I learned my first planning lesson in Form 3 of home science classes. Mrs.Karim was our cookery class teacher while Mrs.Kok taught us sewing. I picked up valuable ideas and skills from them. In the home science exam, we were supposed to cook for a meal.
The meal consisted of 3 dishes and a soup for a meal. Below were the things we needed to write down.
1. Decide what to cook and which to cook first(set the goal and set priority),
2. Write down recipes and check if you have the ingredients (gather relevant data and information),
3. work out a time schedule for each step to follow. Estimate time taken for each step. (Analyze info and develop the process for implementation.)
4. Cook according to what were written down. (execute the plan)
5. Constantly check to ensure stewed meat does not dry up, etc., until completion. (Monitor and review)
In upper form, in order to carry out any experiment, the same procedure will follow. Similarly, in financial planning, the logical way to follow is
1. Determine what i want to achieve financially and prioritize them
2. Arrange, file up, and put on paper what are the resources and liabilities i have, e.g. how much money i have in the bank, invested in shares or unit trust, loans etc.
3. Analyze the assets and liabilities and the income sources
4. Detail and write down the financial problems I have and the solutions that I can have
5. Implement steps to solve my problems and to achieve my financial goals
6. Check and adjust the implementation to ensure problems are solved and goals can be achieve.
It is easy to say than to implement. Get a financial planner to advise you.
Tuesday, August 31, 2010
Monday, August 30, 2010
Rules to follow in family financial Planning
Budget:
Have a budget. Plan your budget with care and make sure you adhere to your financial goals.
Savings:
Pay yourself first! Every month, set aside at least 10% of your income as savings. Place these savings in a separate bank account and choose not to have the ATM card facility.
Make savings a way of life: Begin saving TODAY. Know the concept of compound interest.
Make savings a way of life: Provide an emergency fund, ideally at 6 times of monthly expenses.
Make savings a way of life: Allocate your savings for retirement fund, but most importantly - Live Within Your Means.
Loans & Credits:
Loans & Credits: Know the purpose of your loan and repayment capabilities; and, be aware of the terms and conditions of the loans.
Loans & Credits: Know the effective interest rate on your loans; and, keep payments within 40% of gross monthly salary.
Loans & Credits: Always be a good paymaster so you have a positive credit report; and, NEVER borrow from unlicensed money lenders.
Signs that you need financial advice:
You only pay the minimum amount every month for your credit card.
You take frequent cash advances.
You have little or no savings.
You depend on overtime or bonuses to pay your living expenses.
You consistently pay your bills late.
You borrow money from family or friends to pay your debts.
Financial Basics:
Make and stick to a budget.
Save at least 10% of your monthly salary.
Track your expenses and cash flow.
Live within your means.
Spend wisely, learn to differentiate between needs and wants.
Delay gratification.
Have an emergency buffer fund of 6 months of your total expenses.
Managing debt better:
Borrow or take loans only for productive purposes.
Ensure that you can pay the installments comfortably.
As a guide, your monthly loan repayments should not exceed 40% of your gross monthly income.
Adhere to the repayment schedule to avoid unnecessary charges.
Use surplus fund or extra income to reduce your total debts.
Building Wealth:
In order to build wealth, start saving early.
You need to ensure you have a positive net worth (asset - liabilities).
Diversify your investments in order to spread your risks.
The higher the return you get from an, investment, the greater the risk.
Be wary of get-rich-quick schemes.
Tips on using credit cards:
Limit the number of credit cards you have to just two.
Do not use a credit card if you cannot make the monthly payments.
Avoid using credit card to get cash advances.
Always check your credit card monthly statement to ensure there are no irregularities.
Have a budget. Plan your budget with care and make sure you adhere to your financial goals.
Savings:
Pay yourself first! Every month, set aside at least 10% of your income as savings. Place these savings in a separate bank account and choose not to have the ATM card facility.
Make savings a way of life: Begin saving TODAY. Know the concept of compound interest.
Make savings a way of life: Provide an emergency fund, ideally at 6 times of monthly expenses.
Make savings a way of life: Allocate your savings for retirement fund, but most importantly - Live Within Your Means.
Loans & Credits:
Loans & Credits: Know the purpose of your loan and repayment capabilities; and, be aware of the terms and conditions of the loans.
Loans & Credits: Know the effective interest rate on your loans; and, keep payments within 40% of gross monthly salary.
Loans & Credits: Always be a good paymaster so you have a positive credit report; and, NEVER borrow from unlicensed money lenders.
Signs that you need financial advice:
You only pay the minimum amount every month for your credit card.
You take frequent cash advances.
You have little or no savings.
You depend on overtime or bonuses to pay your living expenses.
You consistently pay your bills late.
You borrow money from family or friends to pay your debts.
Financial Basics:
Make and stick to a budget.
Save at least 10% of your monthly salary.
Track your expenses and cash flow.
Live within your means.
Spend wisely, learn to differentiate between needs and wants.
Delay gratification.
Have an emergency buffer fund of 6 months of your total expenses.
Managing debt better:
Borrow or take loans only for productive purposes.
Ensure that you can pay the installments comfortably.
As a guide, your monthly loan repayments should not exceed 40% of your gross monthly income.
Adhere to the repayment schedule to avoid unnecessary charges.
Use surplus fund or extra income to reduce your total debts.
Building Wealth:
In order to build wealth, start saving early.
You need to ensure you have a positive net worth (asset - liabilities).
Diversify your investments in order to spread your risks.
The higher the return you get from an, investment, the greater the risk.
Be wary of get-rich-quick schemes.
Tips on using credit cards:
Limit the number of credit cards you have to just two.
Do not use a credit card if you cannot make the monthly payments.
Avoid using credit card to get cash advances.
Always check your credit card monthly statement to ensure there are no irregularities.
Thursday, August 26, 2010
Housing Loan
When we got married in 1990, my husband and I pooled our income together to buy a house. It is a corner, double storey terrace house. At that time the house was RM150K. 20 years later, which is now, we were told the house can fetch RM500k because of its locality.
Half a million as compared to RM150K seems to be a good price. However, punching number in my financial calculator, the annual growth was 6.2%. If I factor in the interest which we paid to the bank, the annual growth is merely around 3%, not very impressive as compared to fixed D!
20 years ago, the loan interest was calculated using a formula BLR + ? %. The BLR kept increasing until our housing loan interest became double figure! That means the monthly prepayment was not even sufficient to cover the interest! It was some kind of Ah Long dilemma. We were somehow sort of lucky during that period because my company introduced housing loan subsidy. The interest was brought down to flat rate of 4%, and we managed to settle the payment in year 2000.
Checking with the PBB and BSN today, the housing loan interest is calculated based on BLR-2.2% for the duration of the tenure. BSN will pay for the legal fee, transfer fee etc which they call 0% moving fee, but if you decide to settle in full before the tenure term ends, penalty is 3% of the loan amount. Whereas PBB only implement 3 year lock-in period but you have to be responsible for the moving fee yourself.
Nevertheless, I should think that it is quite a good time to take up a housing loan now as compared to 20 years ago.
Year BLR Remarks
2009 6.50 5.95 (February)
5.55 (March)
2008 6.75
2007 6.75
2006 6.00
2005 6.00
2004 6.00
2003 6.50
2002 6.50
2001 6.75
2000 6.75
1999 8.00
1998 10.50 12.27%
1997 9.25
1996 8.50
1995 6.60
1994 8.25
1993 9.50
1992 9.00
1991 7.50
1990 7.00
Half a million as compared to RM150K seems to be a good price. However, punching number in my financial calculator, the annual growth was 6.2%. If I factor in the interest which we paid to the bank, the annual growth is merely around 3%, not very impressive as compared to fixed D!
20 years ago, the loan interest was calculated using a formula BLR + ? %. The BLR kept increasing until our housing loan interest became double figure! That means the monthly prepayment was not even sufficient to cover the interest! It was some kind of Ah Long dilemma. We were somehow sort of lucky during that period because my company introduced housing loan subsidy. The interest was brought down to flat rate of 4%, and we managed to settle the payment in year 2000.
Checking with the PBB and BSN today, the housing loan interest is calculated based on BLR-2.2% for the duration of the tenure. BSN will pay for the legal fee, transfer fee etc which they call 0% moving fee, but if you decide to settle in full before the tenure term ends, penalty is 3% of the loan amount. Whereas PBB only implement 3 year lock-in period but you have to be responsible for the moving fee yourself.
Nevertheless, I should think that it is quite a good time to take up a housing loan now as compared to 20 years ago.
Year BLR Remarks
2009 6.50 5.95 (February)
5.55 (March)
2008 6.75
2007 6.75
2006 6.00
2005 6.00
2004 6.00
2003 6.50
2002 6.50
2001 6.75
2000 6.75
1999 8.00
1998 10.50 12.27%
1997 9.25
1996 8.50
1995 6.60
1994 8.25
1993 9.50
1992 9.00
1991 7.50
1990 7.00
Wednesday, August 25, 2010
What is life insurance all about
Once I read a story which explained very well of how insurance works.
Long ago, there was a village with 100 households. They were all padi farmers. Not far from the village lived a gang of robbers that came down from the mountain on the last day of each year. The robbers would target at the village and shot an arrow. Whichever house nearest to the fallen arrow would be required to give the robbers 100 sacks of rice. 100 sacks was in fact all the padi harvested in a year, living the family nothing to live by for the following year!
One day, a wise man from the nearby village heard about the ill-fated village and decided to pay the village a visit. He shared with them an idea of how every one can help each other to reduce the loss to the minimal. The brilliant idea was for each household to contribute a sack of rice at the end of the year. 100 household would mean 100 sacks of rice. At year end, no one should be in fear anymore of losing his fortune for a year!
This concept is similar to life insurance. Every policyholder does contribution from his premium to form an insurance pool. Should any of the policyholder pass on, the money from the pool is used for compensation.
Technical definition would be:
Insurance provides financial protection against a loss arising out of happening of an uncertain event. A person can avail this protection by paying premium to an insurance company.
A pool is created through contributions made by persons seeking to protect themselves from common risk. Premium is collected by insurance companies which also act as trustee to the pool. Any loss to the insured in case of happening of an uncertain event is paid out of this pool.
Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risk of similar type.
Long ago, there was a village with 100 households. They were all padi farmers. Not far from the village lived a gang of robbers that came down from the mountain on the last day of each year. The robbers would target at the village and shot an arrow. Whichever house nearest to the fallen arrow would be required to give the robbers 100 sacks of rice. 100 sacks was in fact all the padi harvested in a year, living the family nothing to live by for the following year!
One day, a wise man from the nearby village heard about the ill-fated village and decided to pay the village a visit. He shared with them an idea of how every one can help each other to reduce the loss to the minimal. The brilliant idea was for each household to contribute a sack of rice at the end of the year. 100 household would mean 100 sacks of rice. At year end, no one should be in fear anymore of losing his fortune for a year!
This concept is similar to life insurance. Every policyholder does contribution from his premium to form an insurance pool. Should any of the policyholder pass on, the money from the pool is used for compensation.
Technical definition would be:
Insurance provides financial protection against a loss arising out of happening of an uncertain event. A person can avail this protection by paying premium to an insurance company.
A pool is created through contributions made by persons seeking to protect themselves from common risk. Premium is collected by insurance companies which also act as trustee to the pool. Any loss to the insured in case of happening of an uncertain event is paid out of this pool.
Insurance works on the basic principle of risk-sharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risk of similar type.
Monday, August 23, 2010
Medical Card - To upgrade or not to upgrade?
My husband bought a medical card from a renowned insurance company 7 years ago. The cover was RM100 for Daily Room And Board, RM50K for annual hospitalization and surgical procedure, RM150K lifetime limit, expired at age 70. No claim has been made so far.
Now that he is 7 years older, at the age of 50, we feel that 70 years old is not very far away. Reviewing the medical policy, we ask ourselves whether it is necessary and worthwhile to upgrade the medical card to a higher plan, or buy a second medical card to maintain the terms and conditions in the first medical card. The T&C was better and insurance charges was cheaper.
On inquiry, upgrading to age 80 will cost an additional monthly premium of RM191.30. To purchase a second medical card will cost another monthly premium of RM250 on top of what he is already paying RM150p.m.
After evaluation of the objective of upgrading, which is to ensure some kind of hospitalisation protection after age 70 to 80, we decide to invest RM250 monthly in an investment tool that can give us an average return of 8% per annum. This will give us an estimated dedicated hospitalization fund of RM137K at age 70.
Now that he is 7 years older, at the age of 50, we feel that 70 years old is not very far away. Reviewing the medical policy, we ask ourselves whether it is necessary and worthwhile to upgrade the medical card to a higher plan, or buy a second medical card to maintain the terms and conditions in the first medical card. The T&C was better and insurance charges was cheaper.
On inquiry, upgrading to age 80 will cost an additional monthly premium of RM191.30. To purchase a second medical card will cost another monthly premium of RM250 on top of what he is already paying RM150p.m.
After evaluation of the objective of upgrading, which is to ensure some kind of hospitalisation protection after age 70 to 80, we decide to invest RM250 monthly in an investment tool that can give us an average return of 8% per annum. This will give us an estimated dedicated hospitalization fund of RM137K at age 70.
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