How much should we buy that car ?

Most personal car purchases are sentimental and relate to quality of life ... however if purchasing a car is mainly a transport and finance matters then it could be iron out this way ...

First lets start with some facts of transport life around me;

• Taxi is as good as my own car if not better ( its my own car + a driver ) but its costly
• Bus stations are near by and can go almost anywhere but it takes too much of my precious time
• Intra city trains are fast and efficient but only after you are IN the city
• Car rental gives the highest flexibility but it could be expensive if park aside too long

So I will need a hybrid solution if I don't have my own car. For me, I will use Taxi - Train - Light Rail during normal days and Bus and Car Rental during weekend and holidays.

First I take a taxi to the near by train station (KTM), once in town I use light rails ( PUTRA, STAR, MONORAIL etc.) to travel almost anywhere within the city. Typically I would need to exchange once within the light rail systems to reach my destination. Return trip same path.

$8 : Taxi to station

$1.40 : Train to Town

$1.80 x 2 : Light rails within city

One way = $13

Return or one day = $26

5 days week = $130

50 weeks a year = $6,500

By weekend, I would rent a car and run away for 2 days ...

$180 / day x 2 days = $360

4 weeks or 1 month = $1,440

12 months or 1 year = $17,280

Adding both up is $23,780 a year.

If $2,000 a month of transportation fee seems ridiculously high, you probably do not need to rent a car every weekend, perhaps every bi-weekly or even every month if at all needed. Run your own numbers for your own scenarios. This example is trying to mimic the same lifestyle with a car.

Now if I do all that with my own car, I would need to pay for

• petrol : $400 a month
• parking : $10 / day x 5 days x 4 weeks = $200 a month
• maintainence : $100 a month

That is a total of $700 a month burn. That leaves $1,300 a month for the car itself. So if I can find a car that I have to pay monthly less than $1,300, it may just be a good deal.

So if I take 3 years car loan at 3% interest I probably should buy a car less than $43,000

if I take 5 years car loan instead, I could spend up to $67,826 for a car.

Consider the resell value as a bonus or final fund consolidation just in case maintainence shoots up or you ended up not using that car that much after all.

Bus Fares

Taxi Fares

PKFZ vs Buy A Car in Malaysia

One of the messages this site insists on spreading is that "Buying NEW car is the BIGGEST killer to a Malaysian Personal Finance". Today lets look at this at national level.

One of the hottest money topics in Malaysia now is PKFZ where RM 12 billions people's money has gone 'somewhere' that you and I have no business in. And we are going to compare that with the cars you and I bought some years ago, recently and even soon again.

641 out of 1,000 Malaysian own a car. Rank #3 in the world ( USA is #1 ofcourse ). Can you imagine a developing country aka NOT a Developed nation, rank #3 as the top car owners in the whole wide world !? If car ownership by land size is a benchmark, Malaysia would have already been a Super Nation !!

In Malaysia, when you pay RM 100,000 for a new car, RM 55,000 goes to the car. The rest of the 45% goes to 'somewhere' you and I have no business in. Below show some examples of different car prices in USA and Malaysia;

Hyundai Elantra costs about USD 12,000 in Lexington and MYR 96,000 in Kuala Lumpur

Honda Civic costs about USD 15,000 in Pittsburgh and MYR 113,000 in Malaysia

Toyota Camry costs about USD 20,000 in New York and MYR 150,000 in Malaysia

Use exchange rate USD 1 = MYR 3.5, you may get these numbers in comparison;

Car 1 : MYR 42,000 in USA vs MYR 96,000 in Malaysia ( overpay 56% )

Car 2 : MYR 52,000 in USA vs MYR 113,000 in Malaysia ( overpay 54% )

Car 3 : MYR 70,000 in USA vs MYR 150,000 in Malaysia ( overpay 53% )

Although most of the times you may find Malaysia car price is more than 2X the foreign car price, but some costs and fees are legitimate so trust me for now that only 45% has gone 'missing', not the 50+%.

Malaysia has a population of 25 millions people, that means there are 16 millions cars have been purchased. ( 25 millions/ 1,000 x 641 = 16 millions ).

Takes average car price at RM 50,000 ( actual figure is RM 68,XXX), then there are a total of RM 800,000 millions car sold. ( 50,000 x 16 million = 800,000 millions )

45% goes to 'somewhere' you and I have no business in, that is a total of RM 360,000 millions or RM 360 billions.

How much have we lost in PKFZ again ? RM 12 billions !

Game Over ! The result is :

RM 12 billions vs RM 360 billions

Yet everyone buy cars, made someone else rich and NO major news reporting this fundamental flaw. Ever heard of Slow Boil Frog's story ? Its happening right now right here everyday to everyone .... our daily lives ....

Lets make some sense out of this RM 360,000 millions.

16 millions of us own cars, so our car prices were to be normal all this while, Each and Everyone of us would actually get back MYR 22,500 ( 360,000 millions / 16 millions = 22,500 )

Most should know that Malaysia as a country earns money from Petroleum. In 2007, our export minus import net profit is MYR 129,000 millions. Still 50% less than all the money we 'contribute' by buying cars.

My friends always ask me why I wasn't shock when I heard the 12 billion PKFZ case. Well, I buy cars in Malaysia and that gives away 30X more than the PKFZ case ...

Other related topics

Car Loan rate is 1.9X Home Loan rate

How to manage your finance so that your FIRST car is FREE - in kclau's book

A few other ways to get FREE cars

Malaysia should have FREE market when it comes to cars

Buy used cars with cash, use house loan etc.

Finding best rates for car loan rate etc.

How to "REALLY" get a car FREE ?

http://tinyurl.com/ce32dm

I always share that below picture can help me answer ALL kinds of financial planning questions.  Let's try it now ...

First of all let me emphasize that I may not have free lunch here.  So if you are expecting magic here please wait a bit longer until I graduate from my magic classes :)

Legally there are 2 ways you can get a car for FREE 

1) by adopting the green shaded area called "Earn $2 with $1" and

2) by applying some 'tricks' in the "Income" area

The easiest way to get your first car FREE is ... by NOT buying it "now".  You may say this is a no brainer or even a bit pissed with this suggestion but its the reality in Personal Finance Planning ;

DO NOT buy the things you cann't afford

Time with compounding interest is your friend

For example, an averagely usable used car would cost one to five thousands dollars, so lets say you are budgeting $3,200 for this purpose and all you have is $100 to start with.  According to Rule of 72, if you save $100 with 12% interest, you will reach your target 30 years later.  So if you save your $100 at age 10, you can buy your first car for "free" when you are 40 years old.

Some of you may get even more pissed by now, "What kind of lifestyle is that ?"  

Well, above is assuming you do "nothing" or purely a "passive" growth.  If your expectation is you don't want to pay with Money but DO NOT MIND spending some effort, then keeps reading on ....

Playing with the same number game, these are the interests you will need and number of years to achieve your target.

18% : 20 years

24% : 15 years

36% : 10 years

72% : 5 years

Now this is the turning point ... 90% of the respond up to now is, " There are NO WAYS we can get 72% return !! "  

Fewer would complain slightly differently, " The only way to get that return is by doing business myself ".

I know asking you to start a business to earn enough money to buy your first car would even be more lame for this topic.  But this still brings out another reality in Financial Planning ;

When you cann't address your finance needs "passively"

you will need to solve it "actively" 

"passive" means Earn $2 with $1 and Buy $100 with $1

"active" means doing something with your income

You may get away with NOT paying with money, but you would most probably still need to PAY with some effort or at least PAY with a Darn Good Idea !

Here comes a few ...

Ask For Minimum Wages

The next time you are offered a job, do not ask for salary raise.  Indeed ask for minimum wage and a FREE car.  In some case, the company car you received is still taxable but usually the total taxable is still lower than if you have a high salary.  There are a few ways how the company can do this although not common.  The general principal is that your lower salary helps you pay less tax and company purchase vehicles reduce business taxes.  At the end, you may receive more than your raised salary while your company is paying less.

Your effort :  You will need to calculate all the figures correctly and build a strong case to propose to your employer why it is beneficial for them to do it.  This requires you to really understand your local tax policy, your targeted purchased car resale value and depreciation rate, industry total compensation plan.  Lastly you probably need to have good presentation and convincing skill.

This is already a standard procedures for top positions in big companies with very expensive cars.  Smaller companies do not see the point of doing this with everyone because the saving is not that big.  However, if you do all the calculation for them, there is no reason why they don't want to save an extra penny.

Don't Buy One, Buy More !

Find an investor, buy 10 cars and rent them out.  You link all these people up but let your friends manage the business.  You keep a very small share or no share at all with the agreement that you can use one of the cars 5 out of 7 days or when the car is not in rent.  5 years later, you may keep the car for good.

Your effort : You will need real business skill to come up with the business plan and proper contract to get this going.

This used to be a very successful model in Langkawi and Labuan when they have a lot of tourists back in those days.

Be A Market Expert

Pick a used car model you are interested in.  Start compiling your own market price statistic by calling each seller.  Record the lowest selling price you get from each seller.  Eventually you should have the actual selling price of this car model in your local area.  Keep looking until you find one that is 20-30% cheaper than your compiled price.  Buy that car with 90-100% loan.  While driving the car, put up an adv with 5% more than the selling price but stated "negotiable".

Your effort : You will need to be a marketing guru to understand how above has used the technique of "leverage".  If done correctly, the cycle keeps going and you will have a free car.  But if done incorrectly, you may end up in debt trouble.  You will also really need to know the car and its price very well.

There are 2 ways in leveraging.  You may buy the car 20-30% cheaper than 'normal' or you can sell the car 20-40% higher than 'normal' by value adding.  This depends on how well you know cars, its supply and demand.  This technique is still actively practised everyday but not with the purpose of driving a FREE car.  The car sales men are adopting these strategies to earn big money.

Hmmm ...

I just realize this post has gone too long, I can go on and on ... so if you are still not happy with above suggestions, do leave comments why so and I would try to come back to this topic in future ...

don't forget, Buying Car is #1 killer in Malaysia Personal Finance due to its country policies

The Biggest Killer in Malaysia Personal Finance Planning

I did start this blog with Malaysia in mind.  All previous postings are general in concepts and may apply everywhere.  Now let's look at specific challenge in Malaysia.

Remember that the inflation I care about is MY OWN INFLATION, not any numbers released by goverment nor bank nor any other expert.  ( read last post )

So let's talk about CAR ... one of my daily routine item ...

I bought a 2nd hand car in 1995 for $10,000 and eventually scrap it in 2005.  

So $10,000 divided by 10 years of usage is about $1000 a year.  

Divide it further by 365 days is roughly $3 a day.

That means I had been paying $3 a day for that car.

Then I bought a Wira in 1998 for $55,000 and today its worths about $15,000.

Following similar calculation, I have been paying $11 every day for this car.

So I used to pay $3 for my vehicle back in 1995,

Now I have to pay $11 for the same in 2008.

This alone is more than 10% compounded infation !!

I haven't mentioned I bought a Hyundai for $90,000 in 2003 and now its worth about $20,000.  That is more than $38 / day !!

Ok ... some of you could be smart enough to see the flaw in above calculation.  I am still using my Wira and Hyundai.  So as time goes, the average cost of ownership should go lower.  It is TRUE BUT don't forget the car resale value also becomes lower as time goes.  So give and take, its still not much difference.

I haven't included car loan in above calculation.  The actual total price I paid is more than $68,000 and $110,000 for Wira and Hyundai respectively.

For every car you buy in Malaysia, you pay more than Double the car's value. That means at the moment you buy an imported new car, you lost half of your money instantly !

This is due to various ways how goverment increases the car price in the name of protecting national own pride, make of our own cars.  I was in Total Support IN THE BEGINNING !  And that was more than 20 years ago ...

Right or Wrong put aside.  Buying car in Malaysia is the #1 killer in Personal Finance Planning.  No matter how little your income is, if you do NOT own a car, you probably can still have a great solid finance ground.  And no matter how rich you are, the cars you own are burning big holes in your pocket, an easily 10%-30% depreciation rate.

Lastly, if owning car is a MUST like me, think of it as paying for the experience.  So the next time you get in your own car, be happy ... because you are getting more out of what you already paid.  Else you lost both your money and the enjoyment.  Drive Safely ... and Happily !!

How to Buy Car in Malaysia ( personal finance point of view )

1.  Try your best to buy car with CASH only

2.  Get the loan with the Smallest Amount and Shortest Time possible

3.  If possible, go for limited edition super famous car.  That way, it may become a capital that may appreciate.

Use Home Loan to Buy Car ?

Matthew is refinancing his property @ 4.2%.  He will have an extra $100k.  So he is planning to buy a $100k car too.  The car loan is offering him 2.88%.

Should Matthew use his home loan to buy this car or should Matthew take the car loan ?

The answer, contradict to common comments, is actually home loan but . . .

You want to buy a car, NOW ?

Thanks to the new PM effect and various new policies in place including the RM 5,000 rebate, almost ALL of my Average income friends are Really interested to buy new cars.  Although soon they find out a lot of inconviniences because there are too many rules about the RM 5,000 rebate which make stuff not that practical but now friends still want to buy new cars no matter if he can gets the rebate.

If you also have a property 

that you can refinance, 

you should seriously think about

 refinancing your property 

to buy that car

 instead of getting a car loan.

Car Loan rate is 3.5% now.  Following the rule of thumb that car loan rate is 1.9x house loan rate, the 3.5% car loan is almost more than a 6% house loan.  With today's BLR-2.X offer, your house loan is most probably serving at 3.X% only.

6.X %  to 3.X % is a HUGE difference for crying out loud !

There are even some level term loan offered by insurance companies at 4.75% now, which is still so much BETTER than the 3.5% car loan ( which is 6% ) no matter which angle you look at it.

Despite the fact that car is the biggest personal finance killer in Malaysia, and if anyone buy a car NOW by taking a CAR LOAN while having the choice of refinancing his property .... Please ... at least share with me here why you do it, why do you want to spoil your own personal finance plan while I am already feeding you nice food near your mouth ?  Why do you still split it out ?

I will start with the most common excuse, "I scare income tax will find me if I pay my car in full as if buying it with cash!"

True concern but only valid for those illegal drug dealers etc.  If you Really have a property that can get Approval from banks to refinance, there is Absolutely no concern at all on tax filling.  Upon enquiry by tax department, simply submit your house loan documents and declare no other income whatsoever un-declared in the past.

Assuming all people start to do exactly what I share here, there is only one person they will go after - me!  They will blame me for causing them and the banks to lose so much more income.  Bank may start reducing the amount they lend to a property, they will ask if you are using the extra money to buy a car and then they may deny your loan application in future!

But I doubt that will happen at all, truth for the past thousands of years show that human just like to stay in their own shell even if it has been hurting them for so long, they get used to it and they will just refuse to walk out even one step to the more comfy zone.

What ?  You want to buy a car nOW !?

Is Buying New Car the Only Way ?

One of the previous articles showed a method to calculate how much one should pay for a car. In that example, the number is $1,300. That article then relates the $1,300 to a purchase of NEW car selling at $43,000 or below.

However buying new car shouldn't be your only way to have your very own transport.

Used Car

You may only get a SMALL NEW car with $40,000+ but you can get a pretty NICE USED car for only $20,000. That is an instant 50% saving !

Borrow

Do you have friends or relatives who have extra cars parking at their homes only being used once in a while ? There was once I drove my uncle's Mercedes for a month and I only paid $800 for it. Last weekend I visited 10 eligible neighbors telling them my car has broke down and I need to borrow their cars for a month. 3 of them are willing to do so for $500.

Car Pooling

Usually people don't car pool and there are many excuses for that. But at the moment I showed some cash, 15% of the drivers suddenly become more friendly. This is especially good for regular trips. As for the weekend get away, I looked for shopping and travel buddies who drive.

some other ways to get a car for FREE

use house loan to buy car ?

Finding best rate for car loan ?

Buying cars in Malaysia is a RM360 billions business

What other creative ways you can think of to use your transport money ?

Case Study : How to use Money ?

Starting at age 24, Daniel can save $1,000 a month. Plan to buy a $30,000 car at age 30, get married at 29 and buy a house at age 30.

He is also repaying $150 monthly to a $48,000 study loan. Only 10 more months left to pay for a $300 motorcycle loan. The $1,000 is net saving after deducting all these debt repayment.

"How to use money after I save them ?" Daniel asked.

Daniel has some goals to start with, so its best to draw a life line first.

Then Daniel should learn Future-Present Value finance formula. (He may also check out Rule of 72) With that he can come up with these figures. With $1,000 a month at age 24;

1. He can save in 2% fix deposit, he will have about $24,500 at age 26

2. In order to get $30,000 at age 26, his target investment return has to be 22%

3. If he didn't use the saving at age 26, it will accumulate to $76,400 at age 30 using 2% FD return

4. If he buy a car with $24,500, he will have $50,000 at age 30 using 2% FD return

So overall there is not much Daniel needs to worry about because

1. An used car of $25,000 or $30,000 are within similar range

2. Marriage may cost a few thousands typically

3. $30 to $50 thousand is enough for down payment for a typical home

Within the next 2 years, Daniel should mainly focus on cash flow control,

1. $300 motorcycle loan will end in 10 months time, by then he "should" save more every month i.e $1,300

2. He may spent only $350 for food as a student, but a working employee generally may spend more. He needs to watch that in order to achieve the $1,000 saving a month as the target he sets for himself.

3. Phone bill may increase too.

4. New spending category may also be added like entertainment, broadband, bad habits like smoking and drinking etc. Watch the friends you make, the girls you like, the bosses you kiss ass to ... make a good judgement if it is worth doing so.

After that if Daniel really buy a car, that will significantly change his personal finance;

1. Road Tax

2. Car Insurance

3. Petrol increase, usually by 4x from his previous motorcycle usage

4. Maintenance fee - a bad purchased used car may need frequent foreman visit

With only a target salary of $3,000 to $5,000 .... the car he will own may be his First biggest challenge.

Overall, this is the recommendation for Daniel,

1. Understand the TRUE concept of Personal Finance

2. He has 2 years before buying the used car, learn more about car mechanic, how to buy an used car, make more friends in car businesses etc. so that he can target buying an used car worth $X but he only pays $X - $Y for it. High Value for Money. Also read about other ways to get cars.

3. Learn Wealth Pyramid as tools to achieve MeM (Money earns Money) concepts. Goes up level by level from FD to Bond Fund to Mutual Funds to direct stock market investment.

4. While increasing investment return, understand that risk is something you don't know or you thought you know but didn't. So ability to learn, learn accurate and learn fast is your biggest asset now.

5. Marriage is not necessary a liability, it can be a happy event that earns positive cash flow sometimes. Daniel has 5 years from now to start explore what marriage ideas that can achieve such goals.

6. Daniel has 6 years to learn about property investment before buying his first home.

Track Back: forum

FREE info on BEST Rates in Malaysia

Its been a while since I start sharing the latest BEST rates in Malaysia including Saving Accounts, Fix Deposit, Car and House Loan, BLR etc. The orange color bar start with wordings "Best Rates..." at the top right angle on this page is an example. Or you can see one below here too ...

Since then it has been made into a widget and anyone can include this info at their own blog / web site by following some simple instruction here.

It is NOT easy to simply pick a number out of the long list of available choices and call it Best rate. Furthermore, there are so many considerations and factors that it is almost imposible for other people to 'decide' which rate is the BEST rate for you. Hence, lets review why and how malpf makes its list.

Fix Deposit is a finance tool you use when you have a sum of money that you will NOT be using for a while and you can gain Higher saving interest than normal saving account. So the higher the rate the better it is. Hence the interest rate is mark in blue color.

One of the greatest pit fall in FD is that if you withdraw before its maturity date, you may lose your interest or even have to pay penalty to it - liquidity problem. On another aspect, its best to increase the frequency of 'taking' the interest and put in back into the FD itself to enjoy the power of compounding interest. Hence keeping these 2 in mind (liquidity and compound interest), 1 month FD is the better choice compare to other longer term FD even if longer term FD may give higher return. Choosing compound more frequent with lower rate is better than locking the fund with a rate that seems high today.

Hence when comparing FD rate, 1 month FD is used and the higher the rate is the better.

BLR or Base Lending Rate is another important number where most of the variable loan will use as the reference loan rate. The lower this number is, the better it is. Hence the rate is marked with RED color. Just to add a note that business loan can benefit more from lower BLR than housing loan.

Saving account is one of the hardest ones to compare due to its large variation in future. There are junior and senior accounts, ordinary and islamic accounts etc. However, if we focus on the fundamental of saving account, it is a finance tool to 'temporary' keep our money to maintain our cash flow, ie. day to day liquidity. So the ease of interest calculation is important and we shall focus mainly on working adults ( Not Junior Nor Senior accounts ). For ease of calculation, multi-tier rates are less welcome. Certain accounts who impose minimum amount before paying interest is also less welcome. After considering these factors, we can pick the highest interest rate as the Best Rate (in blue).

Car Loan is usually fix loan rate. Car loan for used car and new car is very different. However, use car's selling price is very largely different as well. So when used car loan rate is too high, simply shop around more looking for a cheaper car will do. Hence back to the Best rates consideration, it is more reliable to consider NEW car loan rate where the car price is pretty much standard. In this case, the lower the number the better it is. ( red )

Lastly is House Loan, which is also a very tough call for Best Rate. However, borrowing principals from saving accounts, multi-tier rates are less favorable here. Getting 1-2 years of Zero interest by committing to potentially high rate in future is NOT exactly a great way to go. Therefore malpf only concentrates on the simplest BLR-X% where the Higher the X is the Better it is, ( blue )

Among all other best rates, house loan best rate may be the least influencing one because all other considerations like Zero Moving Cost and the most recent flexi all in one account, overdraft without the overdraft rate feature makes it really tough to generalize their good and bad.

Alright, thats the start of why and how these rates are choosen.

Check out below on some of the new Best Rates too, some of them may be useful to some people too ... ie.

FD12mth : 12 months Fix Deposit for those who are really sure will not touch those money for a year

Save1mil : Saving account that has MORE than 1 million in it

Save15k : Saving account thas has MORE than RM 15,000 in it

iSave : Islamic Saving account

UsedCarL : Car Loan rate for used cars

Malaysia Best Rates 2010 March 11 update

1 month Fix Deposit

Most banks offer 2.25% now except a few ones. Most of the ones who are still stuck at 2.0% are international banks like Bank of China, JP Morgan, Bank of Nova Scotia and Alliance banks.

1 year Fix Deposit

Highest offered rates is 2.75% by Affin Bank, AmBank, Bangkok Bank, Bank of Tokyo-Mitsubishi UFJ, Deutsche Bank, Hong Leong Bank, Malayan Bank.

Base Lending Rate

Most local banks stand at 5.8% now with Affin offers the lowest at 5.75%. International banks offer lower rate starting from 5.50% by Royal Bank of Scotland.

Saving Accounts

Kuwait Finance House continues to offer highest saving interest rate in its KFH Savings Account-i at 1.5%. This account is also very simple and straight forward.

Other than that, Standard Chartered's Al-Wadiah Savings Account-i offer 1.0% for up to RM 10,000 savings.

CIMB's Air Asia Savers Account and Mudharabah Saving Account-i also offers 1.0%.

Other accounts who seems like offering high interest rate but require high amount of saving are excluded. Some special accounts like OCBC's iQ Saving is also excluded because their offer rate may seems high at 3.28% but their effective rate is hard to simplify for general public. In short, for those accounts, if you use up the benefits they offer then it would be a great deal but if you do not use any of those stuff then its better you stick to a lower but 'real' rate, simpler and more straight forward saving account.

Don't forget you can get a simple widget

like above to show on your blog / web site.

Just visit here to see how.

Car Loan : NEW Car

Maybank continues to offer the lowest car loan rate starting from 2.7%. However, this is NOT a standard rate apply to all applicants. The actual rate can range up to 4.3%.

Bank Muamalat offers 2.85% for both New and Used cars but it requires an admin charges of RM600.

Most other banks rates offer are 3.25% for New cars.

Car Loan : Used Car

CIMB offers the lowest 3.25% used car loan rate.

Most of other best used car loan rates offer are 3.75% by Affin, Hong Leong Bank, Alliance, EON and RHB.

Don't forget Car Loan rate is Fix Term Rate

which is effectively a MUCH HIGHER

than variable term rate

like House Loan and Fix Deposit.

House Loan

Affin remains as the best house loan offer at BLR - 2.3%.

Standard Chartered offers BLR - 2.25%

Most banks offers are BLR - 1.8%.

Multi-tiers house loan offers are excluded because it would be impossible to simplify their pro and cons without knowing the actual details of your particular loan details. Hence, only simple and straight forward house loan offers are compared.

Is Loan really Better than CASH ?

You may have heard people are claiming its better to get a car loan than buying it with cash even if you could, especially from those car salesmen. Likewise, property investment gurus say that its better to get a home loan. These are some of the key reasons why they say loan is better than cash;

• Liquidity - keep your money with you, you may need it in future.
• Income tax department may come 'disturb' you seeing that you have loads of cash.
• buying stuff with loan usually gets more gifts.

It shouldn't be too hard to realize the main reasons why people pursue you to get a loan is because they may get a share of the interest you are paying. For example, car salesmen earn double the commission when they sell you a car with loan. Property agents want you to buy more property with the limited money you have hence they can earn multiple commission instead of just once. Other than that, most others who pursue the same are most properly are just due to ignorance.

This situation is exceptionally terrible when you are buying a new car. The car salesmen will literally give you a bad service if you mention you will buy the car with cash. They will try their worst effort pursuing you to get the loan no matter what. Else they would rather NOT sell you the car at all.

Getting a loan simply mean Pay Less NOW AND Pay More at the end. To be precise, you will have to pay interest to the loan you are getting.

Loan = Cash + interest

So you will definitely be paying more when you buy something with a loan. If you do not need the facility of 'Pay Less Now', you are basically paying the interest for nothing but ignorance.

Lets clear away the simpler excuses first;

• Income tax only penalize those who earn income illegally so unless you DO have something to hide else there is really no reason to worry about any audit.
• All 'gifts' come from your own money, the more gifts you receive in a deal, the more suspicious you should worry about the real value you are receiving.

Now the toughest part is the liquidity. It will be very hard to say keeping some money with you is NOT a liquidity option. But it is not necessary always the best liquidate option.

First of all, when you buy something with cash, its just between you and the seller. However, when you get a loan to buy the same thing, there is at least an additional party involved ie. the person who gives you the loan. Its has not just become a 3 parties complexity, its actually a totally 2 different transactions and a 4 different roles play.

( with Cash )

Buyer and Seller

vs

( with Loan )

Buyer and Seller

Borrower and Lender

So in addition to the interest, you will also pay more fees when you get a loan. When you want to sell your item, you will need to pay this fees again and perhaps also getting approval from this lender. Relatively a cash purchased item can be sold off immediately. From this perspective, doesn't cash purchase sound like a more liquidated option ?

Lets say you could buy something with cash at $100,000. You may also get a 5% loan and pay $1,060 monthly for the next 10 years.

Lets say half way down the road on the 5th year, the item has depreciated to $50,000 (13% depreciation rate). If you bought it with cash, you would end with a net cash $50,000 after selling it. If you got a loan, you would have paid $63,639 in the past 5 years, meaning you still have $36,361 cash at hand. Together with the $50,000 you may think you have more than $80,000 but you still have to repay the capital left in the loan, so at the end you end with a net cash of less than $40,000 which is less than the cash purchase option.

On the other hand, lets say your item appreciate 10% a year. On the 5th year, you could sell it for $161,051. But if you got a loan in the first place, you may get back about $140,000 net, which is still significantly less.

So no matter if your item appreciate or depreciate, if you sell off your item earlier or later, buying something with loan will only end you with ;

1. slower to sell off your item because it involves 2 transactions and it cost more fees too
2. getting less cash back at the end

The last I check, disposing something off slower and getting back Less cash is NOT exactly a liquidating option at all.

Car Loan vs House Loan interest rate

This may be a little bit too technical for some but definitely useful for those who really care about their money and has something to do with or going to have car loan.

In Malaysia, vehicle loan rate is calculated flat, forward sum to the future.  For example,

You borrow RM 100,000 vehicle loan for 7 years at 3%.  Your total repayment for the whole period is 100,000 x ( 1 +  7 x 0.03 ) = RM 121,000.  There are 84 months in 7 years, so every month you have to pay 121,000 / 8 = RM 1,440

Don't get confuse with this 3% car loan rate with the Fix Deposit rate, or BLR or House Loan interest rate.  Because the calculation method is different, they are not comparable to each other.

In short, in order to compare your car loan interest rate to your house loan rate, you need to convert the car loan rate into a compound rate.

Table below is a reference for such conversion.

For example, the highlighted in yelow says that.  If your Car Loan interest rate is 3% and you are taking a 3 years loan, then it is equivalent to 5.68% house loan interest rate.

My rule of thumb on this topic is :  Simply multiply car loan rate by 1.9 to convert them into a house loan interest rate.

Have fun continue to be puzzled and confused by above table ..  have a great weekend !!

The above table and figures are one of the TOP SECRET in personal finance that even most 
Bankers don't have, not to mention your financial planner, insurance or mutual fund agent.  But if they do, please let me know ...

No Claim Bonus in Hospital and Surgical insurance ?

Insurance is one of the very few "Personal Finance" tools that is specifically cater for our personal needs. Hence, as soon as a new need exist in the public, insurance companies will rush toward satisfing that needs. Sometimes insurance companies get very innovative in creating needs and therefore capture more market share.

NCB or No Claim Bonus has been a common term in car insurance. If you never make any claims from your car insurance, your next year's premium is likely to be deducted up to 55%*. $2,000 vs $900 is a huge difference. This is to encourage people to dirve safely and not the other way around ie. drive like Formula 1 on the street since I can get a new car anyway should anythings happened ...

On 2004, Dutch goverment started to introduce the similar NCB on health insurance. They did that so that their people would not abuse the insurance payout and therefore the insurance companies would not use that as an excuse to increase premium until a rediculous high level.

On 2005, Prudential quickly adopted that strategy.

As for Malaysian who has been keeping an eye on health insurnace / hospital and surgical plan / medical plan, most have realized that Prudential Malaysia has also introduced NCB on their health insurance. Typically it says you get back RM 500 every year if you didn't make any claim. PruHealth can only be a rider within one of the investment link products by Prudential ie. NOT a standalone plan.

Lets review this new growth ....

Introducing NCB in health insurance in general is a great move. Basically the whole idea is to encourage you to take good care of your health. You should eat right, move right and live right. Having a handsome health insurance is NOT an excuse to simply commit sins to your health.

Every time when a new great idea is introduced to the market, it is usually not mature. It will take a while before the idea can cover all concerns and all areas. This NCB on health insurance is no exception. The key difference shouldn't be too hard to be noticed. NCB on car insurance may starts with 20%* and then grows every year until it reaches the maximum deduction. PruHealth is only constantly deducting RM 500 every no-claim-year. So unless PruHealth can increase its deduction on 2nd year onward, it will still fail to capture its insured royalty.

All this while, life insurance and general insurance (ie. car) have been managed seperately. Life insurance systems are totally incapable of calculating subsequent years deduction like MRTA or car's NCB. Hence, either Prudential is incapable of coming up with a system that is exactly the same as car's NCB mechanism or they purposely leave it as the room for improvement when competition starts to come.

Either way, it means it sounds great to the insured but it is NOT as good as it should yet. In other words, it will only gets better in time to come.

What does this NCB on health insurance mean to the prospects ? Well, its actually nothing new. Health insurance plans have been paying insured yearly money for whatever reasons or excuses they can come up with. This is especially obvious in lady's insurances. You are paid RM 200 to RM 2,000 yearly so that you can do your medical check up, cover your normal clinic visits etc. So this RM 500 payout to you is just another form of pay-back from your higher premium.

This is why the whole idea is currently built inside an investment link plans. Once you have an investment link plan for more than 5 years, it is most likely the investment return itself can cover all the other 'costs'. But should they do NOT, you are still liable to top up to the plan so that your coverage stays the same. As in the worst case scenario is that you have to add RM 500 to your premium so that you can get paid RM 500 by year end if you didn't claim. Ofcourse this may exagerate but this is just to illustrate the idea.

Should you consider this plan ? Well ....

The new NCB is just a annual pay back, so if you never have any insurance plans that pay you back and if this premium is not too high, you may try this. Its a nice feeling that someone is paying you some money every year. But if you are one of those who believe whatever they pay you is from your own pocket anyway, then you probably shouldn't join this plan for this reason.

One of the key strengths in Prudential is investment link products, so if you believe Prudential can make the right investments and subsequently maintain your portfolio well, then despite NCB on PruHealth or not, you can leave part of your life plan to them. On the other hand, if you have been a successful investors yourself, you probably would not choose this option. ( Just a sharing, most people who think they can do better than the industry usually ended up DID NOT ).

There is also a 'life stle' part on PruHealth which pretty much is a cross marketing tool, so that shouldn't affect your decision too much unless you want to rely on Prudential to assit on your future life style ... ( not a bad option if you never thought of such thing anyway )

* 55% may not be the maximum No Claim Bonus for cars, expert in this area please comment, thanks !

Malaysia Best Rates 2011 Feb 13 update

July 2011 Update is here

Fix Deposit

Honestly, after tracking the rates for years. Affin bank is the bank to go with if you want the highest FD rate. Be it 1 month or 12 months, just go with Affin bank.

Check this site often, I shall let you know when this trend changes.

Base Lending Rate

ALL local banks stand at 6.3% now with Bank of Tokyo and Royal Bank of Scotland offers the lowest at 6.0%.

Saving Accounts

Bangkok Bank offers 1.85%

Bank of Tokyo, Bank of Nova Scotia offers 1.75%

Don't forget you can get a simple widget

like above to show on your blog / web site.

Just visit here to see how.

Car Loan : NEW Car

Maybank continues to offer the lowest car loan rate starting from 2.7%. However, this is NOT a standard rate apply to all applicants. The actual rate can range up to 4.3%.

Bank Muamalat offers 2.85% for both New and Used cars but it requires an admin charges of RM600.

Car Loan : Used Car

Bank Muamalat offers 2.85% but requires admin charges of RM600.

CIMB offers 3.25% used car loan rate.

Don't forget Car Loan rate is Fix Term Rate

which is effectively a MUCH HIGHER

than variable term rate

like House Loan and Fix Deposit.

House Loan

There are too many factors in considering a good house loan, so we don't think its fair to simply summarize them here.

Our advice is to source for at least 3 offers, preferably a mix of local and foreign banks.

Malaysia Best Rates 2010 May 26 update

1 month Fix Deposit

Generally now banks are offering 2.50%. Affin bank offers highest rate at 2.55%. However, there are still a few banks offer lower rate than 2.5%. JP Morgan is still offering the lowest at 2.0%

1 year Fix Deposit

Highest offered rates is 3.05% by Affin Bank; followed by 3.0% from AmBank, Bank of Tokyo-Mitsubishi UFJ and RHB Bank.

Base Lending Rate

Most local banks stand at 6.05% now with JP Morgan offers the lowest at 5.65%.

Saving Accounts

Bank Islam offers 1.35% through its Mudharabah and Pewani ( for women above 18 years old ). Women can enjoy up to 1.58% in Pewani saving account if saving is more than RM 5,000.

CIMB's Air Asia Savers Account offers 1.2%.

Don't forget you can get a simple widget

like above to show on your blog / web site.

Just visit here to see how.

Car Loan : NEW Car

Maybank continues to offer the lowest car loan rate starting from 2.7%. However, this is NOT a standard rate apply to all applicants. The actual rate can range up to 4.3%.

Bank Muamalat offers 2.85% for both New and Used cars but it requires an admin charges of RM600.

Most other banks rates offer are 3.25% for New cars.

Car Loan : Used Car

Bank Muamalat offers 2.85% but requires admin charges of RM600.

CIMB offers 3.25% used car loan rate.

Don't forget Car Loan rate is Fix Term Rate

which is effectively a MUCH HIGHER

than variable term rate

like House Loan and Fix Deposit.

House Loan

Affin remains as the best house loan offer at BLR - 2.3%.

Standard Chartered offers BLR - 2.25%

Multi-tiers house loan offers are excluded because it would be impossible to simplify their pro and cons without knowing the actual details of your particular loan details. Hence, only simple and straight forward house loan offers are compared.

Book : Get Your FIRST car FREE !!

I mentioned before the biggest personal finance challenge in Malaysia is to buy car due to its rediculous high taxation (read this old blog here).

However recently I received a book from my sifu's sifu titled "TOP Money TIPS for Malaysians".

( read how happy I was in my personal blog here )

Written by KC Lau, one of the pioneers in Malaysia Personal Finance Blogging world !!

... guess what !

This books shows you HOW you can get your FIRST car FOR FREE !!!

It is totally mind blowing !

How could I have NOT thought of it myself !!  I regret so much that by now I already have had own 3 cars.

Why didn't I read this book earlier !  Argh !!!!

Don't make the same mistake I did.  You should go get this book now !  ( Click here to read more about it and BUY IT ! )

One more thing, this FREE CAR tip is only 3 pages out of the whole 208 pages !!  Imagine all the other tips that can help you Save More, Make More and Protect your Money !

mini Budget 2009 ?

I am neither excited nor disappointed with recent mini budget announcement ...

About the $5,000 rebate if you buy new Proton exchanging your 10 year old car, I think the  rebate should be given no matter what car you brought in !  The rules of 10 year old car is really redundant if the government sincerely want to help us.

The right way to boost car sale is to remove all the unnecessary tariff !  Let it be FREE market for all cars !  I am sure the effect is 10 times better than this $5,000 rebates.  Furthermore, it pushes Proton into a REAL reform, perhaps its easier just let Produa take over.

So in short, this $5,000 rebate program will fail miserably.

As for the case asking graduates to go back study since there are no jobs for them anyway ... I cann't say that is bad but it would be much better if he promotes entrepreneurship. 
No jobs means we need to create jobs, not to avoid them.  No money means we need to find new money, not to spend more !

There are 2 ways we can create jobs.  Government initiates Mega Project like KLCC and Smart Tunel, straight away all level of job positions are opened while bringing in new technology and knowledge into our country.  Second is to let all of us ourselves to create job ourselves - be entrepreneurship !  None were mentioned.

Lastly I personally think we shouldn't need all these helps.  I think recession is the best time to throw out the rubbish.  Its the best time to do house cleaning.  Let the dying be dead and let the strong survive !  Many innocent will die yes ... but most of them is due to ignorance !  Ignorance of not saving for the raining days !  Ignorant of not setup automated saving system !  Human by nature don't learn until they have to.  And let now be the 'HAD TO' time ... then all the remaining survivors would have a good strong personal finance culture.

Malaysia Best Rates 2011 July 25 Update

Fix Deposit

Affin Bank still offers the highest 3.6% for 12 months.

Topics review 2009 July

There has been a mutual fund series going on recently, a lot of new readers start to have the miss conception that this is a mutual fund blog. So lets just do a quick snapshot of some other topics in here ...

The whole Personal Finance concept is this

Finance Planning is NOT all about Money

The REAL finance freedom is NOT to have any Money ?

Passive Income is when you get 100x return from your effort

Do you listen to the Poor or the Rich ? The Thief or the Priest ?

The mother of Technical Analysis is Gambling

Pay your Investment Link policy monthly, not yearly

Use fundamental to pick what to invest, Technical Analysis to find the timing

Buying Car is One of the WORST thing you do to your personal finance

Car Loan Rate is 1.9x House Loan rate

Normal Average guy CAN retire early with FREEDOM

What Goverment promotes may NOT be whats good for you

Location, Location, Location on estate investment is one of the BIGGEST lies

Get Out Of Debt - with a positive ending

Get a Car for FREE

a longer insurance series may follow soon after this mutual fund series ending in a few more articles.