PRS Info @ Nick's Dropbox

Disclaimer: The reports, analysis and recommendations in this blog are solely my personal views. I do not link to any investment body or company. As such, I will not be responsible of any of your investment decision. Consult your investment adviser or come to your own conclusions before making any investment decision.

The Right Start!

Anata Wang

Young savings account structured very similar to Fixed Deposit accounts hence they provide investors higher interest rates compared to conventional savings account. Nevertheless there are intently designed to discourage withdrawals by imposing minimum withdrawal amounts or lower interest rates applied if withdrawals are made frequently. 

It is never too young to start saving some money and although there are many ways to instill this saving concept, I personally think that opening a child savings account is an important life lesson that any child could possible learn. That is to put money into a bank and let it grow! Some parents would argue that it is better to invest the money in stocks or unit trusts. Certainly there is nothing inherently wrong with this strategy but for small savings simple enough for kids to understand we should look for a savings account for children.

There is no shortage of children savings account in Malaysia and a key difference is the age eligibility which is either less than 18 years old (and in some cases below 12 years old). Other notable key features are:
1. Remember small savings. Hence higher interest rates on the first RM50,000 or RM100,000.
2. Discourage withdrawals. Limited number of withdrawals/month. Limited withdrawal method (OTC only). Lower interest rates applied for frequent withdrawals and in some cases extra charges for each withdrawal thereafter.
3. Cash incentives for academic excellence award. Free personal accident coverage.

Hence forth I have compiled a list of young saving accounts in Malaysia (first taken Personal Money October 2012 issue) and modified it with more useful information. The full spreadsheet can be obtained from this link: Comparison_Junior_Savings_Account_in_Malaysia.xlsx It's better to download it and view using Excel software.

Snippet taken from the spreadsheet. It's too large to fit in a single picture!

Here's my take on the top accounts one should choose.

Must have account for small savings.
AmBank Group - AmGenius. 3.00% interest rate for the first RM50,000. Free PA coverage 5x balance amount, max coverage of RM50k. Interest credited monthly.

OR

RHB Bank - Junior Savings. 3.02% interest rate for the first RM100,000. Free PA coverage 5x balance amount, max coverage of RM50k. Interest credited bi-annually.

Put in minimum amount now or during exam calender year.
OCBC Bank - Young Savers. 2.85% interest rate for the first RM50,000. Just put in minimum amount (check with bank) required to qualify for academic excellence award (UPSR, PMR, SPM and STPM). Account must be one year old so time it correctly.

Maybank - Yippie. 2.90% interest rate for the first RM50,000. Just put in RM1000 into the account to get the free coin box and for the cash incentives for academic excellence award (PMR, SPM, STPM and degree) on the exam calender year. You also get free PA 7x balance amount, max coverage of RM50k.

Alliance Bank - Alliance Save Pendidikan. Just put in RM300 on the exam calender year to qualify for cash incentives for academic excellence award (UPSR, PRM and SPM).

Must have account for large savings:
Affin Bank - Junior Saver. >RM100k 2.85%, >RM500k 3.10%, >RM1mil 3.38%. The best interest rate above savings of RM100k. Free PA coverage 5x balance amount, max coverage of RM50k.

Anata Wang

During the 2008 financial crisis, global banks in the western world collapsed under the strain of ill managed borrowings and many people started to question the security of their savings. Like in any other banks, the money you deposit is never guaranteed and the same applies to banks in Malaysia. Luckily in Malaysia, one can save their money into a regulated bank that is under protection by Perbadanan Insurans Deposit Malaysia (PIDM). PIDM protects your bank deposits and will promptly reimburses you on your insured deposits should a member bank fail and there is no charge for this insurance protection.  Keep an eye out for the logo at your banking institution. 

Note that it only covers protection up to RM250,000 per institution so if you have a million, be sure to spread it across 4 different banks. Remember it is never too young to start saving. A RM300 per month savings for your newborn to the 18th year would have grown into RM87,000 (in which from there you will profit RM22,000 from interest alone!). A right start for his/her tertiary education plus your kid would have appreciated the financial lesson that aboi has taught you.

Malaysians & Their Cars Again...

What is wrong with Malaysians? Are we shrouded in stupidity? For the pass six months I have heard many response towards buying a "luxury" car from proponents. I bought it because of safety features. Yay right, how many times do I actually see people comparing safety features between cars? Virtually NO. In most cases I see people comparing the additional "gizmos" within the car and how many bling bling features it has inside it. You did not ask the sales guy about how safe this car is, its safety ratings, its credentials...bla bla bla. Of course the basics e.g. air bags and ABS are now even present in local cars @ a cheaper price point. Do you know why speed crashes and test dummies are done at reduced speeds using high speed cameras? It's a high speed camera anyway; because you are most likely to die from a crash above a certain speed limit regardless how SAFE you perceived your car to be. Simply ask a car buyer who pays RM90,000 for a car how much safer is it compared to a local car at RM50,000. Close to being don't know is next to ignorance. You can ask me the same question but I do not know but why are you paying the extra RM40,000 for something you DON'T EVEN KNOW? Safety is the lamest excuse coming from Malaysians to date.

Another excuse: many Malaysians die from road accidents compared to terminal illness because we have many local branded cars on the road. If you take the statistics and weight it across brands you get roughly the same percentage regardless of make. Why is this? PLEASE, use your God given grey matter. In doesn't matter the type of car, it is because the Malaysian driver no longer respects the law. Go to NSE and you can see a car flashing you from behind every 5 minutes. Red lights are optional, motorists do not wear helmets and lorry/express bus drivers are RAJA JALAN. In fact, this laissez faire attitude towards traffic laws is equally represented in other areas of daily life in Malaysians and most notably the lack of common courtesy.

Sharon Xu

Our current public transport condition is to be blamed is another half baked excuse. Though it is not the lamest I have heard, it is certainly perplexing to put the blame solely on our transportation. Malaysians do not carpool (this is why I am a proponent of higher gasoline prices), parents fetch/drop their kids to school even when there is BAS SEKOLAH, we prefer to drive even if it is only a walk away and we usually blame the tropical weather. HELLO!! Are we the only country in the equator?? We even lose to Brazil in terms of trying public transport. Motorists in this country don’t blink an eye forking out large portions of their earnings just to pay for their car loans or upkeep. Do you own the car or does the car own you? Well it is easy to blame to government, our Proton and Perodua but not ourselves, yet we have consistently and persistently adhere to our indulgence to "Keep Up With The Joneses" and in denial of that fact.

For those scratching their heads and wondering why the government refuses to lower taxes on imported cars sold in Malaysia even for brands and models not in direct competition with national makes. I know that the import duty, excise duty and sales tax collected from imported cars range between RM 3 billion to RM 5 billion a year, which implies that there is little chance of the taxes ever going down and prices of imported cars reduced. And we are feeding this all the time by buying foreign cars with lame excuses. Out of a RM90,000 car, RM33,000 goes towards the government in terms of taxes. THINK! Sidenote:Top 10 Brand Cars In Malaysia.

Re-post: What do I find a justifiable excuse? You get what you payed for and as such the only reason people buy jacked car prices is for quality. In an industry which is plagued by x3 normal prices, the word quality is knitted closely to the word luxury. Believe it or NOT, cars have become status symbols where proud men showcase their ego and the capacity to indulge themselves while their continue to live in normal apartments. In Malaysia it has become more than a mere necessity.

Sources: MAA, AAM, PIAM and Paultan.org                   

We should start going back into:

Start a carpool group: On the way to work, fetch your neighbours kids to school etc OR hitch a ride with some pals. It's not on the way. COME ON! Since when our houses are built along one single street? Take a short detour to fetch someone and share the gasoline bill. As a proponent of higher gasoline prices, carpooling will solve the high price issues.

Buying locally made cars/used foreign cars: A reduction in AP generated profits will make the government change its stance to some extent.

Use public transportation when ever possible: Start from yourself so that your children will follow. Even if it is terrible, play a role to provide a solution rather than be part of the problem by adding more traffic in our clogged roads.

Don't Be One Of Them!

I just blazed through the book "Financially Stupid People Are Everywhere: Don't Be One Of Them" in just a matter of hours and found it to be both gratifying and a timely reminder as I head into yet another year full with global economic uncertainty and the usual political mess.

A recommended book for reading nevertheless, if you haven't had RM1000 for tax rebate next year buy it now, if not do it for next year. Written in a straightforward, simple and accessible style, it reveals how modern society as we call it is rigged towards a debt-ridden economy and outlines simple ways to resist this. Below are some excerpts from the book:

First Rule of Finance: Not to spend more than 80% of your take-home pay.
Credit cards: Never carry a balance.
Cars: Pay cash for vehicles. No financing.
Castles: 20% down payment, maximum of 40% of take-home pay as financing payment.
The only rule I did not adhere is the third one. God I wished I could reverse time and bought myself a used car instead of a new one. A lesson has been learned.

Financial freedom is not about how much networth you have, it is on smart money management. If you drive up in a brand new luxury car and tell me that you borrowed a pile of money from a bank, I am not impressed. That's nothing special. Any idiot with a pen can do that.
Cars are a form of liability as I mentioned before as do other items that depreciate in value over time. Well I could not buy my car in full with cash, at least I made a cheaper choice and one more year to go in financing. 

Living within your means freeing you from the job you don't like. Having enough cash to go about presents a path to wherever you want to go, because you know how to decide what you want and put away the money needed to get it. Smart money management will make it possible, not tying you to a job that you dislike for years.
A healthy reserve of cash in savings or assets (fd, equities, bonds, property) minimizes the impact of losing or changing jobs. I can quit now and still stay jobless with my current spending for almost 2 years. There is no use waiting for the paycheck every month's end just to clear off debts and borrowing. You are going to be tied down forever. 

If you can't handle paying off your credit card each month in full, you can't handle stocks. Get the management of money part down first as the stakes are low and easy before climbing up the ladder to investing. If you can't control your finances before striking it rich on the stock exchange, what makes you think you will afterwards?
Indeed, if you can't control would mean losing patience. Investing in stock requires patience, if not you would be considered a speculator who has no clear investing strategy and might probably borrow to invest when you are actually gambling with luck.

The thing that made this book interesting for me is it touches upon the society of America where the government is of the corporations, by the corporations for the corporations. It takes you deep as to why health care is expensive, why oil dependency continues and why military spending remains high. It reveals the coordinated effort at work to suck dollars out of every taxpayers. It is not an American Dream.

Most people, your neighbours, friends, colleagues could have fell into this trap of borrowing and mindless spending. Don't be one of them and do yourself a favour by getting this book. If you ask me nicely, I might be Santa Claus and give you one for free :) Happy merry Christmas everyone, HoHoHo!!

BN = Barang Naik! Premium Fuel RON97 Goes Up

Here comes the next increase in fuel price as dictated by the Malaysian government, little do people remember that this is only the beginning as the government is planning on an increase every 6 months until end of year 2012. The problem? Malaysia’s total subsidy for 2009 is at a staggering RM74 billion which is equivalent to RM12,900 per household. Most Malaysians know that we have a fuel subsidy, but many of us don’t know that essential items such as cooking oil, flour, sugar, education, toll, healthcare and electricity are all subsidized as well.

Do I think such reduction in subsidy is warrant? As citizens of Malaysia, we too have to play a role in helping the nation but there will be another multiple choice question: To reduce subsidies, improve the financial management level or to eliminate wastage and corruption first? If they focus only on subsidy reductions without a proper planning for the savings, I am afraid that the money may be wasted due to financial mismanagement, wastage and corruption. As a result, the people's "sacrifice" will be wasted.

The government must show a greater effort in plugging the leakage and moot out corruption, until I see this really happening I do not warrant such reduction in subsidy. After all we are just lining even more money to the pockets of the corrupted. In addition to this, we are already in the world's history books for having the highest car prices in the world due to our automotive protectionism policies. If the government is looking to reduce fuel subsidy it should also look into reducing the base price of our cars. The only parties the government is protecting are only the profit makers. Also please channel the unsubsidized money into building good public transportation.

Nevertheless, I am mixed towards fuel subsidy reduction. Sometimes, it is hard to retrieve something that you have given away. It is the same case for subsidies! People will inevitable make noise including opposition parties taking advantage of such bad news, that's the brutal truth of politics. Fuel increase has a multiplier effect on inflation as prices of goods and services will go up and this will hurt the lower income group the most. As an oil producing nation, we should be enjoying very cheap fuel so please DO NOT listen to the government when they compare it with countries like Singapore!

Countries- in Ringgit Malaysia (RM) per Litre

Malaysia 1.85

UAE 1.16
Egypt 1.02
Bahrain 0.85
Qatar 0.66
Kuwait 0.64
Saudi Arabia 0.35
Iran 0.32
Nigeria 0.30
Turkemenistan 0.23
Venezuela 0.13

Sadly Malaysia's current running deficit of ~RM400 billion means that the government cannot afford to do this or will it ever do it considering our ever growing civil service, leakages, corruption and spendthrift ways. Aboi can only provide some tips to save on gas.

1. Pump your tyres. I do this almost every time I fill up my gas. According to some just 1 tyre deflated by 2 psi will result in a 1% increase in fuel consumption.

2. Drive at moderate speed. Drag and thus fuel consumption increases rapidly at speeds above 90km/h.

3. Don't let your engine go idle. Idling more than a minute consumes much more fuel than restarting the engine.

4. Use the air-con sparingly. Air conditioners can use about 10 per cent extra fuel when operating but I will use it when it is hazy.

5. Anticipate traffic ahead. A driver can reduce fuel consumption by up to 10% by anticipating traffic conditions ahead and adjusting the speed accordingly, and avoiding tailgating and thus unnecessary braking and acceleration.

6. Travel light. Avoid carrying any unnecessary weight in your car. On the average, every 50kg added load in your car will increase fuel consumption by 2%.

7. Drive in high gear (overdrive). The engine runs most efficiently between around 1,500 and 2,500 rpm. To maintain these low revs you should change up through the gears as soon as practical and before the revs reach 2500 rpm. This can be done easily with MyVi.

 8. Clean the air-filter regularly. Clogged air filters increase fuel consumption by restricting airflow to the engine, and thus should be cleaned/replaced when necessary. Clogged air filters can increase fuel consumption by up to 10%.

9.  Park far away in parking lots. It’s easier to get head-in parking here anyway but you also save on gas because you’re not idling at the front of the store waiting for everyone else that’s up there to get out of the way. No need to go round and round in search of car park, use your legs.

10. Other ways include carpooling, filling up gas at night, take routes with less traffic lights, use car less, get a hybrid car if cash flow permits, have good motor oil, reduce air drag behind heavy vehicles but not entirely safe & the use of petrol rebate credit cards.

I used to ride roughly 320km on RON97 with RM50 (RM2.15/litre) which is 13.76km/litre. With the increase of fuel price I am anticipating only 300km. If I use RON95 which is less preferred to due knocking and under performance, it will be 340km for RM50.

I am a believer of quality and I am planning to keep my car until it is at least 10 years old so I have to preserve the engine for as long as possible. This is unless I can justify my earnings vs spending (because car is a liability not an asset). I drive about 1400km each month. A 200km setback while on RON97 means an additional RM33.33 on top of RM200. RM33*7years*6months = ~RM2970. Previously it is ~RM2200 when RON97 is still RM2.05. That is still a lot cheaper than buying a new car.

See my previous post on why RON97 beats RON95 (not cost wise)

RON95 vs RON97 My Experience

And also why I do not value car especially in Malaysia.

Do Malaysians Know How To Value Car

Dear Parents, "The Best Lesson 4 Your Child"

I am going to share how you can educate kids on money smart habits. What? Aboi teaching me? Sibo? Pretty common sense after you read it all actually. Anyway back to the topic, I am not a parent to any kids so why bother to write this? Roughly two weeks ago, I found out that more than 50% of bankrupts in our country are ages less than 30. Sad? Not really. Surprising? Yes. Bother about it? Most probably no, we read newspaper for fun because people are kaypo (busy body). We like to watch dramas because our life is not interesting, look at accidents & hog the road especially Malaysians, ask people How R U? but never ask How Am I. Point being picking on other stuffs comes in our mind first but have you ever thought deeply of one of the most important skill in life which is to master your money.

Where do most of us learn money from? Very subjective I know, it could be from friends, the idiot box called tv, our own mistakes but not from teachers certainly. Teachers don't teach us money in school and certainly knowledge does not create wealth. It compliments wealth. If knowledge creates wealth, all the teachers, lecturers and professors in the world would be very rich but the truth is they are....I din say anything ah. The first place kids learn about money is from their parents unless you are an orphan lor.

I will confess that I did not learn that from my parents nor from my family, I actually grew from making my own mistakes, also from reading which is why I say that it is important, lucky enough to have friends who are like minded (it is hard to do it yourself in life) & lucky enough that I realised it before I grow old and senile like Mahathir. Lastly from hearing stories from people because I am kaypo and a true Malaysian. So what are the things that parents commonly tell their kids about money that the parents think they know "so well or act like a pro"?

Money is the root of all evil. What the heck! I don't know where some parents get this idea from, money in fact is just an object which is neutral. What you do to earn that money makes it good or evil. Never tell your kids this.

Money does not grow on trees. True but there's another meaning to it, that money is very hard to earn. I would rephrase it to money does grow on trees with the correct soil & some watering. Money is attainable by working hard on the right strategy & focus. I will explain this more later.

Money does not buy happiness. I can say that without money you would probably be unhappy in this world we are living now. It might not buy 100% happiness but it certainly does buy a lot of it. Don't give kids such negative perceptions about money.

What's the use of making so much $$ but you can't take it when you die. My brain was like !!!!!!?????? Another jackass statement. Then why are you working in the first place? You are going to die right in the end. Seen Chinese folks burn paper money to the afterlife? Just joking on that portion. 

Sometimes the actions that parents take also indirectly inject money thoughts into their kids. In such a rapidly changing world, parents especially those husband and wife who both are working full time jobs, spend less and less time with their kids. Instead they put that idiot box called tv for them. It's quite OK if they are watching cartoons but a normal TV channel has many ads. What do ads constantly stream to our kids? Spend, spend and spend right. So better to buy more pirated DVDs hor, luckily we are blessed with that in this country.

Spend_Spend_Spend: A Story from Riches to Rags

Not only by exposing them to those ads about spending, many parents actually reinforce their child's beliefs on spending by buying stuffs for them. Mum I want that toy, buy for me now! You buy ma because you feel guilty that you did not spend enough time by substituting it with money. You succumb to that pressure from your child. In addition, when you actually have the time you take your child and go to a shopping mall during weekends where you show even more the power of $$$ by spend, spend and spend. Got the entire picture now? Heard of Buddha's teaching? The teaching of Buddha – one sentence in 12 years of education in primary and secondary school.

人类不快乐，因为欲望/贪婪。

Manusia sengsara kerana nafsu.

Human suffer because of desire/greed.

What is desire? What is greed? They are simply “wanting”. Want more, more and more, MORE and MORE! MORE AND MORE!!! like CHIPSMORE
Want bicycle, want motorcycle, want Proton, want BMW, want Ferrari, want sailboat, want private plane, want rocket …
DESIRE = never ending of wanting. That causes spending and more spending that is also never ending.

Apply that teaching in your money habits & think carefully on how you really want to educate your children. Do you want them to be part of that 50% that goes bankrupt or on the way to become one before they even reach the age of 30? So how can we help children develop good financial habits? I really don't know at what age they can start because I am not a parent, maybe you can advise me but...these are a few ways.

Piggy bank the old school style. Nothing beats this by inculcating the idea of saving some money. Tell them to save for a goal, give them a target or a reward for saving. People don't just save for the sake of saving. Imagine this, if a child is able to save RM8 per week starting at age 5 investing in something that gives 10% returns per annum, he/she will get RM500,000 at the age of 55 with just a total savings of RM20,000 for 50 years. Starting it as young as possible maximises the power of compound interest.

Ask them to use a cash book to track spending. Need not to be elaborate or detail, just simply how much money in and money out. You, as a responsible parents must check on the cash book from time to time. The accuracy of the accounts is not important, what is, is that they develop the habit of tracking.

Teach budgeting. Teach them that budgeting is not a seen as a type of restriction, self sacrifice or not to spend but merely delay gratification. Having said that, give them allowance by month not week. Stimulate real world case where you actually get your paycheck once per month which is the usual scenario.

If you have time, play monopoly instead of going to a shopping mall. Monopoly is a good game where kids at a young age learn to make financial decisions. From there they will learn about borrowing, mortgaging, paying expenses, fines & earning income. This game also opens their mind into making multiple choice decisions rather than binary which is BUY or NO BUY like most of adults do when doing shopping. They don't look at alternatives first, they buy and regret later.

Don't buy things immediately for them. If they want something use the ringgit for ringgit strategy. Want a toy that cost RM50? You save RM25 and I will fork out the other RM25. In that way, they save for a reason, a goal or target which they can reward themselves later. Make kids work for it because in the real world this is the truth. Don't buffer them, in fact expose them when they are young like a sponge, still able to absorb concepts easily. If they end up not knowing this young, that shift in adulthood will be very hard. And guess what, they will overspend, incur debts and higher likelihood to go into financial problems or worst bankruptcy. That time you don't even want to recognise him/her as your own child. It happens.

Should they have a lit candle? Daredevils, eh?

The other crucial thing which I myself believe is true, at least for me it is that money does grow on trees with proper soil & watering. Kids really need to know that job is not the only answer in this modern, fast changing world. Long gone is the word "loyalty" to a company, it is now "performance". Performance simply means working harder and harder. Contrary to many people who think that a job is safe, I find that having just a job is actually more risky if you have no other source of income. Consider this, my overall plan in paying the house comes from 4 sources of income.

Profit sharing from two online boutique RM500 each. First RM1000/mth my mum and sis will take it, each following RM1, RM0.50 is mine. I don't do the actual job of parceling & postage, I just market them, improve site, put ads or postings online and that's all. It takes me about 4-6 hours each week just to do that. When it goes big enough (site traffic), there's no need to do anything anymore. 

http://lovelyclo.blogspot.com/

http://www.shoeshaven89.blogspot.com/ 

Rental income from old house RM750. Again do nothing except collect rental.

Salary only RM750. If I lose my job, I'm not so pressured because I have different sources of income. Can you achieve that? Of course, first by throwing away your job mentality & the work hard thinking. Kids need to know this. You should try to avoid negative influences and information to your kids as much as you can.

Every child is in fact creative, don't skew their thoughts with your own idealism. Their era is no longer the same as yours when you were brought up. Kids should really not suffer because of their upbringing by parents. Many times I feel quite helpless to people that I know who care less about their finances because it is hard to change someone's mindset when they are an adult so sharing to adults in hope that their kids will benefit is at least in my ability :)

So good luck and have fun raising kids! If they become wealthy, ask them to come treat unco boi when they grow up. I want buffet style ok not Char Koay Teow.


Related Posts:
Getting Your Finances Straight
Everyone Must Be A Millionaire