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Monday, May 4, 2015

Not All Debt Is Bad


Today I've read an article from The Star and I do share the same sentiment with the writer that not all debt is bad especially this quote "Smart money management is not about avoiding debt; rather it is about choosing the right debt and making it work harder for you." The article also mentioned slightly on how to utilize the credit card to free up more cash flow which in the end can be use to generate more passive income.

The article is as follows:-

SINCE the US subprime mortgage crisis of 2007–2008, we have had an influx of credit and debt related news such as the European sovereign debt crisis (often referred to as the eurozone crisis), the European Central Bank’s quantitative easing (QE) programme and, closer home, 1MDB.

It all sounds pretty daunting to the average ears and lends credence to the public’s general fear of debt.

But what is debt? The Merriam-Webster dictionary defines it as “an amount of money that you owe to a person, bank, company, etc” while Oxford puts it more succinctly: “a sum of money that is owed or due”.

Whatever the language experts say, for most of us, debt is really quite simple – it is about spending on our credit cards, taking up a mortgage or car loan, utilising the overdraft facility of our current account, and drawing down on a revolving or term loan.

During a recent family gathering, debt management arose as a topic of discussion and what started out as an innocent observation that “not all debt is bad” opened up a lively and somewhat animated debate pitting the pitfalls of debt against its merits. Interestingly, I noticed a distinct difference in the generational attitude towards debt management and can well imagine similar discussions taking place at other family gatherings across the country.

From baby boomers, I heard statements such as “managing credit card bills is very important as the interest is very high”, “always settle your credit card balance in full”, “live within your means or, better still, below it” and “young people these days tend to rely on credit cards rather than manage what they have”.

Rebuttals from the millennial generation included defences such as “but you only live once (#YOLO) and money is required to make the most of that life” and “using credit cards is about making your money work even harder for you”.

Look. I am not exactly a millennial but debt really isn’t all bad. Smart money management is not about avoiding debt; rather it is about choosing the right debt and making it work harder for you.

Despite all the worries and negative sentiments angled at accumulating debt on credit cards, the much maligned credit card can indeed be a useful tool to the discerning user. Here’s an example how.

By choosing to place the annual premium payment on your credit card, you actually save RM6.50 each month or a total of RM78 each year, not to mention the rewards accumulated from the credit card loyalty programme. Less apparent is the fact that by not having to pay a lump sum of RM1,560 each year, you have funds left in your investment or deposit accounts that could earn returns for a while longer.

Another example of utilising debt to optimise financial gain is when you refinance your home whose market value has likely risen. Let’s assume your RM350,000 home loan is already fully paid off and is now worth RM800,000. You now have the option to unlock your home equity by refinancing the home.

Without unlocking your home equity or taking up the refinancing, this RM771,195 would not have been achievable.

So how do you know whether you’re taking on good debt? Here’s the litmus test. Ask yourself three questions:

  • Do the goods you are buying have the capacity to increase in value over time?
  • Are you able to maximise your cash flow by purchasing the goods through debt?
  • By purchasing the goods on your credit card, was your lifestyle enhanced without straining your cash flow to repay the credit card bill?

If your response is yes to any of these questions, you are probably better off taking up the debt.

Not all debt is bad. It is how you utilise debt that either makes you or breaks you. Choose the right debt instrument, repay your debts responsibly, and start making the most of your wealth by accumulating good debt. Like cholesterol, debt possesses that enigmatic positive variety that is little understood and even less appreciated.

Evelyn Yeo is head of wealth management in OCBC Bank (M) Bhd.

Source: The Star - Not all debt is bad

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Sunday, April 12, 2015

LHDN Income Tax Rate 2014 Vs Income Tax Rate 2015 (Post-GST Implementation)


As the goods and service tax (GST) is officially implemented in Malaysia 2014, most Malaysians will finally have to pay tax from all income level. Paying more taxes definitely not good news for almost everywhere through out the world, but there is very small good news to the income tax payers, whereas the income tax rate for the year 2015 will be reduced by few points basis.

The winner again, will be the high income earner - which is those who are earning RM400K and above because their rate drop although they might still argue that they will pay a lot more in the form of GST. The following is the comparison of the income tax rate before the GST implementation vs the post-GST.


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