Raising a kid is expensive and raising more than one will cost tons of money. Parents have to provide a comfortable house, food, clothing, education, healthcare, entertainment, child care, gifts, etc. I have been tracking my household expenses for quite a long time with separate columns for my kid’s expenses. Hence, I have a pretty good idea on how much money was spent on each of my three kids, each month.

My spouse and I have been doing quite well coping with the cost of raising our three kids and we never really needed to analyze the total expenditure. Anyway, out of curiosity I decided to calculate how much money was spent on each kid as I have the data readily available. I used the two previous year’s data (2010 & 2011) to do my tallying-up. As expected, a large chunk of expenses went towards education and covers school fees, tuition cost, transportation cost, lunch or pocket money, school books, workbooks, uniforms, stationeries and other things that a student requires.

During the two years, the two older boys attended a Chinese primary school where their lessons start at 7.00 am until 3.00 pm in the afternoon. Each of them generally needs RM4 on average each day to spend on food during recess and lunch hour in school. They normally take breakfast at home and will sometimes bring food from home.

The figures I got for last year (2011) is as follows:

Each child has a health (cum education) insurance coverage. Therefore, about one-quarter of the cost above is due to payments of the insurance premiums. My daughter goes to a Chinese kindergarten and her school fees is RM140 a month and she does not get pocket money as the school provides food during recess. She had serious dental problems last year and that incurred a few hundred ringgits in treatment cost.

Below are the figures for the year 2010

My second son had a slightly higher expenditure compared to the rest due to dental treatments as well. He had to get a temporary brace to straighten out his front teeth. Similar to the previous year, one-quarter of the total expenses went towards their insurance premiums. The bulk of the expenses actually go to education related expenses.

From the two figures above, I can conclude that each kid requires RM4000 – RM5000 annually to support and cover his/her expenses. Annually, that comes up to RM12, 000 – RM15, 000 on raising three kids. I expect the figures to change as my kids continue to grow and develop. Their expenses will also change according to circumstances and in response to changing needs and wants.

Do you know how much you spend on your kid(s) each year?

Jacquelyn is the co-author of the books “Teaching Your Kids About Money” and “Top 93 Personal Finance FAQs in Malaysia” with KC Lau. Jacquelyn is the pseudonym used by Amy Sipagal.

This article is posted at: KCLau's Money Tips

Money Spent on Raising 3 Kids

Paying taxes is hardly a pleasant experience but here it is again – the tax filing season. If you are like me, I lamented on what I should have done last year which would entitle me for more personal income tax relief.  But what’s done is done, as a Malay proverb goes – “nasi sudah jadi bubur” which literally translates to “rice has turned into porridge already”. If you had thrown away all your receipts, there’s no way you can get them back.  And if you didn’t sign any Housing Sales and Purchase agreement between 10 March 2009 to 31^st December 2010, there is really nothing you can do now to qualify for the RM 10,000 relief on home mortgage loan interest.

The late Steve Jobs once said:

“You can’t connect the dots looking forward; you can only connect them looking backwards”

Under certain circumstances, I disagree. There are certain things that we can anticipate; it all depends on us to lay down the dots now, looking forward so that looking backwards in the future, everything connects the way we want them to.

The critical date for tax planning is 31 Dec, not 30 April.

Here’s my self reminder and practical action plan for the rest of the year so that I don’t get that same “Darn!-I-should-have-done-this” feeling for YA 2012 tax filing season next year. And I would like to share it with you.

#1 Keep your broadband subscription receipts intact

Let’s start with the easiest – your broadband service.

If you are reading this, I bet you are on a broadband plan.

Anyone still on TMNET Dial Up 1515? Seriously…

Subscribing to a broadband service is the easy part; the hard part for most people is keeping your receipts for the next 7 years.

But Just Do It. It’s your money at stake here.

Don’t forget, the broadband account needs to be registered under your name, the taxpayer.

Another point to note is that data service plan for smart phone is also subject to tax relief under this category.

Told you this is easy peasy, yes?

#2 Get some (and more) reading material now

Set a target of RM 83 per month for books and magazines purchase. How about Personal Money to improve your financial literacy? That’s RM 9 (retail price) per month. For books, consider KC Lau’s Top 93 Personal Finance FAQS in Malaysia, and for the more advanced reader, you should consider Millionaire Teacher, the 9 Rules of Wealth You Should Have Learned in School by Andrew Hallam, whom I recently interviewed in a podcast series.

In short, any hardcopy or electronic forms of books, magazines and journals (excluding newspaper) purchased locally or overseas are relievable. Reminder – the onus of proof of purchase lies on you.

Even if you don’t have time to read now, buy something which you would find useful down the road, not only for yourself, but for your kids as well. You can even purchase e-books from site like ebooks.com.

#3 Get an iPad Right Now

No, this is not a sales pitch.

It used to be the conventional desktop or laptop personal computer, but now, iPad is also entitled for this. There’s an argument saying other tablets such as Samsung Galaxy Tab or Kindle Fire is not claimable but here’s some info from a finance blog I followed – Kris from knowthymoney.com. In one blog post, he obtained info from Inland Revenue Board which states only anything with traditional calling or short messaging service hardware capability is not categorized as a computer. As such, any smart phones such as iPhone are out, but any kinds of tablets should be categorized as computers.

But we are all smart and know a workaround for this, aye? – With the help of Voice over IP (VoIP) software such as Skype, we can easily make call or send text messages.

By the way, you cannot claim this for receipts under your spouse name.

#4 Do medical checkup regularly

Set a target to undergo a comprehensive medical checkup twice a year. RM 500 should be more than sufficient to cover this cost.

Incidentally, this is How I Define Wealth, but a fellow personal finance blogger, Champdog from Journey to become Financially Independent, has this alternative equation:

Wealth = Money + Health + Relationship

Money is usually a yardstick on how far you are from financial independence in a time span.  That’s only one third correct. Health and relationship are the integral elements because it affects our overall personal well being. I don’t think there much meaning to life if your family’s broken and you are confined to a wheel chair.

By the way, this is also applicable for your spouse or child.

#5 Exercise more!

This is a paragraph I need to quote directly from financetwitter.com. If you don’t find it amusing, leave a comment below and explain why

D11 – Purchase of sports equipment for any sports activity, restricted to RM300. Sports equipment includes equipment with short lifespan such as golf balls and even shuttlecocks but excluding sports attire such as swimsuits and sports shoes. You may scream till foam at mouth – how the heck do you expect a person to swim without swimsuits or run without a pair of sports shoe. I supposed the government thought it would be fun if you swim naked or run around barefoot like a chicken (*grin*).

#6 Save extra for your retirement

Keep your eyes open for further details on the newly Securities Commission-approved Private Retirement Scheme (PRS) to supplement your EPF contributions.  If you are risk adverse and are really passive in investing your own money, PRS is offered by the following 8 intermediaries below. The total premiums paid for PRS is eligible for tax relief up to RM 3,000.

• AmInvestment Management Sdn Bhd
• American International Assurance Bhd
• CIMB-Principal Asset Management Bhd
• Hwang Investment Management Bhd
• ING Funds Bhd
• Manulife Unit Trust Bhd
• Public Mutual Bhd
• RHB Investment Management Sdn Bhd.

#7 Extra insurance (Education endowment policy ) premiums for child  or medical insurance

I have a mixed feeling about endowment policy because a real property investment might provide better returns if managed correctly. Therefore, increasing your medical insurance coverage for yourself or your spouse to fill the RM 3,000 quota seems to be a better choice. And do you know that 60 percent of your medical/life insurance policy or riders such as the 36 critical illnesses are claimable under medical insurance premiums tax relief? I recently realized that I, too, have been underutilizing this portion because for most of us, RM 6,000 tax relief for combined EPF and life insurance policy has been maxed out already. I previously blogged on how to do this – Pay less income tax with this one simple tip.

#8 Get additional academic credentials

This is especially important if you are in the education industry. If an additional paper qualification would propel your career advancement, it could be justifiable in terms of cost spent. Any Masters or Doctorate level of any course of study qualifies for up to RM 5,000 tax relief. Apart from that, other skills or courses on technical, vocational, industrial, scientific, ICT, accountancy, Islamic finance and law are also eligible. I do wonder why Certified Financial Planner (CFP) certification is not included though.

How long you need to keep those receipts for tax purposes? IRB requirement is 7 years. The calculation of the 7 year period begins from the end of the year in which the Income Tax Return Form is filed. Effectively, you need to keep it for 9 years. You incurred relief expense in Year 1, submit the Income Tax Return Form by 30 April in Year 2, and then keep the receipts pursuant to tax rules for 7 years.

You can print this out now. You are welcome.

Share this if you find it entertainingly useful.

Interesting points from Personal Money April 2012 issue

Never spend unnecessarily – think of tax deductions as subsidy. Say your personal tax rate is at 26 percent, for everything tax deductable item or service of RM 100, you only pay RM 74.

Failure to submit tax return within the stipulated dateline will result in a penalty of 20 percent of total tax payable.

Property investors with properties registered under their children’s name, who is still a minor (below 21 years old, unmarried), will NOT transfer away the taxable rental income from your total taxable income. IRB can assume the income from property belonging to a minor is the income earned by his or her guardian/parents, because a minor is still dependant on you, by law.

Datelines to know

E-filing, BE form – May 15

E-filing, B form – July 15,

Hard copy filing by post, BE form – May 3

Hard copy filing by post, B form – July 3

Hard copy filing by self submission, BE form – 30 April

Hard copy filing by self submission, B form – 30 June

LCF  blogs about simplified personal finance issues and practical how-to money tips at howtofinancemoney.com

This article is posted at: KCLau's Money Tips

Take these 8 Immediate Actions This Year to Pay Less Income Tax Next Year

The New Year celebration is long past over and many people should have gotten started on their New Year’s resolutions by now. When it comes to money, everyone has a similar goal and that is to make, save and accumulate more money. For those carrying past debts, their New Year resolution may include paying off those debts and not to get any new debts.

The methods or ways of achieving money goals will vary from person to person. Having helpful goals can assist a person to focus on achieving his or her financial target. Rather than waiting for a new year to begin and implement some serious money moves, you have the option of doing a money makeover anytime during the year. Below are several money makeover moves that allow a person to immediately jump into the action and see quick results. These makeovers are good anytime year-round and a person does not have to wait for a brand new year to start acting upon them.

• Cut out all miscellaneous spending for an entire year
Forego purchases for magazines, cigarettes, coffee, etc. On top of that, cut out spending on manicures, pedicures, hair-cuts, car wash, weekly pizzas, weekly movies, etc. In short, buy fewer products and services.

• Get better organized financially
Get on top of your finances by setting up an organized system. For example, set up a filing system to keep track of receipts, financial statements, insurance policies, etc.

• Hoard and grow your money
Find out the best places to park your money to get good returns.

• Eliminate existing debts
Initiate a plan to tackle and pay down all your debts. For example, consolidate your debts into one manageable and low interest debt. Sell off unwanted (unused) stuffs to get extra cash or get a second job to earn extra income to pay off your debts.

• Start planning for your retirement
It is better to start early rather than too late when it comes to saving for your retirement. Use a free online calculator to run some numbers and get an estimate of your retirement needs. You will need to set a target for monthly savings. Remember that time is a great friend if you start early in building your wealth.

What if having goals or resolutions do not seem to be of much help to you? You have gotten started but tend to slack later on. Well, you are not alone. There are many people who could use a push or a guiding hand when it comes to better money management. If you are one of them, why not try and subscribe to a money management program like the one offered by KC Lau, entitled “Money Automation System.” You get to learn with like-minded individuals in a highly supportive environment that will keep you motivated to improve your financial situation.

Jacquelyn is the co-author of the books “Teaching Your Kids About Money” and “Top 93 Personal Finance FAQs in Malaysia” with KC Lau. Jacquelyn is the pseudonym used by Amy Sipagal.

This article is posted at: KCLau's Money Tips

5 Money Makeovers Applicable Year-round

Capital preservation AND growth – the Utopian achievement for all investors.

The idea of concurrent capital preservation and growth is that you get capital growth over time without losing a single dime. Your portfolio is practically immune to all kinds of short term volatility.

It means, there is zilch realized or unrealized capital loss, coupled with guaranteed capital return.

Having one’s cake and eat it too.

Here are a few case studies why this is as good as reviving salted fish, or running your automobile on water.

Case Study 1 : Fixed Deposit Account

“Investing” in fixed deposit is synonymous with capital preservation in risk-averse investing.

There is also an alternative to fixed deposit, and that is capital guaranteed fund, in KC’s previous article here.

However, the fact is that, even people who put their money in fixed deposit accounts yearn for some capital growth; despite having to contend with very low return due to fear of losing their principal.

If capital preservation were your sole objective, you would have locked your money away in a safe.

But is your money really growing? At best, bank fixed deposit rates are just on a par with inflation rates.

So, if you naively thought that your money is growing, it really isn’t. You need to understand the time value concept of money for this to make sense.

Now, after reading this, are you able to discern that your value of money is actually constant, if not depreciating?

Nonetheless, you definitely succeeded in preserving your capital here.

This explains that capital preservation and growth cannot co-exist.

Case Study 2: Apple Inc

Let’s talk about the stock price of Apple Inc. (AAPL)

There is no any other company with growth as impressive as Apple Inc for the past 5 years. Apple’s stock price and success is the epitome of growth.

If you took a long position in AAPL  (when its stock price bottomed during the 2008 recession) until today, you would have grown your money by five fold. This is speaking from own experience as I did hold Apple Inc stocks in 2008. Read my previous post here : Most Costly Investment Mistake – Apple Inc, My True Story

But during a period between August 2008 and March 2009, Apple stocks dropped by more than 50 percent, as stock market crashed.

As you can see for yourself, growth and capital preservation really don’t go hand in hand. To enjoy long term growth, one needs to stomach short term volatility.

Case Study 3: Mutual fund

On the local front, we take an example from the one of the best performing mutual funds for the past 10 years – OSK UOB Kidsave Unit Trust Balanced Fund.

It  won Lippers Awards of Excellence for 10 years category in 2011 and 2012.

Source: Thomson Reuters

I have a position in this fund since May 2011, with entry price of RM 0.5509 and RM 0.5405.  Short term market volatility has caused the NAV price to dip below RM 0.53 by end of September 2011.

Source: Bloomberg

It is obvious that a 10 years period award-winning fund is not judged by its short term return, but by its performance over long period of time.

Again, this shows that long term is synonymous with growth, while short term means volatility.

Source: FundSupermart

Food for thought

Capital preservation per se as long term investment goal is rare.

It makes you lose purchasing power; at best, it keeps you on par with inflation rate.

True capital preservation goal can only be achieved with absence of volatility. No downside, but no upside either. Because one requires the other.

To get even modest growth, one needs to embrace volatility risk, which means stepping away from the concept of true capital preservation.

To sum it all, guaranteed capital preservation and growth together is misstatement. Someone who guarantees you not to lose a dime in any investment return while earning huge returns could be a swindler or misguided. If it’s the former, run away fast! And if it’s the latter, still run away. Because he who doesn’t comprehend the simplest basic of finance and economic fundamentals should not be selling you financial product.

Our action plan and key takeaway

The best way to get growth and its secondary benefit, capital preservation, is to think long term.

Very long term. At least 3 years, but optimally, 5 to 7 years. That’s when you normally have a full business cycle. I am also getting this inside my head now – think long term…think long term… .

Investing for long term growth means screening for an investment vehicle which maximizes return, while minimizing volatility. For mutual funds, one way to do this is to quickly check the Sharpe ratio of a fund and compare it with other funds in its class. See my previous write up here: Unit Trust Risk-Return Part 1: The Sharpe Ratio

Of course, there are also many other options such as real estate. If you are a veteran investor (I am surely not ), please share your investing story below. I am sure the rest of us who wants to grow our money for financial freedom would benefit abundantly from your experience.

*This post was a result of a short but inspiring article published in Personal Money March 2012 issue: Capital preservation AND growth?. The article excerpt was reproduced from the New York Times bestseller by Ken Fisher - Debunkery: Learn It,Do It and Profit from It – Seeing Through Wall Street’s Money-Killing Myths.

LCF is an engineer with keen interest in financial planning and investing. He maintains a blog at LCF on Personal Finance, which aims to spread financial literacy to the masses through practical and simplified how-to money tips.

This article is posted at: KCLau's Money Tips

Capital Preservation and Growth is Overrated – Here’s Why (Real Case Study)

Have you ever received conflicting advice from other people or well meaning friends? One such advice is “Enjoy your life now while you are still fit to do so. Spend some money to go travelling and visit other places. You won’t get to do this when you are old and less energetic. Life can be short and you may miss the chance completely.” To emphasize his point, your best friend goes on to give a good example, “Remember so and so who died of a heart attack at the age of 45 years old? Apparently, he had a comfortable amount of savings put aside plus a house and a property. He was working hard and did not even get the chance to enjoy life before he died. What a complete waste.”

The opposite of the advice above goes something like this, “Don’t spend money now as you may need it urgently later on. Who knows what lies in the future or during your retirement years? It is prudent to reserve your money now as much as possible and only enjoy it later.” Sounds familiar? Now, for the example that goes with the second advice “Hey, did you read the story about the old man who was abandoned by his only son? The son could not support him and sent him to the old folk’s home. The old man did not have any money and was totally dependant on his son for support but the son was not doing so well either. I heard that during his younger days, the old man managed to travel quite a bit and even drove a big car. What a pity he did not think to save some of his money for old age or retirement.”

Which advice would you listen to? Would you go for the first one or the second one? You may gravitate towards the second advice while another person may choose to go along with the first one. The opposing preference only shows that each person is different. Both advices are valid though.

I know that the two stories sound exaggerated but I believe that they do apply to some real life people. Now and then, you do hear of similar stories cropping up. The dilemma is if you spend money now, maybe you won’t have enough during your retirement years. On the other hand, if you hog your money now, you may not get to enjoy the fruits of your labor later on due to bad health that normally comes with old age.

Finding a balance

You would probably have guessed already at the obvious solution to the above dilemma. The answer is to find a balance between saving and spending money. You want to avoid regretting not saving sufficient money for your old age and also avoid regretting not spending some while you are able to. Finding the correct balance can be tricky though but only you can give the green light to how much money is to be reserved for your retirement years and how much money you can spend for enjoyment now.

Do some financial planning to put your money situation into the proper perspective. If you have achieved all your money goals, for example your savings amount is on target, you have no bad debts and you are earning a stable income, nobody can stop you if you want to spend some money for pleasure or leisure now. Spending some money means spending a reasonable amount that you can afford.

On the other hand, if your money situation is precarious with debts to pay off and a savings target that has not been met, it is better to stint now to strengthen your financial situation. As the proverb goes, “As you sow, so shall you reap”, your actions now will dictate the consequences later on. I’m sure I’ve used this proverb before but there is no harm in repeating it again. Once you have reached a satisfactory stage in your finances, then you can start to enjoy the results of your hard work.

Jacquelyn is the co-author of “Teaching Your Kids About Money” with KC Lau. Jacquelyn is the pseudonym used by Amy Sipagal.

This article is posted at: KCLau's Money Tips

To Save or to Spend Your Money?

“Your Money or Your Life” and no I am not referring to the book by Joe Dominguez with Vicki Robin. I am referring to the fact that some people (make that many people) put money as their No. 1 priority in life. No doubt money is important and accumulating wealth is natural. However for many people, it has become the sole reason for waking up in the morning. Why is that?

Is that what people aim for in life, to amass as much wealth as possible? Money has its many uses such as affording lots of people the freedom to retire early and to travel extensively. How about living a life of luxury and being able to cater to your every whim and fancy? Is this your personal goal too?

Personal values

Before you say “yes”, just think for a moment that if you have a child, would you teach your child to pursue the same goals? Or would you emphasize a different set of values? Values such as appreciating the simple things in life, not to be wasteful, not to take things for granted and that human relationship is also important? Would you teach your child to pursue money goals to the exclusion of everything else?

The answer is no as you would teach and emphasize that money is just a means to an end. There is more to life than just focusing totally on building wealth. Think for a second, is this what you are doing in your own life? I find it hard to imagine why a person would have this total fixation or single-minded pursuit on money. I am not even referring to a struggling person but to the rich who just can’t seem to have enough. This brings to mind of a wealthy and ambitious man I met a few years ago.

He owned a construction company that was doing quite well. If I was not mistaken, he was in his early 60s. His company was doing well and there were a few projects in-hand. In his case, he was fortunate to have a politician as a friend to back him up. Even though his company was doing well, I did not see him treating his employees well. It probably did not occur to him that the success of the company was largely due to the support from the employees.

His children were all grown up with one son helping him with the business. He lived alone as he was estranged from his wife and his other children all lived abroad. From what I observed, he led a lonely life and his main interest was in running his business and churning out more profit. One thing was for sure and that was he did not need more money as he was already well-off. A year later of meeting him, I saw his obituary in the local newspaper. His death happened suddenly and I had the feeling that he would have wanted his life to be different if he knew that he had only one more year to live.

This incident brought home the point that everyone will die one day and whatever wealth he or she has amassed will be left behind. A person who spends his entire life amassing wealth could not run away from death nor could he bring his wealth with him when he dies.

So, the message is you can pursue wealth but not to the exclusion of other important things in life such as your family and other life goals. You have to ask yourself whether pursuing wealth is the single most important goal you have in your life or is it one of many important life goals. Be mindful of how you steer your life so that you do not end up like the man described above. I am sure that none of you would desire that kind of life that is a lonely life.

Jacquelyn is the co-author of “Teaching Your Kids About Money” with KC Lau. Jacquelyn is the pseudonym used by Amy Sipagal.

This article is posted at: KCLau's Money Tips

Your Money or Your Life

Can a person become sick due to money? You answered correctly if you said “yes.” A person who constantly worries about money may be afflicted with “Money Sickness Syndrome” (MSS). MSS was identified by Dr. Roger Henderson in 2006 who is a leading mental health expert in the UK.

MSS is triggered by financial stress and consequently sufferers experience physical and psychological problems such as depression, weight gain and sleeplessness. Financial stress may stem from worrying about making enough money, the lack of financial control, the high cost of living, how to maintain a certain standard of lifestyle, etc.

Those with debt problems are also at risk. These people do not know how to spend their money wisely and control their overspending. Hence, they accumulate debts which cause them to worry excessively.

Warning signs

There are signs to look out for that signal a person is heading towards trouble and getting MSS. For example, the person has trouble paying his bills (i.e. late payments), doing overtime work to earn more; his credit is at the limit and getting a new loan in order to pay off the old one.

There is a misconception that only low net worth people are affected by MSS. The real situation is even high net worth people are also affected. Nobody can actually escape from financial worries and all of us have it to some degree.

In a study done in the UK in 2009, 87 percent of people (British) have financial stress. It was reported that unskilled workers, high level managers and professionals suffer from financial stress. The women had higher levels of stress compared to the men and the most obvious symptom was anxiety.

In a separate study in the US, 35 percent of middle-class Americans were afflicted with physical stress or a member of their household had it, due to the recession that started in late 2007.

Taking control

Dr. Roger Henderson’s own advice is to take control of the situation. He recommended three ways to deal with money-related stress called “The 3 A’s.” It stands for “avoiding, altering or accepting.”

• Avoiding: According to Dr. Henderson, a person should avoid unsafe investments or job situations. The person should live within his means and save for the future.

• Altering: The person either scales back his lifestyle or increases his income by finding a better or higher paid job.

• Acceptance: A person has to accept the fact that experiencing some financial stress is a normal part of life which affects everybody.

There are people who are not aware of their real financial situation and remain ignorant similar to an ostrich that buries its head in the sand. The reality is some people can actually improve their money situation just by altering their attitudes or their perceptions about money. A simple yet a significant step such as living within their means can make a huge improvement to their financial situation.

The main symptoms of Money Sickness Syndrome again are weight gain, depression, sleeplessness or insomnia, loss of concentration and low sex drive. In order to avoid these health problems, a person is advice to take some control over his money situation or to seek professional help.

Read other articles by Jacquelyn at WParent.com on parenting matters and Tips4Everyone.com on solving marriage problems.

Reference source: Money Sickness Syndrome spreading fast. www.walletpop.co.uk & Yahoo Finance

This article is posted at: KCLau's Money Tips

What is Money Sickness Syndrome?

At one point or another, you may have encountered an online banner displaying a smiling person offering you the secret to earning 4 digits per hour. Surely, it is an enticing offer; but isn’t it a little too good to be true?

We’ve seen online schemes growing by the numbers. It is very likely that you, and the rest of the public who want to get rich quick, would just end up funding what these online offers are promising, instead of you and the others getting funded by these promises.

Most people who fell for these schemes are more likely to have more holes in their pockets or worse, become victims of identity theft. These schemes usually contain proposals disguised as “investments” or “franchises”, or even unclaimed “wills” set out to grab your money.

Cyber crime is on the rise with the current downtrodden economy, leading to more and more people stretching the boundaries of the legal and the illegal. Online schemes are out there to steal personal information to support their own interests. God knows what these strangers can do with your information. Think forged signatures and false credit card purchases.

With the rising cost of living, along with rapid technology growth, life is becoming more expensive to catch up on with the latest fads and comforts.

There are many different ways in attaining absolute financial freedom (A.K.A. getting rich). Some people choose to work double jobs along with other side jobs to make ends meet. Some even go back to school to sharpen their skills and get connected to key people in the field they’re passionate with. Some would quit their vices altogether.

The truth is no matter what they tell you about getting rich automatically, quickly or instantly, it just doesn’t cut it. Getting rich is a process and a journey. There is no short cut to it. One must rely on his own sense of judgment, his instincts, practicality and sufficient knowledge of accounting and applied math to become financially advantageous.

To avoid the hassle of putting your money where it isn’t supposed to be, listed here are 5 warning signs of online schemes

1. Nigerian Scheme
The Nigerian Scheme gained its notoriety by sending e-mails to unsuspecting people claiming that the sender is a lawyer and is and will be responsible for transferring money to your account since you are an heir to a wealthy “relative” who has recently passed away. These emails usually come in wrong grammar; but here’s where it gets suspicious: the “lawyer” requires you to give a copy of your personal information and wire in money to pay for “processing” fees. Good luck with getting a response after sending in your cash and info.

2. Ponzi Schemes
A Ponzi scheme can be identified afar by an offering of exorbitant returns on an investment. It gathers its victims by promising an average of 30% interest on your investment every 60 days.

Say you invest $100; you would receive a check 60 days later telling that your investment has earned you $30. You make another investment, this time $200. After 60 days, your $200 becomes $260. Quite a get rich quick scheme obviously. Then here you go, happy that you’ve made a quick buck, you start referring friends and they fall for it.

What’s really going on here is that the administrator pays off your returns using other investors’ money. Once referrals stop coming in, finances will fall like dominoes and once the company runs out of money to pay back majority of its investors, they run off with what’s left.

3. Affinity Fraud
Affinity is called as such because most of its victims are mainly soft-hearted and sympathetic internet users. This scheme starts off by an email claiming that the sender is entitled to a huge trust fund back in his native country. The sender however is abroad and lacks the funds to travel by plane. He then proceeds to tickle the heartstrings of the receiver, promising that once he gets home to his country, he’ll give more than what the plane tickets cost.

4. Work-at-Home Scams
Work-at-Home scams target housewives and other young people seeking self employment. While work from home is becoming a great way of earning under the comfort of your own roof, scams still exist, giving this thriving occupation a bad name.

Work from home scams usually start off with a tag-line offering the secrets on how to earn 4 digits per hour. Sign up and send in a registration fee to get a worthless work from home kit and a fluctuating work from home career where the paychecks do not arrive regularly. Breaking even for that registration fee will take longer than how quickly you’ve paid for their promise.

5. Foreign Lotteries
The foreign lottery win scheme preys on the gullibility of people who see winning the lottery as a lifetime accomplishment. This starts off congratulating the receiver as he has won the lottery in a foreign country, and since he’s not a registered citizen of the said country, he then is required to pay taxes from his winnings before the winnings can be released to him. The only ends that meet here are for the scammers, and never for you.

About the Author: Johann Carpio is a marketing consultant for Purechecks.com, a leading company that offers checks online. In his free time, he is working on plugging the holes in the Unified Field Theory and how to make money out of it.

This article is posted at: KCLau's Money Tips

The Get-Rich-QUICK Nonsense

I cowrote this book with Amy Sipagal, who is also the cowriter of Teaching Your Kids about Money.

It is a list of frequently asked questions about personal finance.

Now, I would like you to post a personal finance related question here in the comment section (either with Facebook or WordPress comment, or both if you enjoy doing it). By simple posting a personal finance question, you stand a chance to get a complimentary copy of this brand new book : Top 93 Personal Finance FAQ in Malaysia.

One winner will be announced each week until end of February. Try your luck just by simply posting a question below.

Announcement: The winner….

1st winner of the book: Daniel Foo

2nd winner of the book: Sarah.

Sarah posted:

I have been contemplating on getting a property near my parent’s house in Subang area. However, I find it difficult to get new landed property for less than RM5k, and I think I may have to settle for an apartment for that budget which I felt may not be worth it.

The plan is to rent it out for investment since there is no need to move out from my parents house yet, and perhaps one day move in to my own place. At the rate property price is spiralling up it looks like it’s almost impossible to purchase one at any time!

I’m the eldest in the family, and my sibling is not willing to share to purchase property together. Furthermore, the current house is in need of repair and renovation, and I may have to contribute to the fund as part of my responsiblity. What do you think I can do at the moment – to invest in something else in the meantime or get property now before the prices goes up even higher?

Also, is it a good idea to get an annuity plan from the insurance company so that I can get reduction in income tax?

If you are the winner, please contact me using the contact form to provide your mailing address and phone number. Congratulations!

This article is posted at: KCLau's Money Tips

New Book Contest: Top 93 Personal Finance FAQ in Malaysia

As the New Year has arrived, there is a festive cheer in the air. People also sound very determined to achieve their goals. This optimism is not only limited to personal goals like to quit smoking or loose 5 Kgs but they also set financial goals like to save enough money to buy a car at the end of the year or to pay up their credit card debt.

Whatever your goal, just resolving to do something is not important. What is more important is to follow through. Also while setting your financial goals you should not try to over-achieve. In such a scenario, it all breaks down like a house of cards. Therefore, it is important to stay realistic. In this article I will look at the top financial resolutions which should form a part of every person’s New Year resolutions to have a healthy financial situation.

MAKE A FINANCIAL PLAN. The most important resolution for a person should be to make a financial plan. A financial plan enables a person to put his finances in perspective. Once you know what your earnings, expenditure, savings and investments are, it is easier to plan the rest of your financial goals for the year. Financial plan enables you to take control of your money and to protect you and your family from any unforeseen calamities. It also helps you plan better how to achieve your financial goals. Therefore, having a financial plan should be every person’s number one financial resolution for the year.

MAKE A MONTHLY BUDGET. Your second resolution should be to make a monthly budget and stick to it. Once you know how much monthly inflow of cash you have, it is important to allocate how much you are going to spend and how much are you going to save. There is no point in living from pay cheque-to-pay cheque. And this is only possible if you stick to your budget. There are various online tools available to help you achieve the same.

PAY OFF DEBT. It is important to keep paying off whatever debt you have accumulated. This could be in the form of credit card debt or loans taken for various reasons. Also included in this category are your monthly bills. It is important to pay your monthly loan instalments on time. You should set a ‘bill paying date ’in your calendar. On that particular day it is helpful to look at all pending bills to make sure you have not skipped making any payment. If you have accumulated debt on many credit cards, it is best to start paying off the debt on the card that has the highest rate of interest. But at the same time make sure that you keep making the minimum payment due on each card.

GET INSURANCE. You should get the right insurance policy that works best to suit your needs. This is important to shield you against any unforeseen circumstance and to make your future and the future of your loved ones secure.

INCREASE YOUR SAVING. This in turn translates into paying yourself first. Like you set out an amount for each month to make payment for various needs, similarly you can set automatic transfer of funds to a separate account, so that as soon as your salary comes in, a part of it gets transferred to another account in the form of saving. This helps as when you do not see the money, there is no temptation to spend it. Similarly you may set up a retirement fund to help you ease into that phase of your life.

PROTECT YOURSELF FROM INTERNET THEFT. Even though at the outset this may not sound like it is relevant to you, and it won’t happen to you, but internet theft is as much of a reality as getting your chain snatched on the road. There are various types of financial frauds that take place on the internet. It is important for you to never give out your financial information. Also as more and more financial transactions are being done online it is important to safeguard your online identity. Keep changing your passwords to keep your money safe.
If you set your financial resolutions realistically and have an intention to keep up with them, it would ease the stress levels of everyday life. It would also mean having a more secure future.

This article is written by Mr. Mayank Gupta who blogs at NineMillionDollars.com who offers financial plan services

This article is posted at: KCLau's Money Tips

Financial Resolution for 2012

This reader wants to know if she can achieve her financial goal of saving the first RM50k within 5 years time. She provides her financial statement and I provide her the estimation and the method on how to calculate the saving rate in order to achieve her saving goal.
Watch this screencast for more details.

As part of a growing community, it is your contribution to the discussion here that makes this blog a great place to hang around for financial advice. Please tell us what you think this reader can do to achieve her financial goal, in the comment section below.

This article is posted at: KCLau's Money Tips

Question: Can you accumulate RM50k in 5 years by saving RM300/month?

As you might have suspect, I in fact receive tons of email everyday. Although I read most of them but I just couldn’t get time to reply each and every one. When I do, it is normally worth sharing with you. This is an email from Don (of course not his real name)

Dear KCLau,
I need some advice. You can share this if you want to but I hope to remain anonymous. I am an engineer working in an oil and gas company with a fixed monthly income of RM6500 average. I am now 27 and graduated from the same university you came from 3 years back in 2007. Below are my monthly expenses:-

All in RM
EPF = 627.00
Tax = 600.00 average
MyVi Car Instalment = 492.00
House rental = 150.00
Utilities = 90.00
PTPTN = 210.00
Food = 500.00
Fuel = 160.00
Handphone bills = 250.00 (I help paying my mum’s, sister and fiancée’s line)
Insurance = 400.00
Misc spending (credit card etc etc) = 500.00 average
Mum’s monthly allowance = 1000.00

Total savings per month = 1500 average

To date, below is a list of my assets/savings in hand:-

Savings = RM 24000.00

House bought from developer in Dec 2009 and expected completion Dec 2011 = RM 398000.00
• Loan for RM350000.00 for 40 years with rate of BLR-2.25%
• Monthly instalment for 40 years duration is RM1300.00. Installment begins in 2012.

Own 2 cars. Proton Saga bought with cash at RM9600 after grad with money saved during uni days. MyVi bought RM49700 in 2009 loan for 8 years due to loan conversion from company loan to AmBank loan. Still have 6 years to go
counting from June 2011. Down payment paid RM12700.

Total invested in stocks = RM8900. I just started to get active again after 2 years remaining dormant. Lost a bit of money previously due to stupidity, laziness and greediness. However, I have learnt my lesson and educated myself to learn to research before buying any stocks. So far, I am holding it due to its potential and have yet to lock any gains. In other words, I am doing okay and if I sell it I will get a bit of money.

ASW 2020= RM900

Current family financial situation which you may want to know:-

1. My dad lost his job. So he does not have any income. Total combine FD, my dad and mum, is just a mere RM30000.00.
2. My mum fetches children to school with a net income of RM2000. Minus all the expenses (utilities, insurance, food, sister’s education etc) and the monthly RM1000 allowance I give to her. Nothing’s left. Expected to lose her job by 2012 due to no school children to fetch.
3. Sister’s ambition to study aviation. Finish Form 5 in 2012. RM250000 is needed to complete aviation courses.
4. Brother’s working in oil and gas with an average income of RM3000. Contribute RM500 monthly to mum’s allowance. Rest is for him to save till he can own a house. He just graduted.
5. Fiancée monthly income is RM4000. RM1000 savings per month.

My target:-

1. Planning for marriage in 2012. Wedding dinner etc.
2. To buy a 2nd property, looking a condo/apartment, to be rented out.
3. To start an engineering business with my trusted friends by 2015 or earlier.
4. To earn my first million by 35.
5. To have 2 kids by 2015
6. To be able to support my parents

Why I can’t sleep every night that I felt like I am going nuts:-
1. By 2012, my parents will be solely depending on the RM1500 monthly allowance my brother and I give. I may end up paying them more for disposable expenses!

My reply:
This is unavoidable ..when the day comes, you still need to live with it. However, human can easily adapt to a situation. There are people living in the arctic that proves no matter how bad is the situation, lives still go on. Your parents may have to adjust to a more frugal lifestyle when the time comes.

2. I can’t save enough for my wedding dinner and I am thinking to just abort the dinner alone and, perhaps, just go for a honeymoon trip to have a good time together. However, I feel guilty for not doing it for my fiancée.

My reply:
You will get angpow from the relatives and friends you invite to the dinner. Invite more richer friends and you may have extra fund leftover after deduct the dinner cost. From my experience, some best friends and wealthier relatives give bigger angpow. I don’t think you will lose money in your wedding dinner.

3. Because of point 1, I may lose a chance to buy a 2nd property so it is affecting my plans to increase my net worth.

No choice. You need to make more money. You can also look into the possibility of buying properties without money down (through auction or desperate sellers). If your rental yield is enough to cover the installment, it means you don’t need money to buy your second property.

4. My parents’ house is in Sunway and it’s close to Taylor’s. I believe it may fetch good rental value and I am thinking of moving my parents to my new house while converting this existing house for rental. However, due to previous modification, I may need to fork out some money to add an additional toilet and to add new partitions all over the house for rental. Due to my personal plans, I do not have the money to finance such modification. How do I go about it?

You can refinance your parents’ house for more cash. The excess fund can be used for the renovation. This assuming that your parents’ house is fully paid off or has substantial equity built up. As long as your rents still cover the new mortgage payment after refinancing, it is a worthwhile investment.

5. Setting up a family with no parents support proves to be tougher than it looks. I fear that I may let down my fiancée due to my current financial burden and that I may not be able to support 2 children expenses.

Undeniably, children cost a lot of money. I can buy a bungalow and pay the installment from the money I spend on my son. But anyway, there is too much fun being in parenthood. Just adjust along the way and you will be doing fine. When I look back at my parents, they manage to raise 4 kids with only average RM1000/month income. It is amazing, isn’t it?

When you have more commitment, you will learn to adjust to the situation either by spending less or making more money or both. You are motivated to do so.

6. I am an ambitious person. I love making money. And I came to realize that I could never be rich if I work in an organization. I got to go beyond the boundaries. But I fear that with this entire financial burden, my plans fall apart.

You already have planned to start a company with your friend. Focus on that. I think you will succeed. Wish you all the best! When you see a successful organization or company, it means that once upon a time, there was someone who made a tough decision and taking risk to call the shot.

KC Lau, with my current practice,
Do you think I can achieve my dreams and goals?
What can I do differently?
Is it advisable to convert the Sunway house for rental purposes and abort my wedding dinner for the renovation and to buy new furniture for my new house?

Please feel free to ask me more questions. I am so worried of my responsibility as an eldest son, a brother to my younger siblings, a husband who loves his wife so much that he wants to ensure that she is happy and worry-free, a father who gives good life to his children and a man who is financially free and rich.

Below is his email reply after mine:

First and foremost, thank you for sharing your insights and experiences about personal finances. I take your reply “I think that you worry too much.” that I am currently managing my finances good enough to achieve my goals. And all I needed is to adjust myself as I am going thru life along the way provided that I am prudent on my spending and desires.

I had previously thought about your reply in blue. But I am seeking some reassurance because it does seem to me that I am rolling my hard earn money without savings surplus. This does shake me up a little as I don’t see property or stocks as savings due to its time needed to liquefy it. For example, my nett savings for year 2010 has been hovering in between RM25000 to RM30000. My target was to save RM30000 per year making it RM60000 for 2010. However, I did not make it due to the increase in my parents allowance, the down payment for my new house and jewelries for my wedding.

Anyway, I hope I can share with you once more when I have achieved all of my goals and is financially free. Thank you KC Lau.

To you as a reader of our emails:
What does this story remind you of? What advice do you have for Don?
Post a comment below.

This article is posted at: KCLau's Money Tips

Financial Burden: Can the eldest son of retired parents achieve his financial goals?

A person protects his personal wealth or estate by writing a Will. Similarly, a business owner who wants to ensure his business is protected against unforeseen or unfortunate circumstances, for example death, critical illness, bankruptcy or total permanent disability (TPD) can create a Business Value Protection Trust (BVPT). Having a BVPT also protects the interest of the other business co-owners.

A BVPT ensures a proper exit strategy is in placed for a business owner. It ensures his business value is protected and the continuation or smooth transition of the business interest to the other co-owners.

Important issues to address

If something happens to a business owner (e.g. untimely death or TPD), various issues arise that have to be addressed.

* Inheritance by heirs
When a business owner dies, his share of the business interest will be passed on to his heirs who may or may not be interested in the business.

* Difficulty in selling the business interest
The business share of a private limited company must first be offered to the existing shareholders for purchase before it is offered to a third party. The heirs who inherited the business may also end up selling the business share at an undervalued price as they are not knowledgeable of the real value of the business.

* Financial difficulty for the family
The deceased business owner’s family will need to settle all existing debts and meet other financial obligations such as living expenses, medical and education expenses. If the business owner is critically ill or suffers from TPD, the family has to cover all the medical treatments required.

* Serious disruptions to the business
When a business owner passed away and his business interest or share goes to his heirs, the business may be disrupted. For example, the unqualified heirs may wish to get involve in the business or may even dispose the business share to a competitor.

* Closure of the business
Closing down the business may be the recourse taken by the surviving business owners if the existing business is disrupted too much. For example, the inexperienced heirs want to participate in running the business and causing complications to the other business owners.

Benefits of having a Business Value Protection Plan

The main advantages of having a Business Value Protection Plan are

* Guarantees full and fair value
The business share or interest can be sold at a fair price agreed upon by all parties. Unqualified heirs are prevented from disrupting the business and also avoids the disposal of the business share to other parties.

* Pre-agreed pricing
The price is pre-agreed upon by all parties and averts problems later on between the surviving business owners and the heirs.

* Quick and smooth transfer
All parties are protected including the deceased business owner and the surviving co-owners with the implementation of a Trust Deed. Having a plan ensures a smooth and efficient transfer of the business to the co-owners. Major disruption to the business can therefore be avoided.

* Conversion to liquid income
The non-liquid stock/interest is converted into liquid income ensuring funds are available to the outgoing business owner or his loved ones (as contained in the Trust Deed).

* Independent referee to execute the necessary transfers
The appointed Trustee is responsible to ensure that the outgoing business owner’s interest is transferred to the surviving business owners as well as the proper distribution of the sale proceeds.

* No disruption to the existing business
The business continues to run smoothly with no major interruption or interference providing reassurances to everyone concern, for example the suppliers or creditors as well as key employees.

* Prevent wastage of the sale proceeds
Each business owner leaves specific instructions in the Trust Deed that instructs the Trustee on the proper distribution of the sale proceeds and to ensure that the beneficiaries do not misspent the sale proceeds.

It is obvious that having a Business Value Protection plan gives all parties concern the peace of mind to conduct business together without worries should anything happen to one partner.  Now, let’s look at the relevant documents essential to creating a Business Value Protection plan, the trigger events and the insurance policies.

Relevant documents

The important documents required in a Business Value Protection plan are

* Buy-Sell Agreement or Cross Option Agreement
The terms and condition of the sale are stated clearly in the agreement as well as the share value of each party, the specific events triggering the buy-sell and the funding for purchasing the business interest (life insurance and cash).

* Irrevocable Power of Attorney by each business owner
This enables the Trustee to act upon the written instructions to transfer documents of the outgoing business owner to the surviving business owners.

* Trust Deed
The Trustee will distribute the sale proceeds of the share to the Trust Beneficiaries named in the Trust Deed.

* Life Insurance
This is used to fund the purchase of shares of the outgoing business owner.

Trigger events

The trigger events such as death, total permanent disability (TPD), retirement (optional) and critical illness (optional) must be clearly defined. These events will trigger the sale and purchase of the business interest. The business owners concerned must determine which event shall be used to trigger the buy-sell of the business interest. The events with exception to retirement must be the same as stated in the insurance policies to trigger a claim.

Insurance policies

The business owners are required to purchase first party insurance policies on their own lives and from the same insurance company. This ensures consistency especially in the definition of events triggering an insurance claim. The sum assured should be proportional to the value of their individual business interest.

The payments of the insurance premium can be made through the dividends to the shareholders or the Director’s fee if the shareholder is one of the Directors or it can be made by the individual business owners. All the insurance policies are assigned to the Trustee to ensure a smooth process where the insurance proceeds are used to settle the sale and purchase price of the outgoing business owner’s interest and to distribute the proceeds to the Trust Beneficiaries.

Business Value Protection Scheme

Below is schematic flowchart that illustrates the idea of a Business Value Protection plan, provided by Rockwills.

This article is posted at: KCLau's Money Tips

Business Value Protection Trust: Estate Planning for Business Owners

This is a guest post by Jenna

When your company asks you to relocate, can you really refuse? Unless you have something else lined up in this arid job market, then the answer is probably no. With that said, you do not need to accept relocation based solely on the terms being offered by your company. While you want to avoid alienating your employers, asking the right questions about critical aspects of such a move is a normal and above all expected reaction. But what should you be asking? Consider the following questions – some you ought to be asking them, and others you can find the answers to yourself:

What is the tax rate in this new location?

If you’re being asked to move out of the country, then chances are the tax rate is going to be different. On the whole, the difference shouldn’t be staggering, but if you live in state with a particularly low or non-existent income tax, it’s critical that you find out what it will be in the new location, for salary purposes.

Who will be our new insurance provider?

Health and dental insurance companies vary from region to region across the company. Because of the likelihood of changing companies, demand to know what the new plan will be like and and request from-the-source facts immediately. Co-pays and deductibles are sure to vary, which can mean big changes in your cost expectations when medical attention is needed.

Will my moving costs be covered?

If a company is asking that you relocate, then it is ethically their responsibility to cover the costs of your move. It’s not a legal requirement, so it’s important to ensure that they will compensate you before you agree to relocate. There is no way a company can justify refusing to cover the costs of a move, so re-think your loyalty if they do not wish to help you financially.

Will travel back home be covered?

Compared to getting your moving costs taken care of this is a debatable demand to make, but try and have your travel costs compensated if you are leaving friends and relatives behind. Inform them that you will expect to return home at least once a year, and that since your travel is due to being relocated, they should pay for your round-trip travel. They won’t offer this so it’s important to ask.

What is the cost-of-living difference?

Skip asking your employer this directly until you’ve seen for yourself via online cost-of-living calculators, as you don’t want to bring it to their attention that you are moving somewhere you should be paid less. But in the event that your prospective new location is a costlier place to live, then you must ensure that your company is willing to increase your salary accordingly. Even if you are not expecting to own a home, it’s not as though the increase in property value isn’t passed on to renters. Do not budge on this issue – being paid less than is fair in a given geographical location is asking for financial trouble.

Do not agree to any request for relocation without finding the answers to these questions. Whether that means some dedicated Internet research or a no-nonsense approach with your employer, ensuring you aren’t walking into a new place with more hassles than are inherent is a vital aspect of such a work-related situation. Never pass up opportunities to grow with a company, but always validate the practicality of such opportunity before you proceed.

This article is posted at: KCLau's Money Tips

What to Ask When Asked to Move for Your Job

After launching my fifth book, Roadmap to Financial Freedom in 2010, I was overwhelmed by how well it was received. We sold thousands of copies and many readers and attendees at my talk and seminars shared with me that they’ve been inspired by the roadmap concept and are fully committed to achieve financial freedom.

I still often get asked “how do I get started?” The market is flooded with books, audio CD’s, podcasts and YouTube videos offering concepts on how to achieve financial freedom. The choices are overwhelming! With this in mind, I wanted to create my own financial freedom model. I decided to deliver a simple financial freedom model that EVERY Malaysian can understand and act on immediately. The model is by a Malaysian for Malaysians and cuts through all financial jargon and strip the concept to its bare bone. The model is simple to understand yet comprehensive, relevant and applicable for all Malaysians. Most important of all, it provides easy and friendly tools to guide Malaysians to take the necessary steps to achieve their own financial freedom

Thus, the creation of  the “YMH Model to Financial Freedom,”  a definitive 4 step financial guide designed to uplift financial consciousness amongst Malaysians and empower them to achieve financial freedom.

The YMH Model to Financial Freedom is THE solution Malaysians need now today in light of the government’s Budget 2012 announcement, which has failed to address to the country’s middle-income group,  a key demographic in Malaysian’s race to becoming a high income nation.   

The lack of commitment to push private sector’s retirement age to 60, the failure to lower personal income tax rate and address the rising living cost for middle income families in urban areas, and the lack of preparation to help this group of people face the possibility of a series recession due to the US and European financial crisis, are but some of the tell tale signs why Yap believes that the Budget 2012 will not support middle income Malaysian families to achieve financial freedom. In fact, middle-income Malaysians may have to help themselves by managing their personal finance like a CFO!

The situation can be best summarised as the poor gets the government help, The rich gets business incentives, while the middle-income group gets nothing!

THE YMH Model to Financial Freedom can be used as a framework for middle income Malaysians to put them on the path to financial success. In addition, the model can also help address some of the most common mistakes Malaysians made while planning for their financial freedom. These common mistakes are;

• No financial goals
• Unaware of where they stand financially today!
• No investment strategy
• Fail to seek professional advice
• Unsure of where to start

Simply put, The YMH Model for Financial Freedom is best summarized as a simple yet comprehensive working, evolving model which supports Malaysian families to take necessary steps to achieve financial freedom.  The 4 steps in the YMH Model to Financial Freedom are defined as:

Step 1 : Define A Good Life

An effective financial freedom plan must start by defining what is your “good life”. Why? The main reason for us to achieve financial freedom is so that we can enjoy a ’good life’. Some may say that their financial freedom objective is to be a multi-millionaire or to be rich beyond their wildest dreams. However, they often forget that this is merely a means to an end. What is the point of being rich but not living the life you really desire. We must be very clear of our purpose before starting the journey to achieve financial freedom.

Once that’s done, you need to identify the financial resources to support your goals. For example, if your “good life” requires you to stop working at 50, you need to have enough assets and income to support your lifestyle after 50.

Therefore, one of your financial goals is to be able to retire at 50.

For this, I have developed the YMH Good Life Worksheet to help you develop your “good life” definition and dated personalised financial goals.

Step 2:  List Your Asset

Assess your current financial resources by listing all your assets, liabilities, income and expenses. You must know your financial position before you can capitalise on them to achieve financial freedom.

It may sound easy, but I can assure you it is often overlooked. Many people are not aware of the assets they own and as a result, don’t deploy their assets to achieve their financial freedom goals.

For this, I have developed the YMH Financial Wealth Inventory. This will assist you in listing all your assets and will result in a personal income statement, personal balance sheet and detailed asset list.

Step 3 : Optimise Your Asset

The next step is to ascertain whether you have enough resources to achieve your financial goals. Optimising your assets is about matching your current financial resources with your future financial goals and reviewing the outcome. Here you will calculate, analyse and plan your journey to achieve holistic financial freedom. If there is any gap in your plan, you can take measures to bridge that gap.
By optimising your assets, you will know where you stand TODAY and this will allow you to take corrective action if required. Otherwise, your financial freedom efforts are at risk.

For this, I have developed the YMH Roadmap to Financial Freedom, which is designed to show where you stand today on your journey to financial freedom. The tool also helps you to develop a financial freedom action plan to guide you on your next course of action.

Step 4:  Grow Your Asset

Today, growing your assets is not a choice but a must. Even if you have enough financial resources, the reality is that you still need to grow your assets to protect them against inflation.

To effectively grow your assets, invest based on your financial goals and risk tolerance, not on the latest trends or ad-hoc advice from investment salespersons. By optimally growing your assets, you will have an array of options to achieve your financial freedom goals.

To help you grow and protect your assets, we’ve developed the YMH Holistic Investing Approach. By using this tool, you can produce your own asset allocation statement, investment action plan and performance monitoring system to help you invest your money based on your financial goals and risk tolerance.

By following the steps under the Model, you will be on track to achieve your financial freedom. You can either apply the Model on your own or engage an independent financial adviser to help you.

To DOWNLOAD some of the tools that i have created for each of the corresponding steps, please visit the FREE DOWNLOADS section at www.yapminghui.com

This article is posted at: KCLau's Money Tips

Framework for Financial Freedom

I received a circulated email from Jackson & Sim (thanks for the info):

Kindly be informed, that the email claiming that an EPF member has to re-nominate his or her beneficiary upon turning 55 years of age is only true if the EPF member had made an Age 55 Withdrawal before 1 February 2008. Therefore, if this member were to continue to contribute to the EPF, he or she would need to make a new nomination.

However, for EPF members who have made Age 55 Withdrawals after 1 February 2008, their nomination remains valid until a new nomination is made.

So if you are over age 55,

1. If you haven’t withdrawn your EPF money, your previous nomination still valid.
2. If you had taken out your fund, and still contributing to EPF (due to post-retirement job etc), you’ll need to redo your nomination if your withdrawal was before 1st Feb 2008. If your withdrawal is after 1st Feb 2008, your previous nomination is still valid. However, I suggest that you redo your nomination to avoid any complication if you are not sure.

What’s the possible complication?

This article is posted at: KCLau's Money Tips

Redo your EPF Nomination after 55, or else…

by Koon Yew Yin,  the philanthropist tycoon.

Recently the leading state newspaper in Perak carried an article which contained details of the Perak State Government’s budget for 2012 which was tabled before the State Assembly on 21St Nov. 2011 (The Ipoh Echo, Issue 133, 1-15 December 2011).

Among the key items of planned allocation in what is clearly a pre-election budget aimed at buying votes for the present state government in the coming elections, the most problematic is the RM 60 million fund set up to assist first time house buyers by providing the 10% deposit as required by Banks to purchase a new house.

I sympathise with the plight of first time low income house buyers and agree on the need to assist them in helping with home ownership.  I can also understand the populist intention of the programme.  However, this programme – as it is currently designed – is not only likely to fall short of its noble goal but will result in grief to the Perak administration.

I can already foresee the following difficulties:-

1. What will happen if the buyers cannot pay the monthly instalments to the banks? A Housing Loan Manager of one of the leading banks told me that the bank can issue the first letter of demand after the defaulter fails to pay up only after 3 months.  Also that the bank is able to initiate legal action only after 3 letters of demand have been sent out. In all likelihood, the legal procedure to recover the property will take 6 months or more.  Hence, it could take more than one year at least for the Bank to evict a defaulter. By the time the house is reprocessed, it would be in such a deplorable condition that the Bank will not be able to recover its loan and administration cost in most of the cases. To sell a reprocessed property, the bank also has to advertise to invite bids. In most cases, the Bank will not be able to get the reserved price in the first auction. If this happens, the bank will have to reduce the reserved price by 10%.  If the second auction is not successful, the reserved price will have to be reduced by another 10%.

2. What will happen when a buyer cannot pay back the 10% to the State Government? Does the Government have the necessary machinery to recover the debt? As you can see above, there are laws to protect the poor men. Even the commercial banks with all the rules and regulations in place, still have difficulties to recover their money, how can the Perak State Government expect to do better?

The administrative cost to recover the debt is not only likely to be considerable but could also exceed the 10% loan outlay.  This will further impoverish the state by diverting resources to unproductive expenditure.

What this means is that any recovery of loan funds will be much less than what has been dispensed, leading to a short life span for the so-called “rolling” fund.

I hope all members of the Perak State Assembly will consider these comments seriously and delay the implementation of the scheme until a later date when all the design and operational kinks and problems are fully understood and accounted for.

A better planned and more stringent housing loan scheme is needed for the state if it is to be sustainable.  The unseemly haste with which this poorly designed scheme is being pushed through for the coming elections will surely backfire on the state government and all Perak subjects.

This article is posted at: KCLau's Money Tips

A Badly Conceived Election Budget Allocation

by Koon Yew Yin,  the philanthropist tycoon.

Since my retirement from active business, I have been more and more concerned about our increasing financial profligacy and irresponsibility. Every day new details emerge about how spendthrift we are as individuals, as households and as a nation.

At the national level, the Auditor-General’s recent report pointed out that Malaysia’s national debt rose 12.3 percent to over RM407 billion in 2010. The amount is equivalent to 53.1 per cent of gross domestic product (GDP) and is the second straight year that the national debt has exceeded 50 percent.

At the micro level, details of how ordinary Malaysians who have accumulated huge debts and are hotly pursued by Ah Long (loan sharks) fill the papers. These stories sit beside constant advertisements urging Malaysians to apply for credit cards with generous spending limits – ads which we have not been able to resist. At last count, there are more than eight million credit card holders, owing over RM30 billion. About one quarter – over two million of card holders – earn less than RM3,000 a month, meaning that many are unlikely to be able to settle their debts.

As for household debt, this has also been rising steadily. According to recent estimates, household debt had reached RM560 billion by the end of August 2010. Household debt-to-GDP ratio had increased sharply from 66.7 percent in 2004 to 76 percent in 2009 making it amongst the highest in Asia. What is especially worrying is that this rate of household debt increase is rising more quickly than the level of increase of household income or wages, meaning that most households are spending more than what they are earning and making up for the difference through borrowing.

Fostering culture of financial insouciance

Besides borrowing from Ah Longs, family members, friends, pawn shops, credit card companies and banks, Malaysians are heavily indebted to the government.

Borrowing from the government for many Malaysians start at an early age and is in the form of loans from the National Higher Education Fund Corporation (PTPTN). Between 2000 and 2009 over 1.3 million young Malaysians in the public and private higher education institutions had received loans ranging from RM8,500 to RM20,000. In all, a total of RM20 billion, RM39 billion and RM71 billion were allocated to the PTPTN for loans to students for the 9th, 10th and 11th Malaysia Plan periods respectively.

Whilst it is encouraging that many young Malaysians are prepared to pursue higher education even though they may not be able to afford it, what is worrisome is the widespread failure to repay the loans taken for the purpose. Authoritative data on loan defaults is not easily available but estimates from a World Bank study in 2007 indicate that the PTPTN management estimates that it recovers only 25 percent of the total amount it should be receiving. As until 2004, the number of graduates making their repayments was only 44 percent of the total number of loan beneficiaries.

In my opinion, some of the blame for the culture of financial profligacy and irresponsibility in our society is traceable to this government policy aimed at providing cheap and easily accessible loans to higher education of our young. Providing low interest loans for educational purposes is in itself an admirable policy. But its noble intentions become subverted when implementation is seriously flawed as students from well-to-do families who can afford the tuition fees are provided access, and there is an inability or unwillingness by the authorities to enforce the repayment of loans.

Once young people learn that they can get away with not paying back their loans or are able to get access to credit despite being ineligible, the bad apples amongst them graduate to scamming the public exchequer and private financial institutions in other ways after they obtain their degrees and diplomas. How else does one explain the massive loans given out to finance businesses in every sector of the economy which have gone sour and have not been repaid?

Readers can identify a sector –  whether agricultural or non-agricultural; hi-tech or low-tech; rural or urban – and I am willing to donate a large sum to any charity of their choice if they can show me proof that the repayment of loans provided by the government has been able to exceed more than 70% in that sector.

The bigger the loan that is provided by the Government, the surer it appears to become transformed into a bad debt – this appears to be another financial axiom of life in Malaysia.  Recently during the Dr Ling Liong Sik cheating trial, we heard that the Port Klang Authority (PKA) cannot afford to pay back its RM4.6 billion loan for the Port Klang Free Zone (PKFZ) project to the government. This was according to the prosecution’s witness, Adnan Abidin.

Mind you, this was a project in which the development cost ballooned from RM1.088 billion to RM4.6 billion in 2007 and which the cabinet, according to Dr Ling’s lawyers, had given their retrospective approval. It is not surprising therefore that the cabinet is not concerned about the small fry of student loan defaulters when it is blind to other possible financial scandals that involve billions of dollars.

Publish the names of all govt debtors

Clearly too, those who are likely to have access to government loans are those with the most powerful political strings such as happened in the RM250 million cattle-farm scandal linked to Minister Shahrizat Abdul Jalil’s husband and children.

Although I am critical of students who have taken out loans for their education and have refused to repay them, it is unfair for the government to put their names into a blacklist for public consumption as has been done periodically.

However if the government intends to continue carrying out this measure, I would like to propose that it also publishes the names of other Malaysians who have obtained loans for their projects and businesses and failed to repay them, especially those with large multi-million ringgit loans.

Only if this non-discriminatory public disclosure of all Government debtors (and not just of student defaulters) is undertaken can justice be said to be equally meted out. Needless to say, it would be especially revealing to read the names of these large debtors and the amounts that they owe to the government – or actually, to the people of Malaysia.

This article is posted at: KCLau's Money Tips

Malaysian Malaise: The govt as everybody’s cash cow

I just bought one of this, just to play my part in reducing the CO2 emission that keeps harming the Earth.

Watch this video about how this project is started.

This article is posted at: KCLau's Money Tips

WindowFarms: Vertical Food Garden without Soil that’s Hanging on your Window

If a couple passed away, who will look after the children? Normally, the grandparents will apply to become the guardian ad litem (appointed by court) in the case where a couple dies intestate (have no written Will). If one parent passed away, the surviving parent is left to take care of the children. Generally, the surviving children will be taken care off in the following order, surviving parent, testamentary guardian and guardian ad litem (appointed by court).

The importance of personally selecting a guardian

The future can be unpredictable. For example, a couple may meet with an unfortunate accident while travelling or on holiday leaving the children behind. Similar situations may also happen to a parent or a single parent who is divorced or a widow or a widower. It does not have to be an accident but a fatal illness that can take a parent away. These are unfortunate circumstances that negatively affect any child’s life especially if he is still a minor (underage).

If no guardian has been appointed by the parents, the grandparents will step in as mentioned above. A serious problem may arise if both paternal and maternal grandparents fight for custody of the children. Once the parents are gone, who can determine and select the right guardian who has the children’s best interest in mind?

If the parents left behind a significant amount of money or fortune for the orphaned children, this could attract dishonest people. An uncle, aunt or a distant relative or cousin may view the guardianship as super-attractive with a fortune attached to it.

All parents want the best outcome for their children, good health, happiness and a comfortable life. Therefore, parents should not ignore their rights to appoint a trusted person to become the guardian of their children should the unthinkable happen. The appointed guardian does not become the “guardian of property/inheritance” belonging to the children automatically unless legally specified, for example by a court order or as stated in the Will.

Generally, the appointed Executor/Trustee will be responsible to manage the minor beneficiary’s assets or inheritance until he reaches the legal age of 18 years old. This way, the legal and financial interests of the children are protected.

Allowance for guardians

Providing some allowance for the appointed guardian is recommended. Taking care of one’s own children is not an easy job, what more taking care of other people’s children. This is what the guardian is going to be responsible for that is taking care of someone else’s child or children. The responsibility is huge and requires a tremendous amount of patience and sacrifice.

Hence, giving some money helps to make the job or responsibility easier to bear. The monetary reward is also a show of appreciation towards the appointed guardian for taking on an important role.

To recap again, it is important to appoint a guardian for your young children and state it in your Will. As a parent, you can choose a suitable guardian that has your children’s best interest in mind. It is equally important to leave some money or allowance for the guardian and stated in the Will, to reward him or her.

This article is posted at: KCLau's Money Tips

The Importance of Appointing a Guardian for your Children