What do you look forward to in 2021 Personal Finance ?

Make Money Easy ! Scam or Trap ?

Ever seen easy money making offer ?  They are always very convincing - - -

Cheated or Own Ignorance ?

a Guaranteed 20% return investment was introduced earlier and it is indeed legitimate.  But do you know it is like an offer " Give me $10 now, I will give you back $9 ".  And of course it is Guaranteed !

How Corrupted are we ?

Below table shows how corrupted a country is perceived to be.   The smaller the number is the more corrupted the country is.  For example, North Korea, Russia, Nigeria, Pakistan and Philippines are perceived to be corrupted while New Zealand, Singapore, Australia, Hong Kong, Japan are perceived to be "clean".

Malaysia is somewhere in the middle comparable to Soudi Arabia, South Africa and Italy.

source : wiki

earn Money with Money

Read this from Alan Tan's facebook, seems very meaningful to me.  So sharing here with you all ...

By Alan Tan

One day, an old man and his assistant arrived at a farming village. The old man gathered all the villagers and told them that he is in the business of buying and selling monkeys and that the reason why he has come to their village is becoz there is a forest next to that village which is infested with lots of monkeys. He told the villagers he would pay $10 for every monkey they bring him.

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 . . .

21st century personal finance trap

Do you know Gabriel ?  'G'abriel actually represent  'god' within MalPF world.

• He worked for less than 10 years
• Then he runs some businesses for about 13 years, some of them making loses
• Yet he retires at 42 and live happily ever after (details)

The trick is . . .

Warren Buffet 6 billions strategy ?

Follow up on a concern if Warren Buffet's era may come to an end soon posted in August 2011, the figures are now out and considered as 'correct' as calculated by Forbes ...

East will take over West in ... 2020 ?

G7 are the 7 countries who have been dominating world finance since 20th century. Most of them are from Europe and North America, plus Japan.

However, most would have known by now that some of them are no longer as great as they used to be in this 21st century.

So E7 comes about where generally people think a new economical forces will emerge out taking over G7, they are (China, India, Brazil, Russia, Mexico, Indonesia and Turkey).

According to chart below, E7 will take over G7 in 2020.

There are also stories that says this will happen in 2050. Either way, generally people expect E7 to take over G7 in due time.

However, the fact is that will NEVER happen.

What will happen instead is that 1-2 G7 members may drop out from the list because they fail to make a come back despite how hard they try. Like wise 2-3 E7 members never make it to the bar, hence E7 will NEVER be formed.

At the end, there may be a G11 formed, which has nothing to do with G7, G8 and G10.

G11 is seamlessly integrated among themselves with latest technology. Forex and logistic are no longer issues a small business owner need to worry about among these G11 member countries.

How To Double salary in 10 years, country wise.

Malaysia is aiming to increase its average salary from $2,000 to $4,000 in the next 10 years. How can that be done ?

First of all, using rule of 72 you can estimate that doubling in 10 years would mean a continuous compound raise of 7% annually. Or a total of 72% increment within that 10 years. For example, it doesn't matter if the increment is from 2.72% to 11.72% adding 1% annually OR it went from 11.72% to 2.72%, either way will result a $4,000 monthly salary in 2010.

While it may sound tough to double a person's salary in 10 years but there are a number of ways this can be achieved rather easily country wide;

1. Increase Inflation

By decreasing supply on purpose, prices increase. Where does the extra money go to ? It goes to people who produce the supply. It may sound weird but when done properly, all the extra money collected from the consumers will be passed down to the workers themselves. This way, although items price increase, your salary increase as well. Nothing in life actually change, just that the numbers get bigger. This method work best with monopoly in place, as in all consumers are also the same workers for that few same companies.

How much inflation rate do we need in order to achieve this ? Properly 10% a year for the 1st 7 years (2011-2017) and then back to a very low figure in the last 3 years (2018-2020). It will take a while before the effect of inflation hike is brought over to salary increment. Furthermore, we can't have a high inflation rate approaching 2020.

Will this help us ? Well no, I have already said Nothing in life actually change, just that the numbers get bigger ... on everything.

2. Foreign Exchange

Believe it or not, it is entirely possible that by simply doing NOTHING, our country wide average salary can become double in the next 10 years. Notice that our finance minister is using USD as a benchmark for this target. Today 1 USD = 3.3 MYR. If USD continues to devalue and the exchange rate become 1:1.65 in 2010, then by having the same MYR 2,000 salary, we would have already doubled our salary from USD 606 to USD 1,212.

How possible it this ? Well, it is almost a certainty the trend IS CORRECT. The power switch from west to east has not only already occurred but it has been strengthening now. It is only a matter of how big a scale it will switch.

Will this help us ? Hell no. It would have helped if we BUY things from USA. But the fact is we BUY mostly from the EAST and we will buy MORE from within the EAST. A small currency rise on the EAST may knock us out of the game easily. We are anchoring on the wrong currency for our future planning.

3. By making a few people even RICHER

This is an average game. Simply by making today's millionaires into billionaires, it will easily pull up the average and skew the figures. How is this done ? By issuing more mega projects to turn key contractors, hiring super consultants to tell us what common senses are, setup independent groups for special projects etc.

Will this help us? Well, some of us maybe. You just need to get on the bandwagon as front seat as possible.

4. By giving FREE money to VERY POOR people

Just like above, pulling the other end of the graph can bring up the average as well. Despite qualification and ability to perform, we just simply increase basic salary for all those who are earning below $2,000 a month now. For the others who really can't fit into this category or still has very low salary, put them OFF work completely. They will receive FREE support from the government on their daily needs. By knocking out these VERY LOW SALARY figures off the chart, the average will rise too.

Will this help us ? Oh yea, quite a lot of us I guess. But if you are already one of the average guy to start with, not too poor not too rich, you are pretty much still on yourself. Lets just hope by giving out FREE money, there will be less crime !?

===

Now although all above may sound too extreme and may even be read as a joke, but I assure you 10 years later, we WILL achieve our 2020 goals and a combination of all 4 methods mentioned above WILL be used, partly or as a whole.

And here below I present you NEM fashion !!

Numbers for Ron's case

Ron's story is in previous post. Basically his is a all look good case. See below blue circles that he is going to have multi millions to collect even if he stops working now. And all he shorts is only less than $1 million ( red circle ) for his kid's education.

But if you run a proper cash flow analysis. His EPF money is not touchable until age 55. So his main source of income is from KLSE investment but all those money will run dry before his kid can graduate.

One of the things he can do is to sell his house 1. Doing so may allow his kid to finish with a degree. But that will only prolong the kick-out-of-retirement scenario for a couple of years only. He still cannot last until he gets his EPF yet. As a result, still have a cash flow problem.

It turns out that if he stops working now and if his kid really go oversea to study, he will have to sell his new bigger house 2 and move back to the older smaller house 1 when his kid go abroad. It will be his own judgement whether this is a good retirement arrangement or would it be a reduction life style he wishes not to occur.

click here to see the full spreadsheet

Ron isn't my contact, I just read his case from kclau's blog. So assumptions used in this spreadsheet may or may not apply to him.

One of the potential pitfalls is that I assume he said he earns $6,500 and I assume his current expense is $3,000 a month. But seeing his case, it is most likely that his expenses needed is $6,500. If that is true, he will still be kicked out of retirement even if he sells his big new house when his kid only goes to a university that costs only $1.2 million

One interesting way to solve this could be to rent out the new big house instead of the small one. If the rent can cover the repayment amount, it will be perfect. But even if he can rent for $3,000 and assuming his repayment amount is $3,723 he will still be able to cover his kid's 4 years college cost without selling any of his houses.

When you are serious about your future, make sure you don't forget 2 aspects of the analysis;

1. draw a proper and definite Time line, not just some lump sum comparisons.

2. year to year Cash Flow analysis

I search "cool man" in google image and kclau's picture pops up ...

Ron from KC Lau : case study

This is a case stolen from kclau's blog, I am just busy body giving my view point without anyone asking ... so I apologize first for whatever offence I could have brought. But my intention is just to share my thoughts, nothing more than that.

Ron is 40 years old married with a 10 years old kid, earning $6,500 a month? He has 2 houses 800k with 470k loan and 300k renting for $850 monthly. 840k in KLSE and 460K in EPF. He is asking if (1) he can retire, (2) his kid education plan ok and if he should (3) sell his house to buy stocks ?

kclau basically says (1) yes he can retire, (2) his kid's education is at good hand and (3) don't sell house unless Ron is really good with stocks.

I only agree with (3) respond because a 840k KLSE has already out weight 300k property by almost 3x, so there is really no point to further make it imbalance.

My immediate respond reading Ron's story is that it sounds too familiar. Familiarity with an alarm that is.

I am guessing ....

Ron moved in to his new house only recently ( less than 8 years ). He wanted to get higher loan amount but couldn't due to his income level. He may feel financially quite capable but he also find himself selling his stock investments at times for cashing out purposes.

These are the signs of overspent without consciously knowing it.

A 460k loan, be it been served for a while or new, would take 2,500 to 4,000 repayment monthly. That is 40-60% of the income level. A dangerous level. If the 800k is a typical resident judge, then its an over price of 20-25%. One should use only force sale value when assessing ones' personal finance health level. As a result, this new beautiful home is the main killing point in his personal finance but in return he has a home that he wanted, emotion return is priceless. But due to the same fact, he can NOT retire now. Paying off this repayment amount alone will kill off all his stock investment return in no time. ( check out the fact that even a 12% return is NOT enough to cover a 3% )

The 2nd pit fall is education plan. In 8 years time, at best his 300k education fund may become a 500k fund. But in 2018, a general 4-years-oversea-tuition-fee starts with a minimum of 1 million and above. At age 48, he can't really withdraw from EPF in full yet. Honestly, with this 300k plan, Ron's kid can only have the option to go to a local university ... which even a 100k is adequate. Should Ron not realizing this fact and stop working now, he will lose out all his retirement fund and get back to work at his 50s if his kid does want to go oversea.

The good part is 840k KLSE fund. There may be a few things we can tell from this figure. Ron is most probably an accumulator, he buys and keeps and doesn't sell as much as he buys. Although this is good but on the other hand, if the 840k value is today's valuation then 840k is most probably not a RIGHT value to use to assess his finance health. If he is an accumulator, then he doesn't have a consistent profit take strategy. So by mid year, his value may drop to 600k etc. Basically just like property over valuation, Ron's 840k KLSE value is questionable.

So at the end, my take is that (1) Ron should NOT retire yet, just keep working but keep his option open because now he can freely change jobs as long as the salary stays the same or higher. (2) His kid cannot go to oversea university yet, if that is the option he wants to keep open, he will need to beef something up, ie. allocate his stock investment fund as educational purpose.

Along with other 'typical' assumptions, Its important for Ron to accumulate another 800k in his liquid asset to further strengthen his portfolio.

To further obtain a more precise analysis, Ron needs to identify his family expense ratio and his very own personal inflation rate. Then he should also quantify the true potential capital gain of his both properties. The 300k one will do fine but the 800k one will remain flat. Finally his KLSE strategies and portfolio will play a critical role in his future too.

Hey Ron! You did great ... but not good enough for 21st century. Buckle up and keep doing what you were doing, it seems great so far ...

Don't ignore kclau's last part in insurance advises, your choices are Terms, whole life or investment links. Just in case you hit a "lottery" ... you would want the things still go the way they are suppose to be ...

see The numbers for Ron's case here

Jupiter Online Stock Pick for 2010

Just came back from Jupuiter Online seminar, some of their stock picks for the year of 2010 are:

Zhulian

Faber

WellCall Holdings

Sapura Crest

Atrium REIT

TSM Global

Paramount Corp

Kurnia

Talk given by: Pong Teng Siew.

Actually he mentioned these are short to medium terms recommendation only ie. next month to next quarter or so. Overall there are many uncertainties ahead that the bullish trend is really questionable. Hence generally there will be a correction in the market soon, followed by a mainly side trends for the next 2 years.

A few points that I manage to digest are:

Governments backup funds are ending in mid or end of the year, banks are not likely to recover fully and able to stand on their own yet.

USA employment rate is actually higher than reported figures because the number of people claiming un-employment insurance are still rocket high. A lot of part time workers are actually un-willingly working part time but forced to.

China rising inflation may result them pulling back their outflow funds, implying we can't really rely on China neither.

I don't fully agree with all his views but nevertheless shared the similar future trend predictions. I may comment on his stock picks after I eat something ... hungry like a horse now ...

HLA Guarantee 12.5% saving plan

Hong Leong Assurance offers a plan that guarantees 12.5% return. Basically you only need to save $3,932 for 6 years and you are guaranteed to receive $500 every year starting from the 1st year for 35 years.

So 500 out of 3,932 is more than 12.5%

$500 x 35 years would give a guarantee amount of $17,500. If you do not withdraw this money, it will accumulate more interest. On the 35th year, you will get $50,126 instead of just the $17,500.

In addition, there is a dividend payout where the minimum is expected to be $200. Not guarantee but pretty guaranteed as in insurance layman terms. With the most conservative assumptions etc. you will get more than $105,000+ at the end of 35 years.

Most of the older readers should know this trick by now. There is no such thing as insurance saving that gives guarantee and higher than Fix Deposit return in normal circumstances.

If you save the same $3,932 in a bank account that gives you 1.72%, it will give you a total $41,082 on the 35th year; equivalent to the guarantee yearly $500 plus capital preservation. So the guaranteed return you are really getting is less than 1.72%. Because your capital is NOT guaranteed in this plan.

If you keep the $500 and go for the guarantee $50,126 return at the end, that is equivalent to 2.35% return. Currently bank is offering 2.5% FD rate for annual renewal.

Lastly if you are really getting back $105,862 at the end, that is equivalent to 4.72% annual return.

Consumers need to know what the effective rate is when comparing plans. For crying out loud, insurance field agents please upgrade yourself and calculate what the real effective rate is. May be you don't need to tell everyone about it but when some personal finance savvy consumers asked about it, it is more reputable if you can give some valid figures.

4.72% is NOT a bad return at all. But 35 years is too long.

Charge your future usage : how did it happen ?

The way credit card companies forward calculate interest has sicken many users. Together with the 5 cents round up mechanism, there are cases where its not even the users fault not to totally pay off their last month balance.

Some are still in shock how consumers can be abused in such a way. Well, this is how ...

Credit card companies used to charge 18% interest on the amount you underpay and owe to them. Seeing that this high interest has caused many people in debt and even bankruptcy, banks are urged to reduce that rate. So the project of multi-tier interest rate was born.

If the amount you owe is not that much, banks may reduce that rate to 13.5% for example. Like wise, if you continue not to pay, banks will have the rights to charge 18% interest again. So lower interest rate is imposed on lower loan amount.

So far so good isn't it ?

Well, banks are going to give you more. In addition ...

We will give you 22 days interest free on all transactions, if last month outstanding balance, as per monthly statement, are settled within due date. In cases where this interest free is not applicable, we will charge interest on all transactions from the posting date.

Don't doubt my grammar, its a carefully formulated sentences very similar to the actual terms and clauses. All the commas and periods are there for a good reason.

It is still fair isn't it ? What it says is if I paid last month balance in full, I will not be charged interest for another 22 days. Else of course I should pay interest.

There are 2 sentences up there.

The first one evolves around monthly statement. If the bank generates your statement on the 1st of the month, you don't need to pay interest of the amount on that statement up to 22th. Which is also usually the payment due date. Ok still ...

The 'all' in blue color means all the transactions on that monthly statement. Not 'all' the other transactions you used before and after the statement. Guess what, the transactions you used before is a brought forward balance, so its NOT a transaction and therefore will continue be charged interest and excluded from this interest free offer. You are also NOT getting interest free for all future transactions because they are NOT on that statement yet.

The second part starts with "if interest free is not applicable". It doesn't say if you don't pay then we charge you. There are many other reasons interest free is not applicable and no matter what they are, you will be charged. So there is ONE specific scenario you may get interest free period and ALL THE OTHER scenarios would allow us to charge you. Thats basically what it sums up to.

Now there is also a word 'all' in the 2nd part. This time, there is no statement mentioned. This 'all' would mean ALL transactions including the future ones you are going to make. And the interest is calculated based on the posting date which is totally ok even if it is a future date.

I am not quite sure if I have presented this clearly. There is the trick of saying something seems genuine and simple but yet a small word in it turn the whole thing around. A seems-to-be very thoughtful offer has been given, most of us were ok with it and now its too late to turn the game plan.

Banks came to us on day light, offered us lower interest tiers and a new way to calculate interest ( with interest free period !! ) and we bought it. So now its too late for us to pursue normal channels to change this. Whatever left is to propagate this knowledge to more and avoid to be taken advantage off.

If still want to do more, please get more people to read this series of articles ...

Credit Card forward calculate interest

How did it happen ? ( this article )

Why do they need to do this ?

What can we do ?

5 cents Round Up mechanism

Most of the Malaysians are already used to the 5 cents round up despite how silly some of the transactions could become.

BNM has already clearly stated that this only apply to cash transactions where we are trying to get rid of 1 cent coins. But it is obvious that even if you are paying with credit card, check and online transfer, most of the retailers will still round the 5 cents up.

When you go to bank and make a payment of $9.98 over the counter. You may write down $9.98 in the bank in slip. Upon making payment, the cashier will have to get $10.00 from you. Which is fine since now the rule is to round it up. When the transaction is done and you get back your proof of payment, what do you think your paper work will say you paid ? Correct, $9.98 !

So be smart, round it up and write down $10.00 because that is the actual amount you pay.

What if the amount is $9.96, you would definitely have to pay $9.95 but should you write on the slip $9.95 or $9.96 ?

If you did write down $9.95 as in honestly you have just paid that exact amount and not 1 cent extra, you may face the risk of another funny finance scenario ... credit card forward interest calculation where your 1 cent ignorance could have cost you $15 !! Well, not that funny but its happening everyday ...

Guess what, with this GST coming soon ... we consumers may not see it how it comes at all, we may NOT even realize after many years ... but all these little things combined together are THE ONES that kill your personal finance, especially if you don't know.

Government and the big boys can do all kind of tricks to keep the national inflation number down but what really matter is your own REAL personal inflation rate!

Credit Card forward calculate interest

If you have a remaining unpaid balance of $0.01 in your credit card from last month,

and then you use $1,000 this month ...

You may think the interest 18% should be imposed to your 1 cent balance which is ignorable but in actual fact, the interest is calculated based on your future expense as well. So ...

$1,000.01 x 18% -> pro rate to 1 month => $15

See the magic of finance ? You could get charged $15 from your $0.01 remaining balance. Despite your $1,000 usage is not even due yet !

A handful of local banks are already exercising this interest forward calculation method. Most of the international banks on the other hand agree this is ridiculous and didn't enforce this calculation on small remaining amount.

But recently banks lose many credit card accounts so they are quietly imposing this again to upbeat some profits.

Many good card users are caught only after some time because they just couldn't believe such a ridiculous abusing technique can exist around us for more than 2 years already.

When inquired if banks have approval from Bank Negara to do this, a very ambiguous respond is given. Apparently when banks were gaining approval for "multi tier interest", this forward calculation method is part of the small clauses. It is unknown if BNM was just being sloppy or they just quietly pass it through.

Either way, you should have another proof that the big guys will NEVER take care of your personal finance.

Credit Card forward calculate interest ( this article )

How did it happen ?

Why do they need to do this ?

What can we do ?

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 ?

Govt. goes public - Don't subsidize the RM50 !

It was hinted before that government may try to stop banks to subsidize credit card users on the RM50 fee to be enforced by the government starting next year.

Today its no longer an internal warnings between government and banks. Government has made it public in the news on this. But of course it was made in a polite way,

if banks subsidize our RM 50

we will FAIL to reduce

Credit Card Debt problem !

Actually following one of the latest sharing commented by Alan in last post, banks faced many rejections on the ideas they proposed to bank negara. But BNM has no control whatsoever on the points accumulated in your credit cards. So when banks use the point system to return the RM 50 value to the credit card users, government fail to stop that approach. Hence, government goes public with news to add public social pressure to the banks.

Its interesting to see how politic and finance fight so fierce over our precious RM 50.

I am predicting the next move from bank is introducing 1Card - use ONE bank's credit card as to replace ALL other banks' card. Such Credit Card will have combined limit of all your other cards. The trouble they are facing now is to combine all the rebates offers because each bank only have contracts with certain retailers.

Imagine a Card that you can swipe up to $200,000 !! You can buy a house instantly with a plastic !!

EPF Interest Calculation - Pro Rated

EPF's interest calculation is one of the weird ones. Somehow they don't use the straight forward FV formula. Although it may seems like they are stupid and don't know math but the actual reasons are;

1) They don't really know how much to pay you until after financial closing at year end

2) your employer may submit your contribution to EPF LATE

3) legacy system left over from British colony time

In short, EPF interest calculation is pro rated. So

1) Whatever you have left last year will enjoy full interest payment this year.

ie. $100,000 x 4% = $4,000

2) Amount you save on 1st month will enjoy 11 month interest, 2nd month will enjoy 10 months interest etc.

ie. in January $100 x 4% x 11 / 12

ie. in February $100 x 4% x 10 / 12

The exact words from KWSP

»	How is the EPF dividend calculated?

In order to determine the dividend rate, factors that need to be taken into consideration include net income and total for 1% dividend at year-end.

For example:

Dividend Rate = Net income (a) x 1% Total for a 1% dividend (b)

• Investment income + Non-investment income - Expenses
• Total for a 1% dividend is based on:
• Opening balance of contribution (after withdrawal) that obtain dividend for a 12-month period, and
• Monthly contribution that obtain pro rated dividend i.e. dividend for the n-month will get (12-n) month dividend. For example, the September contribution (n=9) will obtain a 3 months dividend.

Under Section 27 of the EPF Act 1991, the guaranteed minimum dividend rate is 2.5% per

year on members' savings.

source

Example Calculation based on this article : MYR300 FREE Money

This document can be found here

There are many EPF calculation tools online. Unfortunately, none of them will show the same figures. So above calculation is actually different than what some of the banks web site will tell you. Even the EPF web site itself will show different figures than the banks and this article. However, this calculation method posted here, has been shown to KWSP HQ 2 years ago and the officers confirm correctness.

So treat this as one of the ways to calculate EPF interest, not the absolute correct and only way. I have seen 2 person EPF return calculated differently. After reporting to KWSP, they simply pick the lower payout methods without much justification. Since then, we do not report inconsistency in their calculation anymore unless it is LESS than what we should get.