Tuesday, October 27, 2009

MYR 300 FREE money for self employed

Budget 2010 has been around for a while now, but I wonder why many have not made a big deal about this yet. If you are a Self Employed in Malaysia, you can open an EPF account yourself and save MYR 100 into it every month. In return, Government will add MYR 5 into your saving too. This is expected to start next year and 5% top up will continue for the next 5 years.

Although $60 a year is a small money but are you sure you want to pass on any FREE money ?


Assuming EPF declare a dividend of 4%, you will get more than MYR 10,670 5 years down the road out of the MYR 6,000 you have been saving. MYR 100 x 12 months x 5 years.

If you save the same MYR 100 monthly else where, it will need 22.01% interest rate to obtain the same return 5 years down the road.

22% passive return is not something available readily anywhere in the market. The only con side of this offer is its limit of MYR 300 contribution from the govertment in the next 5 years. Which is pathetically little. Then again, it also means it doesn't hurt at all to save the extra MYR 100.

Comes to think of it, is Someone intentionally trying NOT to pay out this FREE money by NOT promoting it as it deserves ? So they may declare a good policy change but keep things quiet and then at the end they can say, "it's you who didn't take our offer!"

Proceed with care and patient, EPF department does NOT know how to handle this yet ... their typical responses are, "Come back next year ..."

4 comments:

Celine Mook said...

Hi, I just found your blog and I must say I love reading every of your articles.

I am kinda new to personal financing. So I have some doubts reading this article. I don't understand the how the dividend of 4% will generate RM10,670 in 5 years?

Can you calculate for me? Let say I start saving RM100 in my EPF at the age of 24, by year 55, how much can I get in return?

Hope this doesn't trouble you.

Thank you :)

Michael Tsen said...

calculation for this article is here, as for your own case. Do you mean you are saving yourself as a self employ or through your employer ? Then expected salary increment over the years would also affect outcome.

Celine Mook said...

What a detailed excel sheet!

I am self employed. Thanks Michael :)

Michael Tsen said...

govt only subsidize 5% of your epf contribution for the first 5 years. after that, you are on your own again. so whatever money you save on the 6th year and beyond, its just simple compounding interest.

in short, after 5 years, it is NO LONGER attractive to save in EPF anymore.

some of my friends are checking out my spreadsheet. most of use 'feel' that the returns are too high. But that is the funny thing about EPF, the way they calculate return is not the normal finance formula ...

that story here