What can I do when bully by the Big Boys ?

Some of the most read articles here is when some of the big finance institutions' bad intentions are exposed.

Credit Card companies will charge interest on the expenses you haven't even made yet

EPF does not really take good care of your money, not all the time

Bank can charge you 2200% interest in 1 month

Malaysia government try to solve credit card debt by adding more debt to it

Bursa Malaysia tells you NOT to invest long term

How Banks call center abuse users

Government allows citizen to reduce EPF and then use Tax to take away even more of people's money

Like wise, Robert's "Conspiracy" and a few other gurus who talked about how sick today's finance systems are, also receive major big hits. Its just fun, eye opening and jaw dropping to learn these news!

So what can we do about it ? Robert's suggestion is to join the big boys playing the debt game and his instrument is property investment. Obviously that is not the 'solution'. That is just him sharing what he does best. Unfortunately property investment is NOT an instrument that can be used by mass market ( everyone ). Just take a statistic of all Robert's subscribers and see how many get what they want. Do pay attention to his early franchisees results.

One of the concepts preached by this site is Scoping. For example;

It is important to understand that Income is a pre-requisite of Personal Finance but NOT a part of it. Hence it does NOT matter how much you earn, you should have a good Personal Finance Profile.

Following that same scope, it doesn't matter how RICH a person is, he may lost everything if he does not have a solid personal finance concept.

Personal Finance is personal, its NOT economy, its NOT company finance etc. Its just You.

So no matter what is happening around you, if it didn't affect you. You just read, learn and have some fun cursing them. If some of the big boys did bully you, stay cool, play victim contacting them and minimize damage as soon as possible before stay away for good.

It may sound sad or passive but its really not. Its just about being smart and get things done. When the big boy forces you to pay RM50 credit card fee, you can stop the credit cards. When EPF wants to scam your home loan money, you can choose lump sum payment. When government tricks your EPF, you can submit request to continue contribute maximum. It is as straight forward as that.

Get the scope right that your personal finance is all about you. Do something for yourself first. Then when you still feel like wanting to do more for the greater self. Then by all mean, gather a group, sign a petition, run a parade whatever etc. But that is NOT your personal finance duty. Its the greater you. Don't let the greater you ruin your personal finance. Because the journey of greater you is long and tedious. You will need multiple recharges before you reach the end of the journey. And keeping the scope clear will allow your personal finance to comfort and pamper you along the journey.

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

Why you should trust government fund ?

Should you tag along ? Well ... its always good to be a part of the 'main stream' .... :)

if you know when to get out .... before anyone else.

Monopoly - Why NOT Property in PF ?

Monopoly is one of the most popular board games. When Charles lost his job, he played The Landlord's Game and then created his own version of the game which later became Monopoly. Originally he was trying to include all the dynamics of property investment into the game but as time goes people find those are too complicated. Hence today's Monopoly is simplified until its a 8 years old game. Now new board games are developed everyday by adding back those left out rules - including Robert's Rich Dad.

Some who followed this blog long enough may already know that Property Investment is NOT a suitable personal finance tool.

Although there are ways to obtain guarantee income through property investment at personal finance level, but those who have never done it would think such method is ridiculous, impossible and paper talk only. Then when they use other approaches, they miss interpret active income as passive income. As a result they would do great at times but when the big boys swing another direction, they may get knocked so hard that they not only fell off the chair but they may enter a never return land. Even at this 21st century, generally people are still NOT able to digest stuff like strategy cost, personal finance scoping etc. Hence its just too 'risky' for anyone to simply use property investment as their personal finance tool.

We may get some resonances from some of the important key concepts which are still in Monopoly :

"Your goal is not just to get rich, you HAVE TO Bankrupt everyone else !"

In 21st century personal finance, we want to revert the 20-80 rule. We want most of the people to achieve finance freedom without bringing harms to the others. We want MOST of us to get what we want, we no longer want to just follow the big boys just for the sake of it-used-to-be-like-that. We may want to be rich but we have no interest to bankrupt anyone else in the process.

The nature of property investment is an active income. So its really a business. In business world, we do have to limit the ability of our opponents in order to grow big, stay big and be successful. But in "personal" finance, we don't have to.

But guess what, "Banks never run out of Money, they just print on plain paper ... " So you will NEVER able to bankrupt banks and banks will always be the winner.

On the more positive side, such problems only exist if the play ground is limited. ie. There are only so many lands, so many buildings, 4 stations and 2 utilities companies in Monopoly. In real world, New play ground is created all the time. As long as there are more play grounds created than the number of bankrupts, theoretically people who went bankrupt at one game can simply jump to another new game and play again.

Now do you understand why governments all over the world are creating Mega Projects all the time ?

Although Charles started Monopoly but now his whole thing has been "monopolized" by Parkers Brother where Charles was only one of the developers and Parkers Brother is the official owner. So much about monopoly huh ?

Why do Credit Cards charge your future usage ?

From time to time, we may heard news that more and more people are unable to pay their credit card debts. As a result, credit card companies must be earning a lot of money in return. On the contrary, credit card companies have been facing quite some challenges.

More and more people are settling their due payment in full monthly. This results the card company unable to earn money from this group of people. Some users even maximize the interest free period to 2 months and pay nothing to enjoy such great facility.

Due to the stiff competition among the card issuers, every time an annual fee is charged, the card users will simply stop the account.

When late fee and interests are charged, more and more users know how to get them waived.

Generally people are getting better in managing their credit card usages. More and more people are more personal finance savvy now.

Credit card used to be able to get their profit back from the people who owe them money. But now they can keep charging interest to their debtors but eventually the debtors went bankrupt and don't pay at all. Credit card companies ended up didn't earn much from this group of people neither.

This posts a problem. If the credit card companies can't earn as much as it used to be from the people who don't have money to pay. What can they do ?

Well, the other group of people never owe money. That means they must have money. So credit card companies think of a smart way to earn money from them. If you didn't pay your last month balance in FULL, we will charge you interest NOT only on your remaining balance BUT also on all your subsequent future transactions.

How can they get people to buy off with this new innovative but abusive concept ? Well, that has already been show cased in last article.

There you go, as and when people are getting better in their personal finance. Some giant finance institutions may get into troubles, especially those who earn when you spend. As a result, they will always beef up more advertisements and more 'creative' messages to make sure general public are confused what 21st century personal finance is really about.

Shouldn't we let credit card companies earn some ? Since they provide us great facilities ? Well, sure ! They have been earning 1-3% from the merchant every time you use the card. That alone is a multi-millions income every month.

Credit Card forward calculate interest

How did it happen ?

Why do they need to do this ? ( this article )

What can we do ?

Malaysia Personal Finance - Part 2 Amanah Saham

It was mentioned before that EPF in Malaysia is one of the best things that happens to ones personal finance, because it saves automatically even before you can lay a hand on your money - the main principal of Automated Saving System - ASS.

But not everyone works for someone. Or if your employer does not contribute his part, it makes EPF so much less interesting. So a government's mutual fund is born - Amanah Saham Nasional. If you are not eligible for EPF, you can still save in Amanah Saham.

Despite many disputes and diverse understanding on what Amanah Saham is or should be, one cannot deny that our poverty rate has indeed improved. The gap between rich and poor did narrow down since 50 years ago. That's the power of mutual fund, despite how wrong or how right the reason is when one save in mutual fund, all will be sharing the same return.

A government supported fund is even better for those who don't know what it is. As long as the 'government' is there, your money is protected.

So as far as value growing is concerned, that is pretty much what Malaysia government has done for your personal finance. There is an EPF and there is an Amanah Saham. If you are not adopting any of these tools, you are pretty much all on your own.

Part 1 - EPF

Part 2 - Amanah Saham

Comments on Jupiter 2010 stock picks

Faber Group was one of the worst run businesses of all time. They wanted to do 'everything' and ended up achieved almost 'nothing'. Its one of those stories who involved in property development and didn't quite make it. The whole restructuring exercise took more than 5 years before they finally turned it around. What is interesting however is its consistent up trend in their EPS earning, despite that it started from a negative (84.2) in 1998. Looking forward, if the person who is managing finance in Faber continues to stay in power, this is worth looking into more. It could become one of the best long term keeper. Key to success is if they can repeat 2005-2006 growth now. This can be determined by reading their latest annual report. Challenges are varies of their continuous law suits.

SAPCRES, Oil and Gas, looks pretty good now. It seems like anything under RM 2.49 is a good buy ( and keep for the next 10 years). The problem is technically it is at its all time high now and corrections are bound to occur. Another problem is it has been relying too much on the oil market and fluctuated too much in the past. Internally they should really improve their hedging strategies to smoothen out their track records.

Paramount is properly most well known when they bought Kota Kemuning with cash 7 years ago. Perhaps they should buy another big piece of land now to stimulate next 3 years of growth !? Basically this is also a very good keeper, it wouldn't go too low anyhow so it has a strong safety net but technical correction pressure is quite high at the moment. Its employee share option scheme also make it a less attractive stocks. Potentially a keeper but lack of stimulants now.

While some think Zhulian is a great MLM company, I personally think they should adopt newer concepts etc. They are still employing 20th century MLM aka. repeat Amway's story but landed on a wrong product to start with. But even with the wrong product, they are in the right market and hence still manage to make it a success in their own scales. My target buy price for Zhulian is only RM 0.66

The rest of the Kurnia, KurAsia, Atrium, TSM and WellCall do not meet volume requirment. So whatever reasons Jupiter recommends them are not based on proven strength analysis - which in turn I consider as speculations. Among all, TSM may be the one what is most speculatable.

My actions ?

I have chosen KNM over SAPCRES in the past before. There is no urgency to change yet although its tempting. Faber and Paramount on the other hands were NOT in my radar before. Can Paramount regains its debut ? Is Faber really undervalued and have their internal issues really addressed ? I may check out Faber's management team first ...

Living Standard @ Personal Finance Level

Like inflation, Living Standard can be a big number where GDP, poverty rate, income growth inequality, life expectancy are involved. But as far as personal finance is concern, what you should really care is your very own personal living standard.

Simply put, living standard is your ability to sustain how you live your life. At one hand this can be calculated very much similar to Living Cost and the increase of living cost over time is inflation. So is living standard the same as inflation ?

But it should be the opposite instead. One would want lower inflation but higher living standard. So what has gone wrong in the formula ?

The keyword is "ability". If you are NO longer ABLE to sustain how you live your life when inflation kicks in, you are facing the risk of lower living standard. Inflation is an external factor. Your ability to fight the inflation will determine your living standard. When your ability increases faster than inflation, your living standard is raised.

Most of the time, this ability is associated to income. The more money you get the less you need to worry about how expensive the stuff has become. Although vastly applicable but earning income is NOT the only ability one can have.

Says the food and rent have been increasing rapidly. You have to rent a smaller place and eat at cheaper places. You change your lifestyle, you are having a lower living standard now.

On the other hand, another guy is facing the same inflation challenge. Instead of moving to a smaller place, now he rent a bigger place and sublet it to collect higher rent. He starts to grow his own food at his spare time. He changes his lifestyle, but he is having a higher living standard now - staying in bigger place while paying the lower rent and eating healthier food.

Which of the above is living cheaply and which one is living frugally ?

Sometimes creativity and innovation plays a vital role in achieving higher living standard, both in generating higher income and also how one can live his life.