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.

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

In these difficult economic times, raises are few and far between, but if you are among the fortunate few who get one, it is important to consider how to wisely spend that extra money.

What many people do after a raise is adjust their spending upward so that the extra income is absorbed into what has been referred to by such respected journals as Forbes and the Economic Times as “lifestyle inflation.” When this happens it seems as if the raise never happened and we wonder why we feel the same financial pressures as before the increase.

Below is a list of 6 strategies that will help you to make positive lifestyle changes as a result of the additional income.

Strategy 1: Put the money in the bank.

One of the most effective methods to take full advantage of your raise, and the one most often cited by financial advisors, is to deposit the difference between your prior and new income. You could do this via direct deposit by withdrawing the same amount as when earning the lower salary. If you think you may have the urge to cheat, you can also deposit the extra money in a CD account (known as Fixed Deposit in Malaysia) which typically charges a penalty for early withdrawal.

Strategy 2: Invest in your career

This can be thought of as a rollover investment since you are putting money back into the very reason you obtained a raise in the first place: enhancing your knowledge, skills and abilities. (KSAs). Such an investment could include pursing a college/advanced degree, enrolling in a certificate program or continuing education courses, joining professional associations, or adding some polish to your personal brand by purchasing new outfits.

Strategy 3: Adjust your budget

In light of the extra income, create a revised budget for how to allocate the extra money. Perhaps your budget is squeezed to the max in some areas. A raise permits you the opportunity to devote more funds to certain categories of expenditures that you have had to cut-back on. The extra money also allows you to put some savings toward emergency expenses. Just be careful not to create a need where none existed before as this will lead to lifestyle inflation.

Strategy 4. Pay off some debt

A significant part of America’s financial woes arise from the large amount of outstanding consumer debt.  While credit card use is important in building and maintaining a strong credit history, the cards are best used with caution and planning. A raise provides an additional cushion between income and expenses so why not use part of the extra money to make larger payments on your credit card balance? This not only lowers your debt obligation, but also improves your credit score.

Strategy 5: Balance your spending pattern

Balancing personal finances is important in ensuring a steady cash flow. Balance means that you portion your income between savings, necessary expenses (rent or mortgage/food, commuting costs and other essential items, and miscellaneous expenditures (e.g. entertainment and travel). For example, 50 percent of net income might go toward rent/mortgage and other essential costs; 20 percent to career advancement activities, 20 percent toward savings and the final 10 percent toward miscellaneous costs.

Strategy 6: Go ahead and have some fun!

You earned your raise so it is only natural to want to celebrate. Nothing wrong with that as long as you are responsible and remain budget conscious. You can employ a systematic approach for spending the extra income. With your first paycheck you spend 100 percent of the extra money on treating yourself to a special gift.  Thereafter, you systematically decrease this extra spending by a certain percentage each week (80 percent; 60 percent 40 percent) until you are aligned with the revised budget you created.

This is a guest post by Daniela Baker, a personal finance blogger with CreditDonkey, a credit card comparison site.

This article is posted at: KCLau's Money Tips

6 Things to Do When You Get a Raise

Rising living costs. Eurozone Crisis. Recession fears. Falling stock prices.

You’re worried, and perhaps even scared, and rightly so. The good news though, you can still achieve Financial Freedom!

In today’s ever changing financial landscape, one can certainly benefit from having a financial expert, and Malaysia’s leading authority in financial freedom to look out for your money.

Come and join Yap Ming Hui’s 2012 Personal Finance & Investment Strategies seminar. Yap will reveal the answers to your concerns and more in this timely and informative seminar.

YMH 2012 Personal Finance & Investment Strategies seminar

What You Will Learn:

• A leading independent financial advisor licensed by Securities Commission and Bank Negara Malaysia, Yap will show you:
• What you should really be worrying about! it’s very important, and not what you think)
• What’s really going on in Malaysia and global economy – and where the opportunities are in 2012
• What are the latest and hottest investment opportunities in the market and are they for you !
• How to seize the opportunities provided under Budget 2012 to optimise your money and, most importantly……
• The 4 proven investment rules to help reach your goals in 2012

WHO SHOULD ATTEND
Anyone who would like to benefit from having first hand independent and professional insight and financial strategies to gear up for the year 2012

Date : Saturday, 3rd December 2011
Time : 9.00 am – 1.00 pm
Venue : D’ Rapport Auditorium, Jalan Nipah, Off Jalan Ampang, Kuala Lumpur
Ticket : RM 98 (early bird)
Book your tickets now at www.yapminghui.com
For more information, please call 012 390 0048 or email to enquiries@yapminghui.com

This article is posted at: KCLau's Money Tips

2012 Personal Finance and Investment Strategy

It is not unusual to hear about plans going wrong or awry even after careful planning was carried out. A person can minimize any errors or problems though through careful monitoring of the plans step by step all the way.

Therefore, writing a Will after careful and detailed planning does not make it perfect or foolproof. A person’s life will undergo various changes throughout his lifetime which may affect his Will. Hence, it is wise to undertake a review of one’s Will from time to time to ensure it is up to speed.

Important scenarios

Below are listed various scenarios or situations that necessitate a review of one’s Will:

• A change in one’s marital status. For example, getting married, divorced or separated.
• A change in the Executor’s status. For example, the Executor is migrating, has passed away, has declared bankruptcy or is incapacitated.
• A change in the guardian’s status. For example, he is migrating or has passed away.
• A change of heart or mind with regards to the beneficiaries. For example, the testator may wish to include a new beneficiary or to cut off a spendthrift beneficiary.
• A change in the witness status.
• There is a new addition to the family, i.e. a new baby.
• A beneficiary has passed away.
• There is a significant increased in the testator’s assets or estate.

Reviewing a written Will need not be an annual process as a person can do it bi-annually or even every five years. However, certain significant events do make it imperative for a person to review and write a new Will for example, if the appointed Executor has passed away. An event like this necessitates the writing of a new Will. This is to avoid unwanted or unpleasant consequences from arising such as “partial intestacy” where the beneficiaries fight among themselves to appoint their preferred choice of an administrator.

Another example is if the chosen guardian intends to migrate to another country or has a changed of heart about becoming the guardian. The testator may also choose to rewrite his Will if one or more of the beneficiaries prove to be undeserving of his estate. The testator may discover that a beneficiary has turned out to be uncaring and is likely to squander all of his inheritance away.

Hence, do not be surprised to hear of someone having a new Will drawn up and revoking an earlier Will. It is a normal act of ensuring a Will is updated to suit current conditions or situations. Everyone who has a Will should undertake a review once in a while or if one or more of the situations stated above arises.

Related article on Will Writing:

• Simple Will versus Comprehensive Will

This article is posted at: KCLau's Money Tips

Why and When Should you Review Your Will?

This is a personal story shared by a reader. Let’s call him Alex.

I graduated in 2000 and get a job at IT Support in an international Australian branch university. The salary of RM1650 (not net pay) was barely enough. My dad so called “help me” to buy a brand new Kancil 850. First month it was free and second month I have to pay for it. All I wanted that time was a 2nd-hand car or I don’t mind at all to use public transport.

If I use public transport, it would take me two buses before I actually reached at home. Office hour finished at 5pm and arrived at home around 7.30pm. The place was like the end of Miri Town (about 45min from town).

The monthly instalment was RM587 for 5 years. Plus fuel consumption would cost me around RM250/RM300. I filled RM30/RM40 tank and can use it for 4days before refuelling again. Owning a car has teach me how to DIY almost all the basic car maintenance from changing Engine Oil to changing Air Filter. I managed to spend around RM1K or RM2K to make the car beautiful (ICE and body-kits). My determination to get a Japanese rim was too strong that I saved RM300 every month to get it. At last I ordered a 2nd hand Japanese rim for RM1800 complete with tires. I even skip my lunch for few times in a month and even “tapau” food (packed food) from home.

At the same time I was paying credits card that I don’t use. Why?? My GF used it for her NOKIA 6680. I pay for it for the name of love. My mistake!! It accumulated to RM3.8K because my GF never pay the minimum amount required. Luckily she got her scholarship to pay for it but again my useless money handling took over. I never fully settled it and only pay half of the total amount. And I keep using it for online purchase such as plane tickets and so on.

I occasionally paid my “PTPTipu” study loan. Sometimes RM200, sometimes RM50 and most of the time none! And I never received any letter or payment acknowledgment from PTPTN that time. I assumed they had lost the students’ list names.

One thing I did right was to pay myself first (RM300/RM200) once I received my salary.

Notes from KCLau:

As normal young graduates, getting a car had become more of a necessity if you are living in Malaysia. Public transport is available but it is many times more troublesome if you had to travel quite a distance to your work place.

I do agree with most people that car as a necessity, we as Malaysians are forced to spend a big chunk of our income on owing a car that makes it seems like a luxury item.

For the case of Alex above, he had to spend RM900 out of RM1650, which is more than 50% of his gross pay. This is without considering the extra he spent on beautifying his Kancil with accessories. The sad news is that Kancil is like the smallest car and also the cheapest new car one can get in Malaysia. Some foreigner said that it looks more like a toy car, which we can’t deny about it.

Since you can’t do much to change the car price, what you can do is to reduce the spending on cars based on the budget you can afford.

What do you think about this story? What does it remind you of? What do you think Alex can do to improve his financial standing? Write something in the comment section below.

Here is the Part II of Alex’s story:

I left the company after 3 years plus to join new IT company to implement new project in Sarawak. The basic pay was actually smaller from previous one but i get do OT regularly due to project implementations. That include on call duty at night and weekend. I also entitled to claim milleage to do site visit and maintenances. Roughly i earned about RM2600-RM2800 per month. I still continued to pay my car installments(5 years loan tenure) but i hardly spent money on car modification anymore. I saved a lot on fuel consumption because the office is nearer to my house and milleage claims.

I finally settled my credit card installment about a year after i joined the company. The card actually expired but i didnt bother to renew it. Then i started to pay my study loan regularly. Instead of paying minimum of RM192, i paid RM200. I dont changed my handphone to latest one in the market. Instead i repaired my own handphone;updating firmware and hard reset. I used it untill it died or cost of repair more expensive than the phone itself.

Instead of buying expensive phone, i look for “ordinary” CSL handphone. It served me well untill i forgot to take it out when i am doing my laundry. I rushed to buy RM110 Nokia phone when it happen. I promised myself to upgrade later when the time is right.

Fast forward my story, i changed another job to an International company almost two years after that. I thanked GOD for HIS blessings. Then i started to buy and read financial planning books. It was KC LAU’s book(cant remember the name though) then followed by others.

Early this year, i bought a landed property RM230K(property in Miri is expensive compare to other place in Sarawak). My 850 kancil still with me minus the installments. I am still living with my dad(my mum passed away last year) ,brother and little sister. I planned to rent out my house when it completed next year and keep staying with my dad. Our family house is double storey terrace house.

I already bought an investment linked insusrance for myself. On top of it i also used my EPF account 2 to buy some unit trusts. I was lucky to have cousin working with bank industry. Now i am trying to save 50% of my salary every month instead of 10%.

My principle is easy “if you cant afford to buy things cash, you cant afford to buy that thing at all”. Example, i saved some money for two months to buy my FIRST laptop(RM2K), though i am IT guy i never owned a laptop. My advise is buy AMD based laptop instead of INTEL. It will save you around 20% of the price.

Recently i purchased a second hand DSLR to pursuit my interest in photography. I owned a Canon EOS 350(film) when i was in university but i have to sell it because i cant afford to pay for the films(i shoot a lot but only handful of photos useable). I hope my photography skills will help me to pay for some bills later.

The best is to get a good cheap second hand DLSR and try it. If you dont like it, you can always sell it. Instead of buying an expensive DSLR but later you found out that you prefer “auto” settings or compact digital camera. Some good place to look for cheap second hand DSLR are lowyat.net and free trade zone photography.

This article is posted at: KCLau's Money Tips

Life after graduation: Girl friend and the First Car

People invest money to make it grow, hoping for a good return. I used to think that my money in the savings account is a form of investment. I am getting some return right, even though it is a minuscule return. I realize I was wrong in this case as instead of getting richer; I was getting poorer since the interest rate return was way too small to beat out the inflation rate.

Therefore, your investment should give a much higher return compared to the returns from your savings account or even your fixed deposit account. Investing your money requires some work or effort, for example searching for suitable instruments to invest your money in. Below are several concepts attached to investing that everyone should know about.

• Investing carries some risk

Investing in various different instruments or assets carry different degrees of risk. For example, investing in bonds can be considered to carry minimal risk whereas investing in options or warrants carry a very high risk. Therefore, investing your money does not necessarily guarantee a good return and instead can cause you to lose a lot of money. Losing money in high risk or dubious investment schemes is not uncommon and has happened to me and I am sure to a lot of other people as well.

• Reducing investing risk – diversification

Now you know why people have their money in several different ‘pots’ instead of one or two pots only. The money could be in the stock market, in real estate, in commodities, in government bonds, in unit trust funds, etc. People diversify to reduce their risk of losing money from one type of instrument or asset only. Investing in several instruments or assets spreads out the risk.

Something to keep in mind is if all your money is invested in low risk and low return investments, the returns generated may not meet your target. On the other hand, if all your money is invested in high risk and high return investments, you are exposed to a higher risk and the possibility of losing a huge chunk of your money.

• Start investing early

There is a time value attached to your money. The earlier you start to invest, the faster your money will grow. For example, if you start investing at 25 years old by dumping all your money (e.g. RM50, 000) into an investment that gives 8% annual return, after 30 years (at age 55 years old) the money will grow to RM503,133 with no additional investment from you.

• Rule of 72

Use the rule of 72 to estimate your money growth. For example, putting your money in a fixed deposit account which gives 3% annual return, it will take 24 years (72 ÷ 3 = 24) for your money (e.g. RM20,000) to double to RM40,000. On the other hand, if the return is 8% annually, it will only take nine years (72 ÷ 8 = 9) to double.

The rule of 72 can also be used to estimate the future value of your money. For example, if you assume the inflation rate is 5%, money in your pocket now (e.g.RM5000) will only be worth RM2500 (reduced by half) in about 14 years (72 ÷ 5 = 14.4).

• Dollar cost averaging

Dollar cost averaging or ‘ringgit cost averaging’ as in our case means investing a fixed amount of money each month into your investment portfolio. For example, you set aside RM250 each month for investment. This is commonly practiced in unit trust investment. When the unit price is low, you are able to purchase more units and if the unit price is high, fewer units are purchased. In the long run, the average purchase price will generally be lower. This strategy is suitable for a person who does not have a huge lump sum of money to invest and instead invest consistent small amount of money for a certain period into a specific investment account(s).

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

Reference source: Planning Your Investment. Banking Info. www.bankinginfo.com.my

This article is posted at: KCLau's Money Tips

5 Investing Concepts Everyone Must Know Before Entering in Market

INTRO:
Malaysians love investing into Property. After all, property investment provides you with capital appreciation and rental income, which is a good hedge against Inflation. However prior to making the leap into the property market, it is always good to know what are the advantages and disadvantages, and the risks involved. Mr Yap Ming Hui, Independent Financial Advisor from Whitman explore what are the pros and cons of Property Investment and how to increase the chances of success in your investment into property.

Notes for SMART PROPERTY INVESTMENT

Smart Property Investing

The Advantages:

• Good hedge against inflation
• Leverage through bank loan
• Tangible
• Provides capital appreciation and rental income
• Not impacted (immediately) by economic data

The Disadvantages:

• No known valuation method
• Capital Gain Tax
• Liability Risk
• Illiquidity – difficulty to turn into cash

To learn more on this topic, view our video on Smart Property Investing

For more videos and financial tips , please go to www.yapminghui.com

About Yap Ming Hui

Yap Ming Hui is the nation’s leading authority on financial freedom. He is a revered independent financial advisor and coach, and creator of the YMH Model for Financial Freedom.

In his professional capacity, Yap Ming Hui is the Managing Director of Whitman Independent Advisors Sdn Bhd, a leading independent financial advisory firm in Malaysia which specialises in helping clients achieve financial freedom by optimising their wealth. As the author of 5 bestselling books on financial freedom, Mr Yap has a regular column in the New Sunday Time, and can be regularly seen hosting Financial Freedom Minutes on NTV7 The Breakfast show. Contact him at enquiries@yapminghui.com

This article is posted at: KCLau's Money Tips

Pros and Cons of Real Estate Investment

I had my Will done even before my child was born. Having a Will is important as I want my kid, my wife and my parents to be taken care off should anything untoward happen to me. Therefore, it is for my own peace of mind to get my Will done early. Mine was done by a Rockwills’s will writing team and kept there for a lifetime custody.

What is a Will?

A Will is a document done by a person stating his last wishes or instructions. The person making the Will is called a “testator.” The testator can document his last instructions pertaining to various issues such as the division or distribution of his estate, choosing a guardian for his young children and appointing a trusted and capable person as the “executor” of the Will.

A Will makes it easy to specify which assets go to whom. The deceased person’s estate including money, properties, shares, collectibles or jewelries go to the selected beneficiaries. For example, he can leave one property to one child and a second property to another child, thus ensuring there is no dispute later on.

The best thing about a Will is that a person does not lose control over all his assets, properties or valuables that are stated in the Will. The person can dispose off any of his assets anytime during his lifetime. The executor will carry out the instructions written in the Will only upon the testator’s death.

Write a comprehensive Will

Writing a comprehensive Will is important where a testator should list down all his assets, liquid as well as illiquid assets. Examples of liquid assets are savings account, investment account, fixed deposits, unit trust funds, shares and bonds. Examples of illiquid assets are landed properties, land tracts, collectibles, vehicles and jewelries.

Having proper details of each assets are important, for example the details found on a title deed or the S & P agreement of a house. The testator can also put in a residuary clause in his Will to include assets that are acquired in the future or any future inheritances.

What happens if you do not have a Will?

If a person dies without a Will (dies intestate), his estate will be distributed or divided according to the governing laws. For West Malaysia and Sarawak, it is the Distribution Act 1958 (Amended in 1997) and for Sabah, it is the Intestate Succession Ordinance (1960).

What if there is a Will but it is not comprehensive enough?

Well, the executor of the Will is going to be saddled with the difficult and complicated task of trying to understand and comply with all the instructions written in the Will. The executor may even have to do some intensive and extensive investigation work not unlike the character Sherlock Holmes, to gather all information pertaining to the deceased person’s estate.

Nobody can put a time estimate on how long this process would take, which could be years. On top of that, the executor may even have to engage a third party to do the search to locate all the deceased person’s assets and incurring unnecessary expenses in the process. It could be years down the road before some assets are discovered. There is also a high possibility that some assets would never be found, remaining hidden forever. This is not an unusual situation as it has been reported that there is RM42 billion of unclaimed assets in existence.

What are the consequences of this situation? Well, the major consequence is that the beneficiaries will be deprived of their inheritance. The beneficiaries, who could be the surviving children of the deceased will have a lengthy wait to benefit from their inheritance.

Hence, having a comprehensive Will is going to hasten the distribution of the deceased person’s assets, simplify the job of the executor to carry out all the instructions, ensure all assets are distributed accordingly and to the right people and ensure no assets are left out or overlooked.

Testamentary trust

If the testator is worried about irresponsible beneficiaries who may squander their inheritance, he can set up a testamentary trust in his Will. This will allow for the distribution of assets, especially liquid assets according to a fixed time schedule. For example, the beneficiaries will receive a certain sum or percentage of money every three or five years.

The periodical payment of money instead of one lump sum may work best especially when minor children (underage) are involved. In addition, the testator may also include a set of conditions to be met by the beneficiaries in order to be entitled to their inheritance.

From the above, one can understand why a comprehensive Will is useful to ensure a proper and efficient handling of a deceased person’s estate. Keep in mind that ensuring a proper wealth distribution is part of good financial planning to safeguard a person’s wealth into the future.

Reference: Saw, L. A. (2003). Guide to Planning Your Will Effectively. 4th Ed. Selangor: Leeds Publications.

This article is posted at: KCLau's Money Tips

Why is there a Need for a Comprehensive Will?

If you want to give your kids a head start in investing, there is one powerful concept
they must learn – compound interest. VINCENT TONG from Fundsupermart explains how.

Teaching kids the miracle of compound interest is potentially one of the most valuable lessons you can give them in life. While the saying “old habits die hard” has a negative tinge to it, why not use it on something beneficial so that your kids bring this habit all the way to adulthood?

THE BEAUTY OF COMPOUND INTEREST FOR KIDS

In its simplest form, compound interest is about turning money into more money. But for many kids, it can be difficult to grasp something so abstract.
For the purposes of this article, we’re assuming your child is able to control their spending, and understands percentages.

According to typical school standards, most children between the ages of 9 to 12 have already learned to apply percentages in class.

A more practical guide is if your child knows how to split a chocolate bar into equal halves, then chances are they’ll know how to split it equally into ten parts i.e. ten percent.

So here’s a simple activity to illustrate what compound interest is, and how it works.

ACTIVITY: BEING THE BANK!

Step 0:
Tell your child, “I want to show you how you can double your money in one week.” If they have a fair grasp of money, they’ll know more is better, and hopefully they’ll pay attention.

Step 1:
Show them $10. Before they run off with it gleefully to buy ice cream, tell them, “I’m going to show you how to turn this $10 into $20, on the condition that you not touch it for a week.” Put the $10 in a jar in the living room, and tell them they are not supposed to open it until a week later. Make sure that the jar is transparent and labelled with some imaginative message like “The Ng Family Bank” or “The Bank of Daddy”.

Step 2:
Tell them, “Every day, I will add 10% to the money already in the jar.” You may have to explain to them how much 10% is. Give them a table to fill out every day, so that they can track the amount of money already in the jar.

Use this table for Step 2

Step 3:
For the next 7 days, add the appropriate interest amounts into the jar. (And do check occasionally to ensure that they do not take any money out from the jar prematurely!) Have your child fill in the ‘Total’ column in the table, and if they’re particularly keen, the ‘Interest’ column as well.

Step 4:
At the end of Day 7, your child should have the following table.

Open the jar and ask them to count the money.

Step 5:
Now comes the toughest part – the explanation. On a piece of paper, write the initial capital amount of $10.

Ask them how much 10% of $10 is, write $1 below it, and sum it up to $11. Next, ask them how much 10% of $11 is, write $1.10 below it, and sum it up to $12.10. Repeat this process until you arrive at $19.48. The end result should be something like the Example 2.

This should illustrate clearly how the interest increases – from $1.00 to $1.77 by the end of the week. To make this more obvious, you can use different colours for the interest amount.

Remember to ask them on the interest amounts. Engaging them this way is much more effective in getting the message across than by explanations alone.

Step 6:
Finally, ask them what they have been doing this week. Chances are that they will answer with “playing”, “sleeping”, “eating”, or “schooling”. After some responses, tell them that while they were doing all these activities, the “bank” is actually paying them interest. This process is called ‘compound interest’.

You may want to vary your interest rate, but remember not to set it too high. This will help avoid setting the unrealistic expectation that it is easy to double your money in just one week.

THE NEXT STEP
Hopefully, your child will have grasped the concept of compound interest. Optionally, to be really sure, you may want to reverse roles, and let your child be the banker. Give them a bag with the money for interest payments that they can pay out every day.

So now that they have an idea of what compound interest is, the next lesson is on savings, and how it works with compound interest together to increase their money.

This article is posted at: KCLau's Money Tips

Teach Your Kids The Power of Compound Interest in a Week