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Sunday, December 27, 2009

Setting Financial Goals for Year 2010

As the year 2009 is coming to an end, we should start setting financial goals for year 2010. Financial goals are needed so that we can control our day-to-day financial affairs which will be executed by creating and following a budget. Good financial goals are usually realistic and achievable and will give satisfaction to one. It doesn't serve a purpose if a person earning 10,000 a year setting a goal which is to save 20,000 a year because it is impossible to achieve. Not only that, it will then demoralize him or her.

There are few steps to set financial goals:-
  • Identify and write down your goals.
  • Break goals down into short-term goals and long-term goal - timeline could be differ; eg. some might take few months as short-term where as some will consider it as long-term
  • Educate yourself and plan - Learn the debts and assets that we have, and to look into the expenses. Then plan a budget. Follow the budget with discipline and diligently.
  • Evaluate your progress - it doesn't serve a purpose to have goals where we do not strive to achieve it, right?

Just like the rest of the people, I also have certain goals and adjustments that I make every year. Example would be, for the year 2009, I have targeted 20% growth in my stocks portfolio, in which I successfully did and I might figure to have the 20% growth change this year. More generic financial goals for this year would be:-
  • Continue tithing.
  • Clearing 10% debt (both car loan and education loan).
  • Stocks portfolio to grow another 20% (this would be review quarterly).

We still have about 4 days before 2010. Start setting your financial goals for year 2010, and by end of the year, see how many goals that we have achieved. There are no hard ways and fast rules for implementing a realistic financial goal. The important thing is to do it and to start NOW!!

Have you set your financial goals for the year 2010? If so, do share it out :)

Monday, December 7, 2009

Spend Wisely This Christmas

As Christmas is just two weeks away I would like to blog a bit on Christmas shopping and spending. I believe by now, many of us are either busy preparing for Christmas, like me, decorating the Christmas tree at home just not long ago or busy planning the shopping details for this year's Christmas and with financial turmoil is just on the way for recovery, many might cut Christmas spending. It is always a virtue to spend wisely this Christmas, as we still have our financial goal to achieve, coupled with more festive celebrations over the next two months, namely the New Year and The Chinese New Year.

Christmas is a celebration of giving as what our God has done by giving his Son, Jesus to redeem us. We can demonstrate the spirit of giving by giving gifts or celebrate this Christmas with others. Anyway, back to the point of spending wisely, there are indeed few points that one can consider in order to reduce the budget for this Christmas while at the same time enjoying this meaningful occasion:-

  • Gifts.......As the celebration is about giving, gifts are like indispensable items on the Christmas day. Gifts usually contributes to big chunks of the Christmas budget. One can consider making gifts on your own and it will be meaningful and unique to the receivers. There are a lot of things that you can do at home and it will be an attractive gifts to others. Some ot the examples are like drawing Christmas cards, knitting a sweater to your love ones, or making a unique photo frame.
  • Food......Food is next item that will cost a lot on this day. Well, one can cook simple meals like spaghetti for the enjoyment of the whole family. Christmas is not all about turkey and meat. It is about the celebration together with the family members and friends. One can organize BBQ or pot bless where the guests can contribute to the food as well.
By cutting on gifts and food, one can still continue to enjoy Christmas day with his or her love ones, and not feel "stingy".

Tuesday, November 24, 2009

Bill Gates vs Steve Jobs


It is an ironic when we mentioned these names. While both of name are famous for the "Information Revolution", these are also the two names that hardly see eye to eye to one another.

One of them are seen as the devil who is only interested in making money out of the manipulation of technology. Bill Gates is the villain to many of the techno geek and given the failed product of Vista, it is hard to deny that. However, let us not forget Bill Gates is also the man who give us Windows 3.11, Windows 95, Windows XP, and of course now Windows 7. But for most people, Bill Gates is one man who only interested in money, money, money!!

On the other hand, Steve Jobs gained the reputation more like a saint in this industry. Whenever people talk about Steve Jobs, people will talk about his passion for art, design and even perfection. While no one could deny the effort Jobs put on Apple's product, is it really true that Gates is the villain while Jobs is the saint? This almost saintly reputation is magnified given that there are some cult like Apple fanatics out there.

However, I find it difficult to accept this perception given the fact that while this same Gates who is acquiring billions of wealth in the universe, it is also this same Gates that is giving away his fortune with the same gusto that he is earning it. This is the man who has been throwing billions of dollars to help solve global health issues. Not only that, Bill Gates is the kind of person who would speak up for what he believes in....
He has also spoken out on major policy issues, for example, by opposing proposals to cut back the inheritance tax.
He also speaks up in support for the organizations and institutions that he believes in.

What about Steve Jobs? Ranking as the 194th richest person in the world, his name is not even on the list of gifts of 1 million or more compiled by Indiana University's Center on Philanthropy.
Jobs' wife is also absent from these philanthropic lists, although she has made dozens of political donations totaling tens of thousands of dollars to the Democrats, according to the Open Secrets database. Of course, the two of them might put as anonymous in their donations given their preferred secret lifestyle. However, as a man who has so much influence on not only the working class but the generation of youth, Steve Jobs should at least speak up for some good causes but as far as anyone could remember, Jobs only talks about Apple and "What's NEXT" for it. He might be awarded the CEO of the decade by FORTUNE but he definitely isn't part of any change for the greater good.

Of course, it is hard to say who is the villain and who is the saint, but let us remember: Great wealth alone doesn't make a great man.
Gates might have acquired billions of dollars but one thing he know he must do, is to contribute to the community and that probably is the one reason that I will put Bill Gates as the better man than Steve Jobs.

Forget about the failure of Windows Mobile, forget about the ugly interface of Windows in comparison to Apple...all those are important but if the realm of wealth is not shared among our community, what good does it bring? Let us ponder about this the next time we thought of accusing Bill Gates as a selfish cutthroat capitalist.

Saturday, November 21, 2009

Congratulations to Steve Jobs, FORTUNE's CEO of the Decade

Whether you like him or not, the Apple CEO Steve Jobs has had a helluva decade. After all, it was under his helm that Apple defined the portable music player market with the iPod, has shaken up the mobile industry with the iPhone, rocked the retail music business with iTunes and re-invented the computing business with OS X in a way that the PC business - with less than 10 percent of market share - is no longer the bread-and-butter of the company.

Of course, the marketing plan by Apple was brilliant and create a loyal and if I could use that word, a cult-like followers of the Apple brand. In fact, FORTUNE magazine describe it as the DECADE OF STEVE - How Apple's imperious, brilliant CEO transformed American business. It also mentioned about the dedication and commitment that Steve Jobs had towards every small details in the company.

We cannot deny that the manner in which Apple conducts business has been highly effective at not only increasing sales and broadening the company’s portfolio but also setting trends, creating buzz and putting out top-notch (dare I say near perfect?) products again and again and again.

During each of Apple’s news announcements, we know about the giddiness in those auditoriums - even from the press. And the fact that Apple almost always has the items in-store and online by the time Jobs takes the stage surely helps spark some spontaneous sales. There’s rarely a months-long wait for products the way there is for some competitors.

"A key Job business tool is his mastery of the message. He rehearses over and over every line he and others utter in public about Apple."

Even under his own serious health problems, Steve Jobs has been committed towards the Apple products and it is indeed great to hear about the success of his liver transplant surgery.
And there is definitely probably one thing that define Steve Jobs better than others...he make it a point to know everything about APPLE. That is right...he was passionate about his business. No wonder he deserves to be the CEO of the Decade....

Saturday, November 7, 2009

What does the 1Malaysia 2010 Budget has in store for you? - Part 2

This post is continue from where I left last week on What does the 1Malaysia 2010 Budget has in store for you - Part 1.

The last post on 2010 Malaysia Budget is regarding on how the government will implement the fuel subsidy which in my opinion, will not be able to reduce the burden of the poor, which was the actual purpose of the subsidy.

This time, I will discuss the other "goodies" in 2010 Malaysia Budget like the following:-

  • The maximum income tax rate for individuals to be reduced to 26% from assessment year 2010. Personal relief increased to RM9,000.
  • Personal relief for EPF and life insurance schemes to be increased to RM7,000.
  • Taxpayers will get tax relief on broadband subscription fee of up to RM500 from 2010 to 2012.
  • To promote prudent spending, a service charge of RM50 a year to be imposed on each principal credit card and charge card; and RM25 a year on each supplementary card, effective from Jan 1, 2010.
The personal relief will be increased to RM9,000 where almost everyone will be benefited from this. This is actually a RM1,000 or 12.5% increase from the previous RM8,000. The maximum income tax rate for individuals will be reduced to 26%. Only those with getting salary Rm10,000 above monthly will be in this tax bracket, so most people will not be able to enjoy this "goodie".

I do agree that relief for EPF and life insurance scheme to be increase, in this case, a RM1,000 increase. So, a relief for this portion is always welcome, but RM1,000 increase is still not much, our government can still do better than this.

Government introducing the broadband relief of RM500, translate to about RM40 per month, where one cannot even subscribe to the cheapest TMNet Streamyx Combo Package of 384/128 which cost RM60 per month. This mean that to entitle to this "goodie" everyone must top up additional RM20 per month.

Finally, the credit card tax of RM50 per card. This one I found most ridiculous of all. How can taxing on each credit card will promote prudent spending? IF it is for prudent spending, why not tax only for after the 2nd or 3rd credit/charge cards? Those with problem managing finance previously and fill with debt will have extra burden.

Besides that, with this tax, some of us will eventually cut all the credit/charge cards since most of the time, these cards serve as emergency usage only. Without credit, how the citizen will spend or dare to spend? Even if we were to spend using cash, it will be limited to monthly salary. Credit cards have the easy payment facility for one to purchase expensive stuff like furniture, electronic devices, appliances and many more paying certain installment for a duration of time. With this easy payment, one will not have to uplift his or her current FD to pay for the expensive stuff especially for certain event like moving to new house.

Another point to ponder, with crime like snatch theft and robbery happening daily, who dare to go outdoor with full of cash? If this is limited, who will spend? Without spending, how the government going to stimulate the country's economy?

The 2010 Malaysia Budget consists of "goodies" which looks like the government is planning to reduce the burden of the people, but at the same time taxing the people more. It is like one step forward, two step backward. How can taxing for credit card promoting prudent spending? Why the people have to be tax just to promote prudent spending, while government official buying laptop at a price at least 10 times more expensive? Why not the government promote prudent spending by cutting the budget required for each project instead of taxing the people, their boss?

If the 2010 Malaysia Budget theme is to realized, government and the people should work together in prospering the nation. Remember the theme is 1Malaysia, Together We Prosper. 1Malaysia means everyone of us working together prospering together.

Wednesday, November 4, 2009

Investment Allocation Rule

Have you heard of the rule of 120 minus age? It is actually an investment allocation rule or a guideline for novice investors like most of us. The rule is pretty simple, just take 120 minus your age, and you will have the allocation in percentage for investment. Example, Ricky is currently 23 years old, which means that he should invest up to 97%.

The idea behind this rule is the younger we are, we need to allocate more for investment, as we can afford to lose. Besides having nothing to lose, the income we are getting when we just started to work is not that high.

Imagine the scenario below:-
Ricky, currently 23 years old and start to work earning 20K annually. After deducting all his expenses other deductions like loan installment, he will still have about 4K (assuming 80% is the expenses in percentage). From this 4K, he should invest 3880 (120-23 = 97% of 4K).

17 years down the road.....
Ricky now age 40, and earning 40K annually. Assuming 80% is his expenses, he will still have 8K left. Using the 120 minus age rule, he should invest 80% of the amount, which amounted to 6400.

From the above scenario, we can see that although Ricky's earning is doubled, but now his investment is just 64% extra, instead of 100% extra. The 120 minus age rule is meant to make the most of the investment capital based on the age, risk and annual income.

Tuesday, October 27, 2009

What does the 1Malaysia 2010 Budget has in store for you? - Part 1

The Malaysia Prime Minister Datuk Seri Najib Tun Razak has tabled the 2010 Budget last Friday evening with the theme "1Malaysia, Together We Prosper" totalling about RM191.5B. The summary of the 2010 1Malaysia Budget is here. So, what does it really have in store for most us?

From the summary of the 2010 Malaysia Budget, it looks like there are few points for us, me at least.

  • To ensure that fuel subsidies only benefit targeted groups, Govt will implement a fuel subsidy management system in early 2010, which will utilise the MyKad.

I'm not sure how the government going to implement this, but if government is to implement this, why not give the allocated budget for fuel subsidy to everyone fair and square. If they plan to allocate RM1B for the fuel subsidy, might as well, divide the RM1B to the number of citizens in Malaysia so that everyone is getting the same amount fair and square.

By implementing the fuel subsidy using MyKad, the poor will be badly affected. With this implementation, public transportation fees might increase, the same goes to food price and many other things will have increase in the price as businessmen will take the opportunity to increase the price according to the un-subsidized fuel price. So, what the poor in Malaysia can do? They are not getting anything from the subsidy since most of them will not be driving or at least not enjoying the benefit of subsidy. Why can't our government implement something similar to Brunei?

Giving the subsidy money to the people is always better, because the poor can enjoy the subsidy. The money can be use to ease their burden, but our Government choose to use subsidy program, thus helping the rich to pay less for fuel, while at the same time increasing the inflation rate in Malaysia. Is this "1Malaysia, Together We Prosper"?

More like another rich man budget to me. What is your comment on the fuel subsidy?

There are other "goodies" from the 2010 Malaysia Budget for poor citizen like me which I will discuss it in my next post. Below are the other "goodies" which the Malaysia PM has in store for the "rakyat".
  • The maximum income tax rate for individuals to be reduced to 26% from assessment year 2010. Personal relief increased to RM9,000.
  • Personal relief for EPF and life insurance schemes to be increased to RM7,000.
  • Taxpayers will get tax relief on broadband subscription fee of up to RM500 from 2010 to 2012.
  • To promote prudent spending, a service charge of RM50 a year to be imposed on each principal credit card and charge card; and RM25 a year on each supplementary card, effective from Jan 1, 2010.

Friday, October 23, 2009

Malaysia Budget 2010: 1Malaysia, Together We Prosper

Below are the summary in the Budget 2010 which was tabled by the Malaysia Prime Minister, Datuk Seri Mohd Najib Tun Razak:-

* Government to make it easier for skilled/qualified people to get permanent residence status. Visa to be granted for family within 14 days.

* CSR Fund of RM100mil to be set to carry out social programmes.

* Tax breaks for registration of patents and copyrights.

* Big scale factory outlets to be set up to boost tourism besides having major events like KL Grand Prix Fest, National Water Festival, Malaysia International Golf Exhibition and Rain Forest Eco-Challenges

* Taxpayers will get tax relief on broadband subscription fee of up to RM500 from 2010 to 2012. Civil servants can apply for computer loans up to a maximum of RM5,000 from the govt once in every 5 years.

* RM6bil for agriculture sector for paddy fields irrigation, fish production, fruit farming, livestock farming infrastructure, training

* RM2bil subsidy for farmers and fishermen including subsidies for fertilisers, incentives for padi yields and allowances for fishermen

* RM9bil to finance infrastructure projects including road and bridges projects and rail, sea ports and airports facilities

* RM1.5bil fund to promote green technology by providing soft loans to companies that supply and use green technology

* RM200mil Creative Industry Fund to finance film, drama, music productions, animation, advertisements through Bank Simpanan Nasional

* In a bid to develop high quality human quality, RM30bil will be allocated to enhance primary and secondary education nationwide

* Rewards for students who excel in studies:

- 30 National Scholarships to the creme de la creme of students stictly based on merit

- Convert PTPTN loans to scholarships for students who graduate with 1st class honours degree, beginning from 2010,

- Offer a netbook package, including free broadband service, to university students for RM50 per month for 2 years.

* The Permata programme that emphasises early childcare and education, including the gifted child programme, will get RM100mil

* Insurance industry to be improved to meet market demand.

* Govt to clamp down on the abuses committed by Ah Longs by enforcing Anti-Money Laundering and Anti Terrorism Financing Act 2001. Moneylenders Act 1951 to be also reviewed.

* Allow 100% foreign equity participation in corporate finance and financial planning companies compared with the present requirement of at least 30% local shareholding.

* To ensure rapid development of financial services, the existing tax incentives to be extended to 2015.

* Among steps to combat corruption is to set up 14 Special Corruption Sessions Courts and 4 Special Corruption Appeal High Courts.

* Tax of 5% to be imposed on gains from the disposal of real property from Jan 1, 2010. Existing tax exemption will be retained for gifts between parent-child, husband-wife, grandparent-grandchild.

* To promote prudent spending, a service charge of RM50 a year to be imposed on each principal credit card and charge card; and RM25 a year on each supplementary card, effective from Jan 1, 2010.

* To ensure that fuel subsidies only benefit targeted groups, Govt will implement a fuel subsidy management system in early 2010, which will utilise the MyKad.

* All Ministries and govt departments are required to provide day care and education centres for children of civil servants.

* The maximum income tax rate for individuals to be reduced to 26% from assessment year 2010. Personal relief increased to RM9,000.

* Police force to get RM1bil to improve its services in govt's efforts to reduce crime. Major measures include to increase police presence, including mobile police stations in 50 crime hotspots.

* To promote house ownership, Govt will launch a scheme that enables EPF contributors to utilise current and future savings in Account 2.

* Employees' EPF contribution to be increased to 11% again, on a voluntary basis, effective immediately. However, from Jan 1, 2011 employees' EPF contribution will revert to 11%.

* Personal relief for EPF and life insurance schemes to be increased to RM7,000.

Tuesday, October 20, 2009

Turmoil in the financial world is finally settling albeit slowly

Is the financial world finally recuperating? Although there are statistics and incidents in shreds and patches that indicate that the financial world is settling down but a particular change has to last for a considerable time period before it establishes itself as a trend. What gave rise to the turmoil in the financial markets? The factors that are responsible for creating upheavals in the economy didn’t impact the economy in one day; it started seeping into the economy few years ago. Since the economy wasn’t strong enough to withstand the turmoil, it gave in. However, the economy was seemingly healthy. But this wasn’t the true picture.

It started with subprime lending activities that assumed an uncontrollable proportion due to manipulation and irregularities. Mortgage brokers and lenders had scrupulously inflated income levels and manipulated appraisals. They approved mortgage loans of borrowers that were not eligible to get a mortgage.

As more and more borrowers started defaulting on their mortgages, the number of foreclosures increased and so did bankruptcies. There was a credit crunch and consumers received a bolt from the blue with the turn of the economy. The recession affected consumer spending, investor sentiment etc.

As credit crunch assumed a horrendous proportion, it became difficult for consumers to make ends meet. Business houses closed down or declared bankruptcy. Employers went on a cost cutting spree and nothing seemed to be working well for the economy. Credit card issuers altered their payment policies and reduced credit limits. But the same was not communicated to the consumers. So, the credit cardholders started defaulting on their credit card payments too. All this added to the increase in delinquencies (mortgage as well as credit cards).

The financial world as a whole was affected. The financial stalemate that started in United States sent ripples to all the major economies of the world. It affected all the sectors of the economy since it affected all the macroeconomic indicators drastically.

However, the economy is slowly looking up and according to experts, it will take another year or 2 for the economy to recover if not completely at least partially.

Monday, September 28, 2009

Power of Compounding Gain

Recently when I discussed setting a financial goal with some friends, and one of them talking about reaching personal net worth more than six times from our current annual income in another four years. Well, at first I thought reaching that kind of personal net worth is quite impossible, but after doing some calculation I believe reaching personal net worth of six times our annual income is possible, at least reaching closer to that amount.

First, we must realize that it is not possible to save 100% of your annual income. We have expenses, loan and many more which will takes up huge percentage of the annual income, unless of course, we have very low amount of expenses and loan. Even then, we cannot deny that we are not going to save 100% of our annual income, else how are we going to survive in this world where everything needs money?

Back to the real issue, how I suddenly come to the conclusion that the financial goal is achievable, at least for me, but at one condition, which is I have to invest 20% of the annual income and reinvest the 20% profit that most likely I can get from my current investment. That is the compounding gain that I'm going to get (if everything goes according to the plan).

Let's have the example of a person A, earning 10K per year, reinvesting 20% of his profit and investing 20% of his annual income. If we assume that A never has increment through out his/her employment, so every year he will top up 2K to his investment capital and reinvest 20% gain for the previous year. It will takes him 10 years to get his/her portfolio to be six times the annual income. Let's look at the table below:-

Capital 20% of salary 20% profit End year capital Year
2,000.00 2,000.00 400.00 4,400.00 1
4,400.00 2,000.00 880.00 7,280.00 2
7,280.00 2,000.00 1,456.00 10,736.00 3
10,736.00 2,000.00 2,147.20 14,883.20 4
14,883.20 2,000.00 2,976.64 19,859.84 5
19,859.84 2,000.00 3,971.97 25,831.81 6
25,831.81 2,000.00 5,166.36 32,998.17 7
32,998.17 2,000.00 6,599.63 41,597.80 8
41,597.80 2,000.00 8,319.56 51,917.36 9
51,917.36 2,000.00 10,383.47 64,300.84 10

While the amount seems nothing, but if we look at the profit, it is increasing yearly. So, if A continue to invest diligently, eventually he/she can become millionaire in just 25 years down the road.

309,480.00 2,000.00 61,896.00 373,376.00 19
373,376.00 2,000.00 74,675.20 450,051.20 20
450,051.20 2,000.00 90,010.24 542,061.44 21
542,061.44 2,000.00 108,412.29 652,473.73 22
652,473.73 2,000.00 130,494.75 784,968.47 23
784,968.47 2,000.00 156,993.69 943,962.17 24
943,962.17 2,000.00 188,792.43 1,134,754.60 25

Imagine, if you are start to work at the age of 21 (no increment through out your employment), by the age of 46, you are a millionaire. So, for those earning low salary, fret not. If you can invest diligently and invest wise, eventually becoming a millionaire is no problem - you still have 9 years before retirement age (55).

The concept is simple, but how many of us will be able to achieve that by investing wisely? That will be another topic, which we can discuss.

Thursday, September 17, 2009

What about RECESSION?

I believe that nobody ever suspects what happened to Lehman Brothers about a year ago would actually took place. And if that is not enough, let us take a look at one of the struggles that the Wall Street wizard, J. Christopher Flowers had to endure lately. Of late, Flowers is struggling to salvage a series of ill-timed investments that he made just before the financial crisis got really ugly and dragged already distressed institutions down further than he thought possible. His billion-dollar stakes in Japan's Shinsei Bank and in Hypo Real Estate and HSN Nordbank, both in Germany have crumbled.

Such is the impact of what many claimed to be the worst economic crisis ever since the Great Depression. Probably some of us want to know how the economic crisis all started?

Not long ago, a US homeowner did something that he hadn't done for quite a while. He sold his house for less than the listed price. When enough other sellers did the same, the house prices that on average had more than doubled since 2000 began to fall. That first fateful sale burst a real estate bubble, a runaway increase in prices not justified by any rational economic calculation and triggered a downward slide that by the end of 2008 had knocked almost 25 percent off the value of the average American home and sent the world economy reeling.
"Housing is the business cycle." UCLA economist Edward Leamer has written, noting that housing slumps have preceded eight of ten postwar US recessions. Housing is crucial because for most people, their major asset would be their home.

When your home lose value, homeowners cut spending. And when consumer stop spending, firms can't sell their goods and services, leading to business owners lay off workers and in a vicious cycle, spending is cut further.

Housing downturns have always been bad for the banks. If the borrowers ran into trouble, the bank might have to take possession of a home or two, which might not be a serious problems when house prices were high. But selling houses in a down turn market means losing money. Make a habit of it and the bank is doom to fail.

But this time, the securitisation of mortgages have spread the trouble more widely. Beginning in the 1990s, financial institutions started bundling mortgages together and selling off the rights to the income streams that they generated. Investors liked the higher rates of return they offered. And note that many rating agencies gave them high marks for safety. But when the US housing market fell further and faster than anyone could anticipate, many of these securities plummeted in value. Banks that owed them were forced to call in or not renew loans they had made, so as to raise liquidity, cash or financial assets that can be sold quickly to build their reserves and pay back any of their own borrowing that might not be renewed. This rush to liquidity created


Some didn't the introduction of this post mentioned earlier: Lehman Brothers Holding Inc. And it also hit the world's largest insurance company, AIG.

Now that this might sound depressing, but it serves only as a warning to us of what could be worse if we are not being an ethical consumer. This might just bring about the responsibility revolution in our economy world. There have been stimulus plans, packages and others being done by the government with the help of economists but no one can truly say they know what is next.

I will talk more about the RESPONSIBILITY REVOLUTION towards CONSUMERISM as well as some of the stimulus packages.
Of course I'm not a professional economist or an investor but doing detailed research as well as studies on Actuarial Science professional paper has exposed me into some of these realities. It helps me to see that financial matters in the real world.

Tuesday, September 8, 2009

Managing Debt - Part 2

In previous post of Managing Debt , I talk about some brief overview of good debt and bad debt. This post suddenly come across my mind when my brother feel so "unhappy" cannot use future money to buy his train ticket for the Hari Raya holiday. When the transactions failed to be done with the credit cards, my mom ask him to go to the station and buy direct with cash. Then he frowned and say, "Sigh, cannot use future money."

Debt or some would say future money can hedge the inflation or make the money work for us provided we have the discipline in repaying the debt. One of the example, is the credit card - my brother buying train ticket scenario. He has the money in which he can either use for buying train ticket or just top up that amount of money to buy a stocks, which he is confident will be giving him about 7%-10% gain. Thus without using the credit card, he cannot buy that stocks (which can be good or bad, but then that is another story). But with the credit card, he can at least hedge inflation for about 2 month, at least a month. This is because usually a credit card statement will have statement date whereby all the transaction for a month will be included and there is another date call payment date whereby the transaction for the month due before the date.

If you make any purchase right after the statement date, your transaction will be reflected in the next statement plus the payment date which will be about another 13 days, you will have 43 days of credit. 43 days is about 1.5 months inflation hedged. Imagine having 10 BIG transactions done like that. Your money value definitely not shrink as fast as others would.

Next up on managing debt, we will be talking about using easy payment, another tools which I think we can leverage it to hedge the inflation as well. Hedging inflation is almost the same like surviving in this "inflation" world

Saturday, September 5, 2009

Profit From Patience

The recent so-call bull rally has last for almost six months, and while people are predicting that the market will be having a bad day in the month of September as September has always been a bad month for stocks, market continue their wild run after few days of fear. This mini bull rally reminds me of something call profit from patience. For most traders, selling after some percentage of profit and cutting loss is a norm.

The illustration below is to show the comparison both investors A and B, where A will sell his stock once reach 10% while B is holding stocks for some time. Assuming both of them buying stock Z which is yielding 4% a year.

6 months continuous bull run resulting the price go from 1.00 to 3.00

For investor A,
From 1.00 to 1.10 (10%), A realized gain is 10cents
Then stock continue to move up 1.30, and A buy it back and because sentiment is extremely bullish, he will sell at 30% profit. So, once hit 1.70, he sell it again.
A buy again when price drop to 1.60 and sell at RM2.10.
Continue buying when the price hit 1.90 and sell it at 2.80 (40%) because market is bullish, but the price continue to soar to 3.00

i)1.00 -> 1.10, A earns 10cents.
ii)1.30 -> 1.70, A earns 40cents, but top up additional 20 cents from initial capital of 1.00
iii)1.60 -> 2.10, A earns 50cents, extra 10cents cash in hand
iv)1.90 -> 2.80, A earns 90cents, extra 20cents cash in hand

Total net profit A = 10 cents + 20 cents + 90 cents = 1.20 (in actual fact 1.00 for the investment of 1.00)

While investor B have net profit of 2.00, should he realize the gain after 6 months.

People might have been questioning where has the profit of A gone, but let us understand the scenario of both investors using the same initial capital of 1.00. The (i), A earns 10cents, but then again in (ii) A needs to top up additional 20 cents to buy the stocks, but still earn 40 cents. And in case (iii) market pull back a little, and A manage to buy below his sell price, so he earns extra 10 cents. The same goes to case (iv). In this scenario, he really make money in (iii) and (iv) where he has additional cash in hand after buying stock Z. Why this happen is because he is actually chasing the profit earned from previous transaction is to be either topped up or buying lower than his previous transaction selling price (if it happens like case (iii) and (iv)). So in the end the real profit is profit from the final transaction + all his cash in hand when he manage to buy lower. While for B, he just put and realized his gain (if market is bullish) in 6 months time and his earnings are a lot more than investor A.

Again, we will have another argument....if market is bearish, A will be at least cutting his loss while B will continue to hold stocks that will be losing its value from time to time. Actually, if we realized, stocks go up and down together. So if A cutting loss at stock Z, and buy Y, Y potentially still bearish and A could still be suffering the same loss as B, in the end, unless A stop playing stocks after the first loss.

What is the point of jumping here and there when market is bearish? You will end up with realized loss, while for those holding the fundamentally strong stocks, only paper loss. However, stock quality is also another consideration, but we will discuss that in the future.

Do you agree??

Saturday, August 22, 2009

Financial Planning and Management

For the past few weeks, I was not able to up blog more in this blog, mainly is the slow Internet connectivity that I'm facing in my house in Kulim, because I was using Celcom 3G, which sucks, although there are many complain about Maxis 3G. When I go back home town, I was too lazy to blog as I have always stressed on Work Life Effectiveness, which means that although I earn a living by working as Engineer, but I want to dedicate the time to myself and family as well during the weekends.

When I come to think of it, most of us will be sweating throughout our lifetime earning barely enough to support whole family. I actually think, is it possible that we can be out of our working life as early as possible - especially for those from the average income family background? The answer is yes and no.

No is because we lack of discipline and financial planning and management. Without discipline, most of us will just spend as it is. In fact, without discipline, most of us will hardly have any savings in our oldtime, because we do not save enough money and the money would either be spent on our children colleges.

Yes is because we have good financial planning and discipline to ensure that we follow the financial plan that we planned it out earlier. With discipline, we will be able to save enough for our old times, while having sufficient for our children colleges. We will be discussing how to retire early in the near future......

Monday, July 13, 2009

Obama rejects 2nd stimulus: Give recovery time

WASHINGTON – President Barack Obama said Saturday the $787 billion stimulus program must be given a chance to work before consideration is given to a second such jolt for the still-ailing economy.

Obama acknowledged in his weekly radio and Internet address that people are getting nervous about continuing high joblessness — the unemployment rate hit 9.5 percent in June — but said reversing payroll losses takes time. He asked Americans to be as patient as possible.

Republicans have labeled the $787 billion stimulus a failure. Both Obama and Vice President Joe Biden have argued that the bulk of the money from the stimulus program is still being disbursed and that it already has saved many jobs.

Obama criticized Republicans for opposing the stimulus but offering few alternatives to the worst recession since the Great Depression. And he rejected talk of a second stimulus, an idea that has been discussed by Democrats and even famed investor Warren Buffett.

"We must let it work the way it's supposed to, with the understanding that in any recession, unemployment tends to recover more slowly than other measures of economic activity," Obama, who is visiting Ghana on Saturday, said in his recorded message.

The stimulus included $288 billion in tax cuts, dramatic increases in Medicaid spending, about $48 billion in highway and bridge construction and billions more to boost energy efficiency, shore up state budgets and improve schools.

The plan "was not designed to work in four months," Obama said. "It was designed to work over two years."

Since Obama signed the stimulus into law, the economy has lost more than 2 million jobs and the unemployment rate has climbed higher than the White House predicted it would have ever reached without the stimulus.

Some companies say stimulus money helped avoid layoffs. Independent government auditors found that stimulus aid to states helped keep teachers off unemployment lines. But overall job numbers continue to suffer.

Republicans have seized on this opportunity to criticize the president, but they have struggled to find their collective voice. At a news conference Friday, Republican lawmakers criticized the White House for spending so much, while simultaneously saying the administration wasn't spending it fast enough.

With the Obama administration now pushing for a costly overhaul of the nation's health care system, Republicans are casting Democrats as liberals on a shopping spree. In the GOP's weekly address Saturday, Virginia Rep. Eric Cantor, the House Republican whip, accused the Democratic-controlled Congress of reckless spending and careless borrowing.

Though the Republican stimulus proposal this January had its own deficit-pushing price tag of $478 billion, Cantor and Republicans are trying to make their case against Obama as one of fiscal restraint.

"For the stimulus alone, Washington borrowed nearly $10,000 from every American household," Cantor said. "Let me ask you: Do you feel $10,000 richer today?"

In his speech, Obama twice referred to "cleaning up the wreckage" of a recession that began on President George W. Bush's watch. But with Obama's poll numbers slipping on economic issues, Republicans want to lay the economy at the president's feet.

"This is now President Obama's economy," Cantor said.

Source: Yahoo!

I was reading this news this morning and it really amazed me that President Barack Obama make such decision. The first day President Obama in the office, he was already pushing for the $787 billion stimulus which is now deemed failure by the Republican. The way he rejected the second stimulus plan means that President Obama does not back down to pressure by the Repuclicans.

I do agree that we should give some time for the economy to recover. We should all realize that though the US government has already throw out $787 billion, it will take about few years for economy to recover. We are still seeing jobless rate continue to increase, at slower pace, but that does not mean that the economy has yet to recovery, neither it means the economy is starting to recover. We are just off the worst, but there are more to come.

Many has been saying that China or Asia will lead us out of the wood, but it is very unlikely for this round because the global economy is too dependent on the United States. China or Asia as a whole only can cushion this meltdown, but to lead us out of recession, is very unlikely, but I could be wrong too.

At the same time while we are waiting for the outcome of the $787 billion stimulus plan in few months time, President Obama should gather all the economy experts to work on the second stimulus plan. This is not to say that a second stimulus plan is a must, but if the first stimulus plan did not have the expected outcome, the second one can be deployed as soon as possible without delaying.

I do hope that the US government will not have to deployed a second stimulus plan, because any implementation of the second stimulus plan will bring the States deeper into debt. What is your take towards the second stimulus plan? Do you agree in President Obama by rejecting or a second stimulus plan is a must? Let's discuss......

Monday, July 6, 2009

Are We Bear or Are we Bull?

The recent three months rally has resulted in 30% increase of most of the stocks and the bourses around the world. This three months rally has also prompted many people on whether we are still in recession mode or we are out of the woods.

Based on the volume for the past few months, I can say that most of the retailers have started playing with stocks and the three months rally is like a very energetic bull that just keep on going up without pausing.

But when we really read at all the news, we can see that jobless rate in the US and European countries continue to spike, whereas Malaysia are seeing double digit contraction in her export data. So, with all the bad news, why are we seeing the market going up for three months without pause?

The recent rally was actually drive by the commodity. Look at the crude oil price chart? It has been going from USD40 to close to USD72 in just three months. Other commodity prices are also increasing bit by bit. This commodity rally is fueled by China, who plans to absorb commodity at low price.

As we can see, again, most of us were caught off guard as we were waiting for the market to crash, but before market can crash, a catalyst stir up the market, and then retailers beginning to buy stocks at 10% higher, then 20% higher and now trapped again at the peak. Again, my philosophy to buy on and off when the price is right and not wanting to see stocks at the rock bottom works out and most of the stocks I got are gaining about 20%-40%, even when we are starting to see market to plunge.

Question now again is are we bear or are we bull? If we thought that the market recovers, the market will react the other way while the same goes to if we think that the market are still bearish, we might suddenly see a spike and then we have to continue chasing the stocks, and then suddenly find ourselves trapped at the peak.

So, if it is possible, always buy within your means, which means buying the stocks with your cash. I will continue to reload my investment on and off on strong fundamentals stocks so that if the market really recovers, then I can harvest my fruit, while if the market drops, I can be confident that the stocks will not be shaken. Fundamentals can rarely goes wrong.

So, are we bear of are we bull? You make the call.

Tuesday, June 30, 2009

Finance MATTERS!!

At moment of crisis, you will wonder why some survives, some fall while some others triumphs. During this economy downfall, we see how AIG nearly fall into bankruptcy due to the lack of financial planning and too much of unnecessary bonuses given.
However, it doesn't mean during economy crisis, all is lost and gone.

If one manages the money they have effectively, be it the financial situation of their company or their personal finance, there will definitely be enough for rainy season. So often we see an individual or a company suffers during economy crisis due to the lack of financial planning. Most often these people spent more than they have even during the good times.

Finance matters to all of us. And if you lack financial planning or any personal finance advisor, then I believe it is time you learn about it. Probably the first crucial step is for you to define your financial goals.

When you have a certain goals or direction, it will help you to plan everything in accordance to that direction. However, there are a lot of people who fail to define their financial goals as they fail to set their priority right.

If you indeed intend to learn more about financial planning and financial management, please leave us your comment here. We will follow up from there. It might not be long before you earn wealth that you never imagine of.

Friday, June 26, 2009

Payday Loan: Some Important Features

A payday loan is known by different names, for instance, cash advance loan, deferred deposit loan, payroll advance loan, paycheck advance, payday advance and so on. A payday loans is a particular form of loan that is offered for a small time period to deal with your urgent spending requirements. These loans are typically due for repayment at the time when you receive your next paycheck. A payday loan can help you if you experience difficulties related to unforeseen expenditures or bills prior to receiving your next paycheck.

In simple terms, a payday loan is secured by your future paycheck. These loans have garnered significant popularity over the past few years. Against lending you the money till your next payday, the lender would ask for a fee.

The majority of storefront locations necessitate you to offer them with a physical check that would act as guarantee for the payday loan. If you qualify for such a loan, the loan amount would be electronically deposited into your savings or checking account. You can get the loan on the same day or the following day and it depends on your lender and your place of residence. You can obtain from $100 to $1,500 in the form of a payday loan and you don’t need to fax any documents.

Prerequisites for a Payday Loan

Becoming eligible for a payday loan is not so difficult. You only have to fulfill the following criteria:

  • You are presently employed (or have a regular source of income)
  • You earn $1,000 every month as a minimum
  • You are 18 or over, an American citizen and have a checking or savings account in your name
  • You are not working for the military
  • Check bounces, bankruptcy, charge offs and other credit difficulties can’t hinder you in getting a payday loan.

Affect of Credit History on Insurance Premiums

When companies do a credit check on you, they are given not only a score number but also details of your credit history. If you have missed payments on your credit cards then it would show up on your credit report. If you have defaulted on a loan payment, your credit history will show this.
If you have missed making payments, you are not considered responsible enough when it comes to handling money. In other words you are a higher risk than your neighbor with a great credit score.
Having a higher credit score is considered by insurance underwriters a sign of stability and responsibility. Obviously the higher the risk your insurance company considers you to be, the higher the insurance premium.
While some may be of the opinion that using credit scores to determine insurance premiums may discriminate against those who are in the lower economic group because they tend to usually get themselves in financial trouble and probably have a lower credit score.
However, others may argue that regardless of your financial status you can still live within your means, pay your bills in time and maintain a good credit score and reap the benefits that come to those with good acceptable credit scores.
A importance of a good credit score in today's world cannot be underestimated. Having a good credit history will save you money not only on your car loans and home mortgage but also on your insurance premiums.

While some may be of the opinion that using credit scores to determine insurance premiums may discriminate against those who are in the lower economic group because they tend to usually get themselves in financial trouble and probably have a lower credit score.
However, others may argue that regardless of your financial status you can still live within your means, pay your bills in time and maintain a good credit score and reap the benefits that come to those with good acceptable credit scores.
A importance of a good credit score in today's world cannot be underestimated. Having a good credit history will save you money not only on your car loans and home mortgage but also on your insurance premiums.

Tuesday, May 26, 2009

Debt to Income Ratio shows your true borrowing capability

Up to what extent you can drown into debt in a month, and come out of debt smoothly by repaying, is best shown by your debt to income ratio. This ratio of debt and income is the key method to determine the availability of cash from you monthly income for repayment of your loans….or, in other words, it expresses your true borrowing capability. That’s why creditors consider debt to income ratio a very effective tool to figure out your monthly payment, and your true financial situation. This ratio clearly calculates the total amount of loan an individual can take.

There are 3 categories of debt to income ratio:
Front End and Back End Ratio
Your creditors tend to analyse your debt to income ratio with two numbers 33/38. 38 is the back end ratio. It is the long term debt ratio. And front end ratio is 33, which is the ratio of housing expenses.

Housing Expense Ratio
The payments of an individual’s housing normally means each and every payment you need to make in your day to day life. That includes all of your monthly payment. It includes costs like- principal, interest, taxes, and insurance. The ratio of housing expense is meant for measurement of an indivudual,s income’s percentage which would cover all his housing payments. A limit would be normally set by your creditors on where your debt to income ratio is wanted by them.
For example, sometimes the creditors set a rule that they want your housing expenses should not exceed 28% of your gross monthly income, and like that.

Long Term Debt Ratio
Long Term Debt ratio is used to calculate the specific percentage of an individual’s monthly earning that is available for making repayment of total debt. The calculation of Long Term Debt ratio includes your housing expenses (PITI), auto loans, credit card loans and some other debts.
Here also, the limit seting trend exists like that of your Housing Expense Ratio. The creditors sets a limit to your long term debt ratio. It is also referred as Back End ratio.

Debt to Income Ratio: guide to show your borrowing capacity

Upto what extent you can drown into debt in a month, and come out smoothly by repaying, is best shown by your debt to income ratio. This ratio of debt and income is the key method to determine the availability of cash from you monthly income for repayment of your loans….or, in other words, it expresses your true borrowing capability. That’s why creditors consider debt to income ratio a very effective tool to figure out your monthly payment, and your true financial situation. This ratio clearly calculates the total amount of loan an individual can take.

There are 3 categories of debt to income ratio:
Front End and Back End Ratio
Your creditors tend to analyse your debt to income ratio with two numbers 33/38. 38 is the back end ratio. It is the long term debt ratio. And front end ratio is 33, which is the ratio of housing expenses.

Housing Expense Ratio
The payments of an individual’s housing normally means each and every payment you need to make in your day to day life. That includes all of your monthly payment. It includes costs like- principal, interest, taxes, and insurance. The ratio of housing expense is meant for measurement of an indivudual,s income’s percentage which would cover all his housing payments. A limit would be normally set by your creditors on where your debt to income ratio is wanted by them.
For example, sometimes the creditors set a rule that they want your housing expenses should not exceed 28% of your gross monthly income, and like that.

Long Term Debt Ratio
Long Term Debt ratio is used to calculate the specific percentage of an individual’s monthly earning that is available for making repayment of total debt. The calculation of Long Term Debt ratio includes your housing expenses (PITI), auto loans, credit card loans and some other debts.
Here also, the limit seting trend exists like that of your Housing Expense Ratio. The creditors sets a limit to your long term debt ratio. It is also referred as Back End ratio.

Monday, May 25, 2009

Managing Debt - Part 1

How do you deal with debt? How do you pay the monthly credit card charges, minimum amount or full amount? What is the best way to reduce debt?

Before we go into reducing debt, we have to understand what are debts. Debt means we are using future money now, in one way, we are killing inflation, if properly utilize this tool, but without proper planning, the interest alone will be enough to kill us before we manage to hedge the inflation. Thus, to fully utilize debt as a tool for us to increase our net worth and in another way, making money for us, one must have very strong discipline in the debt repayment.

There are some debt which actually favors us, while some will get us deeper in the world of debt. Good debts are like property loan whereby the property will have value in the long run and credit card although it can be damaging, if not used properly. Bad debts are like getting personal loan or charge credit cards just to buy electronic gadgets to show off.

Guess, I'll stop at the introduction of the debts. Moving forward, and from time to time, I will continue to blog more on this issue as Financial Management is also about managing debt.

Friday, May 22, 2009

To be wealthy, one must first develop the right habits...

I wonder how many of the bloggers who drop by here are fans of Stephen R. Covey. Anyway I guess it's important for us to set our perspective right, all the more if we want to wealthy.

One must first develop the right habits. What habits one may ask? The effective habits, I believe as suggested by Stephen R. Covey. Probably if we look at the lives of those successful people such as Bill Gates, Warren Buffet, Michael Dell and many others, there are a few things we may find it to be similar, is that all of them have an effective habits and hardwork.

I'll probably just simplify it as Stephen did in his book, 7th Habits of Highly Effective People, although I don't agree with him in coming with the 8th Habit book. After all, how is it possible to keep developing new habits without getting rid of some of the old ones.

Therefore, I shall start by mentioning the need in PRIVATE VICTORIES, but I might not start with Proactive. Because I believe it's not about Proactive, but before Proactive, there must be a deconstruction of old habits. Just like if you want to renovate your house, you'll have to take down those beautiful decorations before making them even more beautiful.

The HABITS....the right habits:
1. Deconstruction of Old Habits, lead to Proactive.
2. Think for the future ahead.
3. Priority must be set right.

These are the habits important for PRIVATE VICTORIES.

And there is another that we call: PUBLIC VICTORIES, and remember, the right habits must be develop during the PRIVATE VICTORIES, and only then the effective habits can reflects the results on public.

The next 4 habits for PUBLIC VICTORIES:
1. Winning mentality habit
2. Put others first...then others will put you first.
3. Teamwork.

And of course last but not least, the most important habit is to continue to practice all these right habits, until they become effective in your life.

Tuesday, May 12, 2009

Budgeting Mother's Day Spending

It was Mother's Day last week, and I am sure that many of us bought our beloved mum special gifts and maybe treat her a meal. Before I began writing on Budgeting Mother's Day Spending, I wish all the mothers in the world, a Happy Mother's Day, though it is kind of a little too late. Anyway, for those who has yet to celebrate Mother's Day with their beloved mum, I do hope that they will not be too stingy or cost savvy about the spending. I'm sure that the every mum would be very happy if her children even decided to cook for her or just do something special on this occasion - nothing fancy, but maybe spend some extra time with her or buy her favorites recipe book, etc. Mother's Day official date might be the 2nd Sunday of May, but if one cannot make it last week, then he or she can celebrate Mother's Day on some other day, but at least we do something to show our love for our mum and honor for her.

My family (total seven of us including my brother's girl friend) celebrated Mother's Day on Sunday, well, we actually just dine at Sushi King on Sunday evening. Before that, we bought her a perfume set from Lancome. I will not be revealing the total that we spend that day for the dinner and present, but I can assure you, it is not expensive.

Many has thought dine out and presents are not necessary to show our love and honor to our mum. They are right also, but for me, I believe buying presents or gifts to show that we remember that the day is special, and not just ordinary weekends dine out with family members.

To budget on the Mother's Day spending, first, I take into account the financial strength of all my siblings plus my brother's girl friend. As my brother is still studying in University, the budget for the gift/present cannot be too high, so that it is fair to everyone - everyone would be paying fair and square and it will not be burden to others.

Next, we need to budget the dinner spending as well. Dinner for seven definitely will not be cheap, and even if it is shared among the four of us - which is why Sushi King come into play. During the November to January time frame where HSBC is having Padini and Sushi King promotion, where credit card user will be delivered Padini or Sushi King RM30 voucher, if certain terms and conditions fulfilled. Since I have a lot of the Sushi King vouchers, we decided to dine at Sushi King, since it is like "free" meal. So, dining out will not necessary cost much.

Basically our mother's day spending is just the gift/present which would be about 50% of the overall cost as well.

Mother's Day spending does not necessary means burning hole to your wallet. One just has to budget his or her spending properly and spend within his/her mean. A meal does not necessary have to be at luxury restaurants, it can be at the fast food restaurants or even better - home cook food. We dine outside because it is simple and also to use the vouchers that I have and also because my mum is a KKC teacher in church as well, so dining out on Sunday evening is like a norm to the family. The gift does not necessary cost a bomb, it could be as simple as just a cookbook. I'm sure that every mum will treasured her those gifts/presents they got during this special day.

As consumer and credit card user, one must know when to spend and when to hold on to horses. I spend on what I need during the time when credit cards and shopping malls are having promotions. So, in one way or another, I still need to buy stuff, just that I'm using the correct credit card and do my shopping at malls that are giving better discounts and loyalty points. It is always my opinion that it is best to use credit cards for purchasing stuff, because we get credits and also loyalty rewards. The most important thing is to control - discipline in spending.

Monday, April 27, 2009

Living With Student Loan

Nowadays, most fresh graduates will be burden with debts, even the moment they stepped in the varsity world. I'm quite positive that those not coming from a well to do family will need to get student loan or education loan. Students from Malaysia can apply for this student loan or education loan from a government body, PTPTN.

When I graduated three years ago, I directly have to start my payment for the education loan. The terms and conditions of the loan is to start the payment 6 months after I graduated. This applies to all the university students getting student loan from this PTPTN - which means that we have to get a job within 6 months after graduated. Well, for those getting jobs within the first six months after graduation, how many of them are actually paying back their student loan? I believe majority of them are not paying or just paid maybe once or twice the installment. Not that I want to criticize or condemn anyone, but I do believe we need to pay back this student loan that allowed us to get tertiary education. Without this repayment from us, how is PTPTN going to give student loans to others? Anyway, back to the real topic, living with student loan - if one delay his or her payment, the interest will accumulate, then one will starts to blame the government for charging high interest. I was wondering, is 3% from the remaning amount is high? For me, it is an ok amount, which is why we need to start paying as soon as possible and pay as high as we can afford so that the interest will be lowered drastically.

Financial management and discipline has a lot to do with not repaying this loan. If one does not have discipline or good financial management, he or she will always face with shortage of money, thus not repaying loans because there is no extra cash left with him or her at the end of the month. One can start by setting aside some amount of money for student loan repayment. By doing this, at the end of the month one will still have the money for loan repayment. Our income are fixed, thus we need to spend less than the income in order to have extra money for our student loan repayment.

Rule #1
Income - Loan Installment = Expenses + Savings

The above rule always apply to all of the working class. Or better still

Rule #2
Income - Loan Installment - Savings = Expenses

Ever wonder what is the different between the two rules? According to maths formula, both are the same, but from financial management stand point, the two rules are different. Rule #1 means setting aside loan installment and one will get expenses + savings portion, so this mean one does not necessary have savings. Rule #2 meaning setting aside loan installment and savings after income, then spend the remaining one. Thus with rule #2, one will be able to pay off loans as well as having savings.

In conclusion, we need to have very good financial management so that we can start paying off our student loan as soon as possible so that PTPTN can continue to provide student loan for those needy.

Wednesday, April 8, 2009


It's kind of ironic in our life that when we are young, we will wish that we are grown up but when we are grown up, we will be wishing that we are still the young and innocent guys or gals that we used to be. A lot of this was actually caused by one Money is the root of all evil and problems. We must not forget, we are living in the materialistic world no matter how much we would like to deny. Money, can be a great servant if we use it properly while a the same time, it can be an evil master.

So, what is money to us? Do we treat it as our master or our slave? How do we know whether we are the money master or the slave? If we are the master, surely it is the money who work for us while if we were the to be a slave to somebody, we would be sweating to please the master. There is no two way about it.

For the money case, it is very obvious that if we are the money master, we would be investing the money, so that in one way, the money will earn more money for us, while we just sitting around doing nothing. We work and earn money, and invest wisely on equities or properties or whatever investment vehicles that can generate enough ROI to hedge the inflation at least. This is call money make money. So, if the money is working for us, we are the money master.

For most people, it is the other way round. They are working day and night to earn money. Some take it to the next level where they will be cutting their expenses by skipping meals, ignoring health care etc and ended up living in depression or in bad health condition when they are old. If we are sweating all out, it means we are slaving ourselves for money.

I'm not here encourage people to invest or to spend or not to save money, but we should adopt a more neutral financial goals. There is no point earning a lot of money or having a lot of money in savings account, when we cannot really enjoy it. Be neutral....spend on what is necessary - spend smart and at the same time, invest.

Tuesday, April 7, 2009

Realm of Wealth

Money......what is the value of money for us? Some of us believe that money is everything while the others think otherwise. We use money to but stuff - food, clothes, transportation etc. Money seems to be a very important element in our life that everyone sweating day and night just to meet the daily needs.

We are living in a world where money seems to be everything - which is quite obvious why I name this blog Realm of Wealth. I was thinking whether to name the blog Realm of Money or Realm of Wealth, but decided on the latter one. The main reason I choose wealth over money is because wealth is made up of an abundance of valuable material possessions or resources, while money is just money. I want to blog more on money related stuff, while at the same time not only money, so wealth is more suitable. This blog will have information based on my perception, which can be right or wrong, but to voice out is the process of learning, which will happen all the time.

Monday, March 16, 2009

Friday the 13th

Do you all believe that on Friday the 13th, something bad will happen? I mean, there are so many Friday the 13th, and something bad might eventually happens on one of those days, right? Well, on the last Friday the 13th, something bad really happened. If you all have notice, I have not been serving the Google Ads since Friday the 13th this month. Well, I received an email saying that my adsense account was disabled because I pose risk to the Adwords advertiser. I'm not sure what went wrong as I was still able to see the Google Ads few hours before that and after that when I woke up, I thought Google was down or whatever until I checked my email. I am now appealing and not sure how it will turns out, but hopefully I will be accepted back to the program. At the same time, I will also search for something like adsense. Not that I'm greedy or what, but I just want to earn something out of my writings.

I do hope Google forgive me, if I really posed risk to Adwords advertisers - not sure what does this mean. I have been following the Google Adsense TOC/S but suddenly, I got this. In fact, when I read the agreement again, I realize that I almost break it, as I do copy some of the articles, but I do state the source and put in the links as well. Next, regarding whether I do any changes to the ads code given by Google, I'm sure I did not violate this. I mean, when I compare to my blog with others, I have only 1 banner on top, the other 2 in between the post, which I'm sure will not create accidental clicks or whatsever. Then, it is the invalid clicks. How was I suppose to know when this invalid clicks occur? Even if it does, if Google manage to detect it, why Google did not deduct the amount, but totally disabled the account? This was the questions hanging over my head over the weekends.

Anyway, back to reality, I'm waiting for the appeal and curently have nothing much to blog except to rant out my dissatisfaction. I do hope that Google will consider my appeal, else there is nothing much I can do. If Google really do reinstate my adsense account, the first thing I will do is to see whether there is anything I can do to avoid the invalid clicks incident. If there is, I'm hoping to share it out as well, so that small-timers or part time bloggers like me can have some protection.

Google Adsense is the best, though their rules are kinda strict. I understand it, as they have to protect the advertisers as well. But I do hope, in the future, Google can do something to protect the publishers as well. Wish me luck...ok :)

Wednesday, March 11, 2009

Spend Smart and Invest Wise

Over the weekends, I discussed with my brother on the money topic again. As always, I prefer healthy brainstorm session so that I can learn more. As we all know, learning is a continuous process. Anyway back to the money topic, we were discussing on what to do with some cash in hand. I am the kind of people with the philosophy - "Savers are always the losers". Now why did I hold on to this principle. A lot of reason. One of it being inflation will eat up our savings.

I always encourage to continue invest, and not trade in times of uncertainty. When we invest, we are actually buying a business or at least pass on the inflation to the consumer. Imagine a scenario. If the cost of a product increase due to material cost, are you going to priced it lower than the manufactured price? Of course we will pass on the inflation to the consumer, no? Unless business is very very bad, else we definitely will pass on the inflation to the consumer. So in other words, buying business will at least guarantee something that will be able to counter inflation, provided we are buying the correct management, as when we buy stocks, we are only have business in-directly. So, a transparent and trustworthy management is crucial.

Anyway, I do have to agree with my brother that while we invest wise, we need to spend smart at the same time. He told me that he will invest, but only if his cashflow is not clogged. Seems like he is growing up as well. Invest wise is actually investing something with lower risk. This includes invest within your mean and invest in good companies.

What about spend smart? What do spend smart mean to me? Well, spend smart meaning spend on necessity and buying what is worth to buy. One of the criteria is to get bargain. Like shop when you see there is sales, though I know most retails will jack up the price before giving shopping depends on skills and some basic information on the price.

Another good example on spend smart is when we decided on insurance premium. Why I am using insurance is because I was sort of forced to decide on the insurance premium recently. I see that a lot of people either over insured or the other way round. I do not have the best advice on buying insurance, but I do believe that we should neither over insured nor under insured. I see that a lot of people that I know tend to have a common idea on insurance....which is insurance is part of investment. I do not agree that insurance is part of investment, because insurance is ....well, just insurance. Thus, over insured is a very bad idea. It will lead to less capital for investment and savings for rainy days. And when we are out of job, then we will definitely stop one or some of the insurance payment and end up getting nothing.

Seems like I write a lot on this post. I think I should post the insurance related stuff on the next or future post. Signing off as for now :)

Monday, March 2, 2009

Plan to weather the storm

Malaysia entering is one of the headline from Business Times.

Below are the details of the news:-

MALAYSIA is entering a recession, if it is not in one already, head of RHB Research Lim Chee Sing said.

He predicts the economy to shrink 1.5 per cent this year, or possibly worse, depending on the state of development in the US and other bigger economies in the world.

At this rate, the recession seems set to be sharper than that in 1985 when gross domestic product (GDP) shrank by 1.2 per cent, but milder than the 7.4 per cent contraction in 1998.

"Depending on the definition you use, Malaysia is already in recession, or perhaps, is entering a recession," Lim told reporters during a discussion on the stock market in Kuala Lumpur yesterday.
A recession is commonly defined as a decline in the GDP for two or more consecutive quarters. But this definition is unpopular with many economists since it does not take into consideration changes in other variables such as jobless rate or consumer confidence.

"Malaysia's export has contracted for the third month, each time getting sharper. The industry production index has also fallen for three months, and at 15 per cent, it's even worse than the fall in October 1998," Lim said.

He is the latest in a growing group of private sector economists and research houses forecasting a domestic recession this year.

US bank Citigroup this week slashed Malaysia's economic forecast to a 1.5 per cent contraction, while Nomura Holdings Inc had predicted a 4 per cent fall this year.


We all know how severe this recession going to be. But any of us really prepare for the worse? I still remember there was a time our Deputy Prime Minister still denying the fact that Malaysia will eventually go to recession within this year. As for me, I do believe I'm well prepared to weather the storm as I have prepare a realistic financial goal since the start of the year as I foresee that we might go through a long recession.

Some of my plan includes:-
  • tighter budget for own expenses which includes food, entertainment and some misc spending
  • continue to reduce debt (car loan, education loan)
  • invest in dividend counters as I foresee the Bank Negara will reduce the FD rate (which prove to be correct)
  • earning extra income - planning to look for some freelance programming

So, what is your plan to weather the storm? Note that I do have cut spending on others but my plan include continuous investment as I believe in the long run, equity will outperform cash.

Monday, February 16, 2009

Are you buying in equities??

Today top story in yahoo finance.....source

World market falls as Japan's recession deepens

LONDON (AP) -- World markets fell Monday, after new figures showed Japan's economy contracted at its quickest pace in 35 years and a weekend summit of Group of Seven finance ministers provided few concrete proposals to counter the economic crisis.

In European afternoon trading, Britain's FTSE 100 fell 0.6 percent to 4,165.31, Germany's DAX sank 0.3 percent to 4,400.23, and France's CAC 40 dropped 0.5 percent to 2,982.16. Trading was subdued as U.S. markets will remain closed for Presidents Day.

Japan's worse-than-expected fourth quarter GDP numbers were a sobering reminder of the toll the worst economic downturn in decades is having on Asia's export-driven economies. The world's second-biggest economy shrank 3.3 percent from the previous quarter, or at an annual pace of 12.7 percent.

In Europe, financial stocks dragged down markets. In London, shares in Lloyds Banking Group dived after the market open, following its revelation Friday of larger-than-expected losses at recently acquired Halifax-Bank of Scotland and on market fears the combined company may be headed for nationalization. Shares dropped 20 percent in early trading, but regained ground to trade down only 0.3 percent. Shares had dropped 30 percent on Friday.

Insurance companies also dragged the FTSE 100 down. Legal & General Group Plc fell 6.1 percent, Prudential lost 5 percent and Aviva slipped 4 percent.

"Whereas before people were just selling banks, now they are looking at the risk involved with other financials," said Jane Coffey, head of equities at Royal London Asset Management.

Investors also seemed disappointed after finance chiefs from the Group of Seven developed countries finished their meeting in Rome with pledges to work together to boost growth and unemployment, but stopped short of concrete measures.

Increasingly, investors are unconvinced world governments are acting quickly enough to counter the economic crisis, analysts said.

"The global recession is deeper than anticipated. At the same time policy makers are failing to deliver measures to address the problems," said Dariusz Kowalczyk, chief investment strategist for SJS Markets in Hong Kong. "It seems that what they're doing is too little too late."

Japan's Nikkei 225 stock average edged down 0.4 percent to 7,750.17, and Hong Kong's Hang Seng Index dropped 0.7 percent to 13,455.88. South Korea's Kospi lost 1.4 percent.

India's benchmark tumbled 3.6 percent after the government, proposing its interim budget, offered no new stimulus measures. Markets in Australia and Singapore also retreated.

In Japan, several exporters were hurt by the data showing the economy sank deeper into recession.

The result represents the steepest drop for Japan since the oil shock of 1974 and outpaced GDP drops in the U.S. and the euro zone. A survey of economists by Kyodo news agency had projected an 11.6 percent annualized contraction.

"It's clearly very shocking data," said Clive McDonnell, head of Asia strategy at BNP Paribas Securities in Hong Kong. "The drop is certainly beyond our own quite negative expectations. (Japan's) policy response has not been as effective."

Shares in Toyota Motor Corp. lost 0.7 percent, while electronics heavyweight Canon Inc. slid 1.2 percent and Sony Corp. fell 1.3 percent.

Bucking the wider trend, Shanghai's benchmark climbed 3 percent to 5 1/2-month high to extend China's recent really.

Since the start of the year, Shanghai's index has risen more than 31 percent. But analysts say the rise has been driven not by economic fundamentals, but by a surge in bank lending that has sent money flowing into the market.

"The economic fundamentals are not strong enough to support the market's rise," said Zhang Xiang, an analyst for Guodu Securities in Beijing. "The market is in an irrational state, which is not going to last long."

U.S. equity markets are closed Monday for Presidents Day. On Friday, the Dow fell 1 percent to 7,850.41, its lowest close since Nov. 20. The S&P also fell 1 percent, ending its week off 4.8 percent.

In the coming days, investors will be watching President Barack Obama, expected to sign the country's $787 billion economic stimulus measure on Tuesday. He plans to outline steps to stem home foreclosures on Wednesday, though analysts say investor enthusiasm surrounding the pending announcement is fairly low.

Oil prices were steady after jumping 10 percent last week, trading 10 cents higher at $37.61 for a barrel of light, sweet crude for March delivery. The contract rose $3.53 to settle at $37.51 a barrel on the New York Mercantile Exchange on Friday.

AP writers Jeremiah Marquez in Hong Kong, Tomoko A. Hosaka in Tokyo and researcher Bonnie Cao in Beijing contributed to this report.

So, the question again, are we seeing bottom or will there be another round of big big drop?? Another question people will ask is "Is it the suitable time to buy equities??" In fact, some people have been asking me over and over......"Are you buying in equities now?" Again, my answer would be, there is no right time to buy market and we will never know when is the bottom. Greed is the only answer to those questions.

We need to have different investment strategy at different economy environment. So, during recession, most people will stick with defensive stocks like high dividend yield stocks or REITS. It is actually the safest bet, and in fact most high dividend yield stocks will give you higher return compares to FD.

Another reason we need to buy during the uncertainties is because we can get bargain. Some blue chips counters in KLSE listing already drop about 40%-50%, some drop even more than that, while dividend counters' price are a lot cheaper now. People may argue that it may drop more......or we are still not seeing the bottom. But if we think this way, when are we going to buy equities? When the coast is clear??? Usually, by then the stock price already appreciate 20%-30%. Anothing point to ponder is in the meantime, where do you want to park your money?? FD again?

FD in the long run will give the lowest return compares to equities. And using FD to beat inflation, it can only means your money losing its value as time goes. Example is RM100k value will lose about 50% in 10 years given the inflation rate of 7% per year. But buying equities is different in a sense you are buying business and we all know the business run with inflation. Meaning to say, if inflation is 7%, a business is very likely to increase 7% at least.

Investing in the correct stocks requires one to do some basic research on the company and management. But it will be worth it because you are actually beating inflation by doing so. So, think about it, do you want to beat the inflation or let your money keep on losing value from time to time??? Are you buying in equities now?