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Money Tips Volume 1

How to Invest Profitably, Save More Money and

Retire Early in Malaysia, Even if You are in Heavy

Debt Now

by KCLau

http://KCLau.com

The electronic version of this book can be downloaded free of

charge.

Feel free to republish excerpts from this book, as long as you

link back to http://KCLau.com for attribution. And it’s also okay

to share this ebook in its entirety with anyone you think might

be interested. In fact, I’d be delighted.

The physical copy of this book can be ordered online through

my website.

http://www.kclau.com/

http://kclau.com/

http://kclau.com/


Published by KCLau Dot Com Sdn. Bhd.

Email: [email protected]

Website: www.KCLau.com

Copyright © 2015 by KCLau

All rights reserved.

Second Edition 26th November 2015

The strategies outlined in this book may not be suitable for

every individual, and are not guaranteed or warranted,

whether expressed or implied, to produce any particular

results. The advice, ideas and suggestions are written as

a general guide and specific professional advice may be

necessary.

No warranty (whether expressed or implied) is made with

respect to the accuracy, adequacy, reliability, suitability,

applicability or completeness of the information contained

herein, and both the author and the publisher specifically

disclaim any responsibility or liability for any damages, lost

profits, losses or risks, whether personal or otherwise,

which is incurred as a consequence, whether directly or

indirectly, of the use and application of any contents of this

book.


mailto:[email protected]



A Note to the Reader

What you don’t know about the Priority that can Hurt You?

Why Mortgage is the “Cheapest Debt” You Shouldn’t Settle?

The Proper Sequence of Purchasing House and Car

The Shocking Truth about Smart Credit Card Users!

Is Life insurance Premium CHEAP?!

How to Make Extra Money While Keeping Your House

Clutter-free?

The Rich People’s Secret to Make Tons of Money

The Tax Savings for Highly Knowledgeable People

How to Keep Score of your Financial Journey?

Paying Monthly Life Insurance Premium charge 10.80%

The 5 Common Types of Life Insurance Benefits Your

Agent Fail to Explain

How rich are you? Here is the Benchmark

What’s your real ASSET that Accountants get Confused?

Sum Assured = Level of Love

Sell + Fish = Selfish

How do You “Feel” Wealthy

Money Won’t Make You Rich

Making You Rich Is Not a Financial Planner’s Responsibility

What does it take to SAVE money?

What Should You Look For in a Unit Trust Fund?

The Real ROI of Insurance

How Writing a Will Can Save You Lots of Money?

The Three Elements of Wealth Accumulation

Cash on Cash Return vs ROI

The Sleeping Partner Without Capital

Earning for the Past, Present and Future

Managing The Risk of Double Tragedy



Child Protection: Setup Incentive Living Trust

The SECRETs of Investing in Unit Trust

Why You Should First Buy Investment-linked Insurance

Policy

Read This If You are still not Insured

How Should You Handle Traffic Offenses

How Much is Adequate for Emergency Fund

Question You Should Ask Before You Sign the Home Loan

Offer Letter

Simple Strategies to PAY YOURSELF FIRST

Do You Love Money?

Money or Beauty?

Dreaming about Financial Freedom

How to Settle Your Loans Earlier

Beware of the Lock-in Period of your Home Loan Offer

Letter

Time Is The Most Wanted Luxury

Personal Finance Should be Taught at Schools

Hacking your Cash Flow & Net Worth Chart

Money Patterns with Sound Advices



A Note to the Reader

This book is a compilation of the articles and ideas I’ve

published online, on my website, or on other people’s website,

newspaper, magazines or other types of publication.

You might have come across some of the ideas in this book.

The purpose of making this book is to give you the convenience

to access my writing in a more organized format.

That’s why I’ve made the electronic version freely

downloadable. Meanwhile, the physical copy is only available to

be ordered through my website (www.KCLau.com), if you prefer

to read a REAL book.

Also for your convenience, I’ve made the size of this book small

enough to fit into your mobile device screen, so that you don’t

have to do excessive horizontal scrolling to read the pages.

I will be updating this book from time to time, since I am writing

new content on a regular basis. I really urge you to subscribe to

my e-mailing list in order not to miss out any future updates.

What you don’t know about the Priority

that can Hurt You? What do you think about these mathematical equations below?

What’s the major difference between these 2 “similar” equation?




A. Income - Expenses = Saving

B. Income - Saving = Expenses

The answer is: what is the priority? spending or saving?

If your priority is to spend first, then only to save what’s left, it is

most likely expenses>savings.

If your priority is to save first, then only spend what’s left , it is

most likely savings>expenses.

Majority of wealthy people are the 2nd type. Saving and

investing is their priority!

If you find it difficult to delay your gratification, please engage

some system to help you, such as EPF, endowment insurance

plan or standing instruction on unit trust purchase. We can even

ask our mom to save for us.

Set your priority right and you’ll be on your way to financial

freedom.

Why Mortgage is the “Cheapest Debt” You

Shouldn’t Settle?

“Cheapest” means the lowest interest charged.

Bankers are willing to loan us money for buying houses

because that is the most secured collateral. Why bother to

settle the loan fast?

The interest rate is only BLR + / – margin = 4% – 5% (in 2013)



I bought adequate life insurance to cover my liability ( including

mortgage). Thus, I never bother to settle the housing loan.

When I got extra money, or saving, I always invest it and make

sure that they generate more than 5% return per annum.

That means NOW we got the house, plus extra investment.

When I die, my wife will also get the house, my investment, and

the extra life insurance proceed. If I die young and fail to

achieve my financial goal, at least my wife can achieve her

financial freedom instantly!

The Proper Sequence of Purchasing House

and Car

Most young graduates hesitate whether to buy a new car first or

a house?

Let’s see the pros and cons:



You should buy the house first, then serve the installment for a

few years. After you build up more equity in the mortgage, you

can refinance the house to higher loan amount. The extra cash

you get at that time can be used to buy your dream car.

That way, you kill two birds with one stone. First, you save on

the interest because mortgage debt usually have the lowest

interest. Second, you delay the car purchase which will be a

long term liability anyway. At a later time, you would most

probably get a better models with the same amount of money.



Just by doing this trick alone, you will be way ahead compared

to your peers who did the opposite - serving a car loan and

keep complaining about the high property price!

The Shocking Truth about Smart Credit

Card Users! There are many advantages using credit card wherever,

whenever we can because:

1. Our expenses are properly recorded

2. The credit card statement can be used as proof of

payment when filing for income tax

3. Get rebate on our expenses

4. Emergencies: hospitalization, lack of cash when

traveling overseas.

5. The best advantage is that it increase our cash in hand.

Why do I say so?

Let’s say your fix expenses is RM5000 per month. You use your

credit card to pay for all those fix expenses monthly. The due

date to pay back your credit charges is 20 days after the

statement date. Therefore, you can have the RM5000 put into

your own saving account to earn interest for 50 days.

Even better if you put the money in your homeloan-linked

account to reduce the interest charges! This means we actually

have extra RM5000 in the bank!

Credit card really helps! (Only if you know how to use it).



Is Life insurance Premium CHEAP?!

There are many types of life insurance plans. If we categorize

them based on the premium paid and the protection we are

getting. Basically there are 3 types (refer chart):

Type A : High Protection, Low Cash Value.

Type B : Medium Protection, Medium Cash Value

Type C: Low Protection, High Cash Value

Imagine if there is a fortune teller who can foresee our life

expectancy – how long we will live. If he says you can live very

long, you should buy type C insurance, e.g. endowment plan. If

he says your life is short, you should buy type A insurance, e.g.



term life. However, in reality, who knows how long we can live?

So most people buy type B insurance, e.g. whole life

participating plan.

For Type B insurance, the total premium we paid will match the

total cash value of the policy at year 14th-18th. That means

after we had paid the insurance premium for 15 years, we can

still get back all the principal money if we surrender the policy.

If you are committed to show your love and responsibility to

your family, buying insurance doesn’t cost much. It only cost 15

years of interest return! After 15 years, the insurance can be

considered FREE!

How to Make Extra Money While Keeping

Your House Clutter-free? I am sure that most people can find something in the house

which are not used for a long time, such as used hand phone,

watches, books & magazine, CDs etc. Why don’t we throw

them away since it is not useful anymore?

They take up extra spaces in our lovely home! I believe that we

don’t throw them away because those things still worth a certain

value.

I always liquidate the stuff that I don’t use/need anymore. We

can sell them to others who need it. It is like selling your old

newspaper, selling other stuff is just as easy as we think.



You can reach potential buyers at online auction site.

Some sites that you might consider are:

● Mudah.my

● www.Ebay.com.my

● www.Lelong.com.my

● Lowyat Forum (for electronics)

The Rich People’s Secret to Make Tons of

Money That’s “LEVERAGE”!

Leverage means the use of credit or borrowed funds to improve

one’s speculative capacity and increase the rate of return from

an investment, as in buying securities on margin.

Investing is already a high risk activity, for those not used to do

investment. If you use leverage in your investment, it means

that the risk involved is even higher. You’ll be pressing the

“nitro” button of a race car which you can’t handle yet.

But only with the proper use of leverage, a person can grow rich

even faster. You must have heard that most wealthy people

actually had gone through some difficult years prior to their

success. Normally, they are able to double their income every

year after those initial struggle. They certainly use some form of

leverage. Example:


http://www.mudah.my/

http://www.ebay.com.my/

http://www.lelong.com.my/


1. Buying property with bank’s money. In order to own a

RM100,000 real property, we only need to pay 10% down

payment of RM10,000 for residential property. When the

property appreciate to RM110,000, we made a gain of

RM10,000, which is a 100% return from our initial RM10,000.

2. Buying warrant instead of it’s mother share. Warrant itself is

a form of leverage. When the share price rises 10 sen, the

warrant will normally follow by 10 sen as well. Those who

bought warrants know that warrant is a derivative security that

gives the holder the right to purchase securities (usually equity)

from the issuer at a specific price within a certain time frame.

3. Borrowing money to do business. That’s how entrepreneurs

are able to build their wealth in a short period of time ( 3-5

years). They use the bank’s money by paying them 4-9%

interest, but are able to produce more than 20% return per

annum in their business.

If you can learn the art of using leverage, we will be able to

grow your wealth much faster!

But bear in mind that the key here is that you must know what

you are doing. Are you sure you can generate better return than

the financing cost you pay? If yes, go ahead. If no, keep

learning until you do.














The Tax Savings for Highly Knowledgeable

People

When it comes to the end of the year, I will normally check

whether I’ve fully utilized the personal income tax relief granted

by our government . It is the time we review our budget and tax

planning for the whole year.

One of the major relief is for book purchase. It used to be

capped at RM700, but it has been increased to RM1000 /

taxpayer.

I am going to list down the advantages of using this tax relief:

1. Save a few hundred Ringgit of taxes. If your tax bracket is

20%, you will save RM140 if you fully utilize the relief.

2. Normally books can be bought at a discounted price at

Popular, MPH, Border etc. 10%-30%. If we include the tax

saved, the books we bought are further discounted for another

20%!



3. I like to read motivational books, business books and

financial books. These books contain a lot of info and practical

tips to earn more and save more. Those info will eventually

increase my earning and my saving as well.

4. If you are a slow reader and find that you can’t finish reading

the books you bought using RM1000 in a whole year, you can

consider buying books as gifts. There is always someone’s

birthday, anniversary, job promotion, X’mas celebration. Why

not giving them books as gift?

To be qualified for tax relief, original receipt must be kept. Any

books and magazine is qualified for the claim, including e-

books. Go and buy some books!

How to Keep Score of your Financial

Journey?

Net Worth = Asset – Liability

To increase your net worth, you must accumulate more assets

and reduce your liability (relatively). In order to acquire more

asset, you must have more savings. Remember:

Savings = Income – Expenses.

In order to increase Saving, you must increase your income and

keep your expenses balance.



Here is an assessment one should do periodically. You can

plan and plot your graph of Net Worth vs Age. Which one is

similar to yours?



Calculate your net worth every quarter and you will find a

pattern. Make sure it only has one direction to go --- UP UP UP!



Paying Monthly Life Insurance Premium

charge 10.80% For traditional insurance policy, the life assured can either pay

yearly, half-yearly, quarterly, or monthly.

If the yearly premium is RM1000/year,

the monthly premium = RM1000 x 1.05/12 = RM87.50 (total 5%

extra)

the quarterly premium = RM1000 x 1.03/4 = RM257.50 (total

3% extra)

the half-yearly premium = RM1000 x 1.02/2 = RM510.00 (total

2% extra)

If we want to compare the interest rate with Fixed Deposit Rate

or Home-loan daily rest rate, we need to calculate the effective

annual rate (EAR). It can be calculated using the Financial

Calculator (I use HP 10B).

Let’s start with the monthly premium

Payment mode = 12 times per year, use the BEGIN

mode

N=12

FV=0

PV=1000

PMT= -87.50

Calculate i = 10.80% (effective annual rate)(EAR)

Try to calculate the other payment mode:

Quarterly EAR = 8.03%

Half-yearly EAR = 8.16%



If you can’t afford to pay yearly, it is better to opt for quarterly

rather than half-yearly.

If you are confident to make an investment return of more than

10.8% a year, it is better for you to pay your premium monthly

even though you can afford yearly premium.

Every sen kept and saved will still make you richer by one sen!

The 5 Common Types of Life Insurance

Benefits Your Agent Fail to Explain I am simplifying this so that you will know what can be insured

in a life insurance policy. There are 5 major benefits:

1. Accidental Care

This is usually a rider attached to a main policy. It covers

permanent disability, and death caused by accidents only.

Accidents include car accident, fall down, sprained ankle due to

sports etc. Normally it pays double the amount of sum assured

if accidental death happens at a public conveyance (bus,

passenger airplanes, LRT etc)

Adequate coverage: 5 times annual income

It is cheaper to get this accidental policy as a standalone plan

from General Insurance companies.



Some people only have this type of policy. They never realize

that they actually go to war with underwear only, no armour, no

helmet, no nothing!

2. Hospitalization and Surgical Benefit (known as medical

card or health card)

This benefits can cover most if not all of your medical expenses

at hospital.

Adequate coverage: >RM150/day room and board benefit.

Yearly limit of >RM100,000. Lifetime limit of >RM500,000.

Health card is not a credit card and it does not have money in it!

If it is genuine cases, there will be not much trouble to get the

Letter of Guarantee from the insurer when you are hospitalized.

However, insurance company have the right to investigate

before they pay out the claim, especially when you do a major

claim within the first two years.

3. 36 Critical Illnesses (Cancer, Stroke, Heart Attack etc)

It is different from the health card. This benefit is paid in a lump

sum to your account, but not to the hospital. The purpose of this

benefit is to replace your potential income loss when you take

long leave for medical care.

Adequate coverage: 3 times annual income.

4. Total Permanent Disability (TPD)



TPD is a very severe case. After a person becomes TPD, it can

be defined that he lost his ability to earn a living. There are 2

forms of benefit for TPD:

a) Lump Sum – this benefit is normally included when you

purchase the policy for 36 Critical Illnesses.

b) Annuity – This is a separate rider which will pay you a yearly

benefit. It is advisable to get the protection up to your annual

income. However there is a maximum cap of yearly payable

compensation per life assured per insurance company. If your

income is more than that, you can consider to buy several

policies from different insurer to get yourself fully covered.

5. Natural Death

No matter how you die, they will still pay your family this death

benefit, except committing suicide within the 1st year. Since the

life assured can’t enjoy this benefit, it is up to the individual

commitment to their dependants to calculate how much

coverage they should get.

For instance, a father whose wife is taking care of his 1 year old

son full time, it is advisable to be insured for at least the

expenses of the family for up to 25 years.

Now you have a big picture of what can be insured on your life.

Your next question would be “how much would it cost?”

Here is a very simple benchmark for you:

Don’t spend more than 10% of your take home pay for

insurance premium. If you spend more than that, it is likely that



you are overpaying for insurance policies that don’t suit your

need at the moment.

How rich are you? Here is the Benchmark How rich are you? Most people are reluctant to answer,

because there are only 1% of the population are rich!

Anyway, if you are to answer such a question honestly, what

would it be? Would you answer “I have 2 houses, 3 cars, a few

FD etc”, or “I am worth RM300,000″, or “I earn RM20,000 a

month” etc.

There are many ways to state our wealth. In fact, wealth is

more appropriate to be stated by “time”, not the amount of

“asset” we have.

This is the formula:

Wealth = How long we can continue and

maintain our lifestyle without working?

According to the above formula, this is how we should state our

wealth:

I can continue and maintain my current lifestyle for 10 years

without working.

How long would it be for you? How wealthy are you? 3 months?

1 year?



I read the book The Millionaire Next Door back in 2001. It is a

marvelous book! Here is one of the gems:

Multiply your age times your realized pretax annual

household income from all sources except

inheritances. Divide by ten. This, less any inherited

wealth, is what your net worth should be.

One’s expected net worth (ENW) = Age X

(Realized Pre-tax Annual Household Income

exclude inherited income)/10

Example, Mr. Lee’s annual income is RM100,000, age 35.

Lee’s expected net worth = 35 X RM100,000 /10 = RM350,000.

According to Dr. Thomas J. Stanley (the author), there are 3

categories of wealth accumulator:

1. PAW – Prodigious Accumulator of Wealth

2. AAW – Average Accumulator of Wealth

3. UAW – Under Accumulator of Wealth

If Mr. Lee’s net worth is RM800,000, which is more than 2 times

of ENW, he is a PAW.



If Mr. Lee’s net worth is RM50,000 only, which is less than half

of ENW, he is a UAW.

Let’s calculate ours, which category do you belong to?

Simply, just divide your age by 10, and multiple it by your

current income. This should give a rough estimate of your

expected net worth should be.

Special thanks to Ami Sek who pointed out the confusion caused by inherited wealth.

I’ve updated this part after getting Ami’s input.



What’s your real ASSET that Accountants

get Confused? What is assets? According to dictionary, “asset” is anything

owned by an individual that has a cash value. This includes

property, goods, savings or investments.

In order to be rich, let’s look deeper into the meaning of ASSET.

The definition of an asset according to Robert Kiyosaki is

something that puts money into your pocket on a regular basis

as opposed to something that takes money out of your pocket.

This is very much different from the “asset” we know in

accounting.

Example:

CAR – If we buy a car for our personal use, it might be a liability

rather than an asset. Even though we buy it using cash without

any a hire purchase agreement, we still have to pay the

maintenance, road tax, car insurance and petrol. Even worse if

we buy the car with loan.

The car is an asset of the bank but a liability of the car owner. In

contrast, if a taxi company buys a car and rent it to a taxi driver.

In returns, the taxi driver would have to pay a certain leasing

fees to the company. Thus, the car is an asset to the taxi

company, but a liability to the taxi driver.



Be smart to acquire income-generating assets. Wealth is

accumulated a lot faster if we are smart enough to buy assets

that give us passive income.

Sum Assured = Level of Love Did your spouse ever ask you this question: How much do you

love me?

I think there is no simple way we can give a great answer. Is

your love deeper than the sea? Higher than any bird ever reach

up into the sky? (with advance technology, we got space

shuttles travel many light years beyond the sky limit).

If I am going to put the love level into a measurable number, I

think there is no other way than using your insurance sum

assured! And make sure that it is nominated to your love one!

The number not only shows the monetary amount of your love,

it also shows how much the love we are willing to afford.

One of the richest Chinese in the world, Li Ka Shing was once

asked about how much wealth he will distribute to his heirs. He

said it all depends on how much insurance he bought and

nominated to them.

Certainly, love comes in many forms. Buying life insurance on

our own life and nominate it to our spouse will ensure our love

stay on forever. Some husbands say his widow will remarried.

The fact is they leave no choice to the widow. Why remarry if

your widow receives a lot from your insurance proceed? If she



is going to remarry anyway after she got rich, I don’t think she

will wait until the day you die to make the decision.

Sell + Fish = Selfish To simply give someone money won’t make them rich. It is

similar to feeding the hungry with fish. They will take it for

granted and never learn to make better money. But if you teach

a person how to make more money, it is like teaching the

hungry how to fish. Some people prefer to be given fish rather

than taking the initiative to learn the skill to fish on their own.

This kind of people will forever remain poor.

There are salesperson who prefer to sell fish to their client.

They afraid that when the customer learn the fishing skills, they

will lose their job. If we add the 2 words “sell” and “fish” together

we get “selfish”. I don’t like to sell fish. But I would love to teach

you how to fish on your own.

How do You “Feel” Wealthy Wealthy means having an abundant supply of money or

possessions of value. I am writing from the financial planning

point of view. To some person, possessing RM1,000,000 is

regarded as wealthy. To some already affluent, billionaire might

be their threshold to be regarded as wealthy.

To me, to “feel wealthy” is to have the following comfort:

● to have enough buffer in case of emergency

● to be able to do whatever I like without worrying about

money

● to travel to wherever and whenever I like comfortably



● to buy the things I need (not “want” - as needing a car

and wanting a Ferrari is totally different) without

hesitating on the price.

● to help my family to achieve their dreams

How about yours? I think most of us will most likely have about

the same list, or a variation of it.

Money Won’t Make You Rich We might have seen some people suddenly acquired a

substantial amount of wealth in a very short time. Perhaps, they

suddenly inherited great wealth from their passed away

ancestors, or hit a lottery, or got a great contribution from Uncle

Lim (Genting Casino). But they became poor again in a few

years time. Some of them even became poorer than before

they got rich! How can this be?! It is because having a lot of

money is not necessary rich. It is what we do with the money

that determine how rich we are.

When Ken hit the lottery of RM1 million in year 2005, he bought

a BMW 7-series car with 20% down payment. He also bought a

house with market value of RM1 million with 20% down

payment. He quited his day job, and upgraded his lifestyle. He

dine at fancy restaurants. He change his girlfriend every two

weeks. Forgetting that the million he got is just a plain of luck,

he finally went broke again three years later . He was unable to

pay the installment for the bungalow mortgage and the BMW

car loan. You might have heard such story many times.

Giving you a lot of money will not make you rich. If Ken have

the proper money management skill, it will be a different story.



When you are financially illiterate, giving you more money is like

giving a gun to a child. You’ll harm not only yourself, but the

people surrounding you too.

Making You Rich Is Not a Financial

Planner’s Responsibility What are the responsibilities of a financial planner? There are

many kinds of financial planners marketing their services. Some

are single-product planners: insurance agents, unit trust

consultants and will-writers. Some are multiple-products

planners – they deal with insurance, will-writing, unit trust etc.

Some are fee-based consultants – they are independent and

charge consultancy fees only. The latter kind of planner are rare

in Malaysia. In fact, I still don’t know any whom only charge

fees and doesn’t deal with any financial products.

No matter what kind of planners they are, their role or

responsibility to the clients might be similar to the list here:

● provide proper advice on related financial matters

● provide product information

● recommend suitable products based on the client’s need

● engage clients with the suitable product supplier

( insurance company, unit trust company, will writing

company etc)

● provide after sales services

● help client to save

● help client to invest for medium to long term

● help clients to protect their wealth



Their roles is to help on managing the client’s financial

resources, which is $$money$$. As stated above, the list does

not include “help the client to become rich”. This is certainly out

of the job scope.

If meeting a financial planner and getting proper advice will

make you rich, you will certainly feel that the consultant fees are

too cheap to be true. In other words, don’t expect the financial

planner to help you get rich. But if you meet the right one, he

might be able to show you how others get rich.

If you still haven’t got what I am saying, this is the conclusion: –

getting rich (if and only if you really want to get rich), is your

own responsibility. It is not a burden or role of the financial

planner. He/she is just making a living after all.

What does it take to SAVE money?

The three basic requirements of saving more money:

1. Ability to earn

Your earning ability equals to your value. The amount of money

you earn equals to the amount of value you add to other

people.

The crux of it is that we are always in control of the amount of

value we want to add to others.



2. Discipline

Saving money is all about discipline. You must have the

discipline to save, and also the discipline to spend less than you

make.

Imagine a bank account that does not give you any withdrawal

facility! Just like a piggy bank. You can only deposit money.

After opening such an account, you must deposit money into it

every single day. If you keep doing that for a very long time,

one day you’ll receive a call from the bank officer. He’ll ask you

to clear the account because it is overloaded with cash!

This is the kind of discipline we are talking about. Spend less

and spend later. Save first and save more.

3. Time

It takes time to save money and accumulate wealth. The eighth

wonder of the world - “Compound Interest” will only work if we

have enough time for it.

If you do not spend the interest return of your wealth, the

biggest interest return will come at the later years. That means

the longer the time that you let the interest to compound, the

higher the interest you’ll get at the later stage.



Do you have the time to save money? Congratulations if you

are very young. Sorry if you are too old or going to die soon.

Money Saved = Ability to earn x Saving rate x time

Examine the mathematical equation above. You will notice that

when any one of the variable is zero, the amount of money

saved = 0.

When you lose any one of the three basic criteria, you won’t be

able to save more money. Major diseases will destroy your

earning ability. Premature death will take away your time to

save money. If you lack the discipline to save money, it is better

to engage some financial system to help you.

What Should You Look For in a Unit Trust

Fund? What do I look for in a unit trust fund:

1. No up-front charges or service fees.

2. Remuneration to agent based on a certain percentage of the

fund’s return which is realized through switching or repurchase.

3. No need to pay remuneration to agent/unit trust company if

my investment is making a loss.

4. Provide easy online switching and repurchasing service so I

don’t have to trouble the agent to meet me just for my

signature!

As I know, there is no such unit trust fund in Malaysia. But I

wish that it will be available soon in the future. Currently the



upfront load is high (more than 3% and most of the time 5%)

when the fund is invested in equity. Coupled with the regular

and recurring fund management fees and trustee fees, you will

find that most funds are not outperforming the market. As a

retail investor, you might be able to get better return by directly

buying the companies’ stocks. As for what to buy, assuming

that you don’t have knowledge at all, start from looking at what

are the top funds buy. You can find it in the interim report of the

funds, which is publicly available.

Just by doing that, you immediately save the upfront fees when

investing in unit trust, which big chunk of it goes to the

marketing cost of the funds.

The Real ROI of Insurance To calculate the ROI (Return on Investment) of your investment

is pretty simple. Let’s say you buy a house at RM100,000. You

sold it after 2 years for RM120,000. The total ROI in 2 year is

RM20k/RM100k = 20%. The effective annual rate (EAR) is

9.54% per annum. EAR is the annualized return, something that

you can compare to the mortgage loan interest and Fixed

Deposit return.

Below I am going to show you how we can determine the ROI if

you buy an insurance policy. Mark bought an insurance policy

from Great Eastern Life Assurance. The policy he bought is a

whole life policy named Supreme Care which will mature at age

99. Mark is now 30 years old. The premium he pay is

RM1059.40/year for the sum assured of RM100,000.

Scenario 1: Surrender after 5 years



After paying the policy for 5 years, he heard from his friend that

he shouldn’t put money in an insurance policy. It is a waste of

money. So he surrendered the policy. The surrender value is

RM3900. Mark’s friend is right about “losing money” in

insurance. Mark had paid RM5297 and got back only RM3900

in return.

ROI = -26.37% in 5 years.

EAR = -10.04% per annum.

Conclusion: This policy is a bad investment according to

those who prefer to lapse policy.

Scenario 2: Mark was diagnosed cancer after 10 years.

He doesn’t need to pay the premium anymore because of a

waiver premium rider attached to the policy. He recovered after

2 years of treatment and enjoy the benefit of the policy until he

surrendered the policy at age 55 at retirement. The surrender

value he is entitled to is RM30,000. The total premium paid is

RM10,594.

ROI = 652% in 25 years

EAR = 5.16% per annum.

Conclusion: This policy provide adequate return and

“replace” loss saving when suffering from major illnesses.

Scenario 3: Mark died at 3rd year due to heart attack.

His family is entitled to claim his death benefit of RM100,000.

The total premium he had paid is RM3178.20.

ROI = 3000.46% (yes! 30 times!)

EAR = 317.52% per annum (yes! triple every year!)

Conclusion: This policy is the best investment ever made

by Mark, according to Mark’s family.



Scenario 4: Nothing bad ever happen in Mark’s life.

He continue paying the premium up to age 65. Thinking of not

needing the insurance protection anymore, he surrender the

policy to enjoy the cash value. Total premium paid is

RM37,079. Total guaranteed surrender value is RM46,600.

ROI = 26% over 35 years

EAR = 1.23% per annum.

Conclusion: The cost of the insurance policy is only the

lost of potential interest the premium can generate. If Mark

put the money in an FD instead which gives 3.7% a year,

the cost of the premium is 3.70-1.23% = 2.47%.

Buying insurance is for the protection. It is a noble idea

everyone should embrace, even when you are very rich. But

you are buying insurance for savings or investment, please

don’t put high hope on it to produce magnificent return.

How Writing a Will Can Save You Lots of

Money? Anybody with assets and loved ones needs to have a Will. But

why is there still many Malaysian do not have their Will written?

There are 40 billion Ringgit worth of estate unclaimed, and the

amount keeps rising over the years.

Anyway, don’t bother with those who didn’t write their will. Just

start to get yours written for these benefits:

Save money!



Without a will written, the person is called die intestate. This

require his heirs to apply for the Letter of Administration (LA)

instead of Grant of Probate (GP). The legal fees is higher for LA

application because of the longer process and more documents

required. Don’t believe? Ask your lawyer.

Your wish vs Government’s wish

You state your wish in your Will: Who should get your asset?

How much your wife should get? Should you give your sister

some money as well? If you have the same thinking as the

government, just follow the Distribution Act 1958 (amended

1997). Without a will written, non-muslim’s assets will be

distributed according to the Distribution Act.

Executor vs Administrator

You can appoint an executor in your will. If none appointed,

many people can apply to be the Administrator of your estate.

Those people eligible include your legal heirs, your creditors,

your not-trustworthy-relative.

Appoint Guardian

Yes! If you have minor children (age below 18), you ought to

write your will now! There is no other way to appoint a legal

guardian except by writing a Will.

No need 2 sureties

2 sureties (someone act as a guarantor to your estate

administration) are needed for application of LA (Letter of

Administration). Imagine if your best friend passed away without

leaving a will. His son asks you to be one of the sureties

required by court. You will have to disclose all your asset to



prove that you have more than the deceased estate. If his son

runs away with the estate money, you will need to compensate

the legal heirs with your own asset. Do you want to sign the

paper?

So, get your Will written as soon as possible. If things are

complex, you can engage a professional estate planner. If the

distribution is simple, you can find some templates on the

Internet and modify it to suit your needs.

The Three Elements of Wealth

Accumulation There will be no complicated mathematical equation because

accumulating wealth is not rocket science. That’s why you don’t

need to be super smart to be rich. To accumulate wealth, you

just need to maximize the below most important elements.

Saving

This is how much you are able to keep the hard earned money

to yourselves. Can you save RM300/month, or RM2/day, or

RM50,000/year? Pay yourself first!

Time

You must give enough time for your money to work for us. The

younger you are to start saving, the better it is.

Return

Rate of return is normally associated with the amount of risk we

are willing to take. If you know an investment instrument well,

you will eventually bear lower risk as long as you know what



you are doing. Get higher return from your money! Put your

money into places where they can work really hard! And make

sure you know how to take good care of them.

Imagine the box in the picture is the amount of money we

accumulated. Increasing the value of the 3 basic elements, we

will certainly get a bigger box —-> more wealth!

Cash on Cash Return vs ROI CCR vs ROI : Normally these 2 terms are always used in real

estate investment. For example, Mark bought a residential

apartment in KL for RM100,000.



After 1 year, the property appreciated to RM120,000. To

calculate the ROI, which is the return on investment.

ROI = (120,000 – 100,000)/100,000 = 20%

Let’s assume that Mark only paid RM10,000 (10%)

downpayment for his initial purchase. After including the legal

and transaction fees about RM5,000, and also paying the

installment of RM600/month for a whole year, the total amount

of cash he put in is:

Total cash invested = RM10,000 + RM5,000 + (RM600 x 12) =

RM22,200.

The Cash on Cash Return (CCR) is

CCR = (120,000 – 100,000)/22,200 = 90%

By using the leverage effect, CCR is normally greater than ROI.

The Sleeping Partner Without Capital No matter you run your business in partnership, or Sdn. Bhd.,

or sole proprietor, you will find a great sleeping business

partner. This partner will come into your business when you

start making profit. He will share a portion of your hard earn

profit. You have to pay him his share of the profit regardless of

whether you like him or not. Worse still, he is not going to pump

in any money into your business. He will not contribute any

effort to build your business either. He is your sleeping partner

no matter you like him or not.

His name is government. The money you pay him is called

income tax.



So, if you already found a good business partner at this

moment, please appreciate his existence.

Earning for the Past, Present and Future There are 3 parts of your money spent according to three time

continuum.

1. Spending for the past

If you committed some debt in the past, such as housing loan,

car loan or credit card debt, there is a portion of your present

income set aside to pay for all these. Those are the expenses

committed in your past.

2. Spending for the present

This includes our daily meal, petrol, and other current

consumption.

3. Spending for the future

This is the portion of your income kept for future needs, like

retirement, education, vacation etc.

It is fair to have a balanced portfolio – : 1/3 for each and you will

have a balance financial statement.

Managing The Risk of Double Tragedy Buying insurance will not ensure that all the problems of the

deceased are well taken care of. There are some unforeseen

problems after buying the insurance. I had helped some clients



to solve the following problems which usually never being

thought of by most parents with young children.

Parents with young children normally bought adequate life

insurance policy to replace the income loss in case something

happens. Usually the father nominates the wife as the sole

beneficiary. Meanwhile, mother nominates children as

beneficiaries.

Most of the time both parents travel together, whether on

vacation or just driving to the nearby shopping center. What

happen if both parents can’t make it home? …….

Who will get the policy money? In such situation, a simple

nomination of your policy can’t really solve the above problem.

Who shall be the guardian of your children? How do you

provide a constant cash flow (example: RM2000/month) to the

guardian to pay for the living expenses of your children?

Writing a simple will is certainly not the perfect solution for the

above situation. When we are taking care of our children, we

make sure they are provided with the best education. We also

try our best to make them study hard. We wish that someday

they will get a degree, master degree, etc, and earn a good

living. How do you ensure all that if you are no longer around

anymore? Leaving a lump sum education fund for them can’t

really ensure that they will study hard.

In fact, all the above challenges can be somehow overcome to

a certain degree with proper arrangement. Moreover, it is so



affordable! If you can afford to have a hand phone, I am sure

that you can afford this arrangement.

The solution: Set Up a Private Living Trust.

Child Protection: Setup Incentive Living

Trust I will use a story to illustrate how to protect your children by

creating a private living trust.

Jim is a caring husband, and also a good father. Being married

to Susan for two years, they own a lovely home with a six

months old son. Both parents are working very hard for the

future of their family well-being. Realizing their economy value,

Jim and Susan just increased their life insurance coverage to a

total of $500,000. As usual, Jim nominates Susan as the sole

beneficiary and vice versa.

One weekend evening, Jim and Susan met with a terrible road

accident. Jim died on the spot and Susan also passed away

after two days in the hospital intensive care unit. This is known

as double tragedy at the newspaper headline.

This is a tragedy indeed. Let’s look at the possible problems

arise:

Who should be the guardian of their son, Patrick?



In Malaysia, either one of the parents is the legal guardian of

the child. But now Patrick has become an orphan. The

grandparents are too old to take care of Patrick.

Who shall inherit their wealth?

Being a young couple, Tim and Susan do not have substantial

wealth. But don’t forget that they had their mortgage covered by

Mortgage Reducing Term Assurance (MRTA). Now their home

is mortgage-free. Also there shall be a large sum assured paid

out from their existing life insurance policy. But both the

nominees passed away. According to Malaysian distribution

act, both the grandparents and also Patrick will get a portion of

the deceased wealth.

Who can continue to mentor their children?

Besides proper academic education, being a parent, isn’t it our

main responsibility to mentor our children to be a great person

in term of spiritual, mental, and social skill development? Since

Tim and Susan had passed away, there is no other medium for

them to communicate their core value to Patrick. If Patrick is not

lucky enough to get a good mentor, he might end up on the

street crime scenes.

If you are caring enough to set up a proper incentive living trust

for your children, I am sure that there is a certain level of

protection predetermined. Here is the solution you can adopt:

Write a WILL

Tim and Susan shall have their own WILL written. The WILL is

the only way to appoint a guardian for our children. Before you

appoint any person as a guardian, talk to them to get their



consent. It is even better to provide certain level of regular

salary to the guardian as a compensation for their time and

effort.

Create an Incentive Living Trust

Beside the will, you should also have a private trust set up.

There is a lot of things you can mention in the trust deed.

1. To provide compensation to the guardian appointed

in the WILL - you can pay a lump sum of thousands

dollar or you can state an amount to be paid monthly to

the guardian for the time they spend to take care of your

children.

2. To provide the maintenance of your children’s living

expenses - estimate the children’s daily living expenses

and pay them monthly into their trust bank account. The

guardian will be able to use this funding for your

children’s living expenses.

3. To provide education fund - Your children will need

thousands of dollars when they study in college or

university.

4. To provide incentive for your children’s hard work -

have you heard the story of the donkey and carrot? You

hang the carrot in front of a donkey and it will be

motivated to keep walking because it is chasing for the

carrot. If you simply throw a carrot to the donkey, what

do you expect? You will get a lazy donkey. It is the

same for our child. In the case above, Patrick is going to



get hundred thousands of cash when he reaches age 18

when he is no longer a minor. If I know there is a lot of

cash sitting somewhere for me to grab when I grow up,

why would I study hard? As parents, we can’t just give

money to our children like that. Please, set the

conditions and terms so that your children accomplish

something before they get the incentive. Example:

$50,000 if he gets a degree in first class honor.

Fund the living trust with your life insurance

A trust without a trust fund is not valid. For young couple, I

know there is not much wealth accumulated to put aside as

trust properties. But because you are young, and still healthy,

you have the luxury of using life insurance as a funding method.

You can create a substantial amount of cash from your death if

it is going to happen. Paying premium of a few thousand a year

you might get a million dollar policy. Instead of nominating your

spouse, you can assign the policy proceed into the trust. Let the

professional trustee manage your money.



In order to put on a great child protection plan like this, you will

have to seek advice from a proper financial advisor. Make sure

the advisor has sufficient knowledge in living trust, life

insurance and also will writing. Email me if you need my

assistance to recommend a trusted associate to help you.

The SECRETs of Investing in Unit Trust There are three common strategies used in unit trust

investment.



1. Ringgit Cost Averaging

Regularly invest a fixed amount in a unit trust fund regardless of

market trend is called the Ringgit Cost Averaging strategy. The

actual market performance is fluctuating. When the equity

market is high, you buy less unit with the same amount. When

the market is low, you buy more unit. For long term, you will get

much more unit in the lower price range.

2. Switching

Switching will lock in the gain you made in your unit trust

investment. Switching fees are low and definitely lower than the

upfront service charge. When you are making profit from an

equity fund, you can switch it to some lower risk fund to lock the

gain instead of selling it for cash. When the market turn low,

you can switch it back to equity fund.

3. Portfolio Re-balancing

Portfolio re-balancing is the process of bringing the different

asset classes back into proper relationship following a

significant change in one or more. In simple words, it is

returning your portfolio to the proper mix of stocks, bonds, cash

and other asset classes when they no longer conform to your

plan.

Example:

You start investing 50% in equity and 50% in fixed income fund.

1 year later, the equity rises and now your portfolio consist of

80% equity and 20% fixed income fund.



To re-balance your portfolio, you should sell 30% of your total

fund in equity and invest it in fixed income fund so that the

portfolio is maintained.

Therefore, portfolio rebalancing is the more effective use of

switching. Rebalancing your portfolio once a year is adequate

to log in the return and smoothen your portfolio return.

Why You Should First Buy Investment-

linked Insurance Policy There are so many types of life insurance policies in the market.

There are more than a dozen life insurance companies in

Malaysia and most of them provides more than 10 products. So

how do you choose your first insurance policy to buy?

Most likely when you are approached by an insurance agent,

you are presented with Investment-linked policy.

It actually makes sense to buy investment-linked policy as the

first policy you should own. Here are the reasons and

advantages:

1. Transparency – Unlike the traditional policy such as

whole life or endowment plan, an investment-linked

policy reveals all your premium allocation clearly. This is

what I call transparent policy – you can actually

understand and see where your premium is used.

Policyholder will receive a periodic statement that clearly

and precisely lists all the premium allocation, relevant

insurance charges, investment value and fund unit price.



Besides this report, you will also get the investment-

linked fund performance report annually.

2. Low insurance charges - For fresh graduates, age

around 23-25, it is normal for them to seek their first

insurance agent and also the first insurance policy.

When you are young, insurance charges are very

cheap. Investment-linked policy calculates the insurance

charges based on your age. They use a mortality table

and clearly provide the insurance charges schedule in

the policy. This means you can purchase a very high

coverage with relatively low premium when you are still

young. The premium might be even lower than a term

policy.

3. Flexibility – Once you get older, promoted, married,

have kids, your protection needs eventually increases.

When you retire, your kids are independent, your

protection needs eventually decreases. Looking at this

circumstances which is substantially different at different

life stages, investment-linked policy provides the

flexibility to increase or reduce the premium, include or

exclude certain coverage rider, supplementary benefits

and sum assured. Put it simply, you can modify this

policy whenever and however you want it to be, of

course it is subjected to the terms and conditions

outlined by the insurance companies.

4. Integrated better health card - some insurance

company like Great Eastern and Prudential, they

provide better hospitalization and surgical benefits only



for investment-linked policyholder. For instance, Great

Eastern lets the investment-linked policyholder to attach

a better health card (no co-insurance, cheaper

insurance charges) in his policy. But if you only want a

standalone health card, the available product is not as

good as the one offered in an investment-linked plan.

5. All-in-one benefits – All sorts of coverage can be

included into your investment-linked policy. This

includes accidental benefit, hospitalization income

benefit, critical illnesses benefit, health care benefit, lady

care benefit etc. Almost all available protection riders

can be included. You will find it easier and cheaper to

have one insurance plan that can give you all the

possible benefits you need.

6. You control the investment strategy – Did you ever

think that investment-linked policy is risky because it

involves investment? Actually, you have the right to

control the risk you can bear for your investment. You

can choose which fund to invest, which strategy to use,

which portfolio allocation to apply, and even when to do

the switching from fund to fund which is normally free of

charge. If you are skeptical about investment risk, just

put all your premium into a fixed-income fund!

Read This If You are still not Insured You should really read this if you are still not insured, meaning

that you still haven’t own any life insurance. There are probably

many reasons why you as a working adult, generating income



every month but still fears to pay insurance premium. Let me

help you to make the excuses:

No money

● My income is not stable.

● I have to pay car installment and house mortgage. Too

much commitment lar...

● There is no money left every month. I’ve got no saving

at all.

● RM150/month premium? I can’t afford that!

● I still have a few thousand credit card debt

No Need

● I am single. I don’t see any necessity to get insured

● Aiyahhh, just enjoy first. Don’t worry, be happy!

● My family can take care of me.

No Trust

● Insurance company always find loophole not to pay

claims

● My insurance agent ran away with my money last time

● I will lose money if I never make a claim

Despite all these reasons not to buy a life insurance plan, I was

shocked by a prospect’s decision quite a long time ago. I don’t

even know her name before she approached me for advice.

She worked in a restaurant that I frequently bring clients to dine

and discuss about personal finance matter. So she knew what I

was dealing with.



One day she just asked me to meet her when I am free

because she needs some advice on insurance. I allocated the

time and met her in a sunny afternoon. After going through all

the insurance concept and benefit explanation, I asked her how

much her budget for insurance premium is.

She answered, “RM150 per month”•. Surprisingly the case is

closed on the spot, at the first time we talked about insurance!

But what really shocked me is when she disclosed her income.

As I said before, a person should allocate about 10% of her

income for wealth protection planning. In her case, to be able to

afford RM150/month, she probably earns RM1500/month. In

fact, her monthly income is only RM850/month! After knowing

the facts, I told her she is over insured. I had to salute her for

the answer —- She said, “I can’t do much if I have additional

RM150/month. But the RM150,000 medical limit and thousands

ringgit death benefit should be able to ease my mind when I

ride to work.”

If you earn more than RM1500/month but still can’t afford to

have an insurance plan, you should be ashamed of yourself.

How Should You Handle Traffic Offenses I was blocked by traffic police quite a few times over the years. I

think you do encounter this if you have been driving in Malaysia

for many years.

There was one time that let me uncover this fact. I was stopped

by a police officer for an offense. Did I get a traffic summon?



Yes and No. YES because the police officer said the summon

will arrive in my mail box in two months time. NO because I still

have to wait two months to verify the YES. More about this

story later when I shared with you how I got away from traffic

offenses. Before you are stopped by a police for traffic offense,

here are some tips on how to keep your cash money safe in

your pocket.

Avoid breaking traffic rules – this is obvious. If you don’t want

a traffic tickets, just don’t make any offense. Eventually, I still

broke it sometimes. What to do? When you drive a better car,

you will never realize that you are speeding unless you always

keep your eyes on the speedometer. If you can keep your eyes

on it, you will most probably see this number only: (don’t drive

while taking photo)

Smile, silent, and don’t offer – fellow Malaysians know that

there are many sleepy traffic policemen. When they are sleepy,

they need coffee. Coffee is expensive. You can go to Starbuck

to verify the price. Being under-paid for a very long time, they

will ask your help to donate some coffee money. If you think

that you can save summon ticket by offering coffee money, you

are definitely wrong! That’s called bribery, not a wise money



saving move. From my past experience, I always use this

strategy. Let me share the stories with you.

1. Traffic offense No.1 – In year 2005, I made a right turn

which is prohibited at a T-junction. A “sleepy” police

officer came out from nowhere and stopped my car. I

smiled, showed him my driving license and identity card.

Then silent. He asked,“Do you know what is your

offense?”. I answered yes and silent. He

continued,“ This will cost you RM100 you know?”. I

answered “oh…”. Then silent. He finally let me go by

saying,”I see, you are not local folks. I’ll let you go. Drive

safely next time.” because the address in my identity

card shows Kedah, not Penang.

2. Traffic offense No.2 – In year 2006, I made a U-turn at a

traffic light. A police officer stopped my car and his

colleague came up to me. I was bringing some friends

from Johor to have lunch near Penang Mega Mall. I still

use the same technique: short answer, smile, silent and

the most important thing, don’t offer a bribe! He hinted

that they are doing Raya (festive) operation, the

summon is the maximum rate. Anyway, I was released

again without ticket issued. Reason he gave: Don’t want

to spoil my visitors’ mood.

3. Traffic offense No.3 - The police officer said that I

exceeded the speed limit. My speed at the time of

offense is 88km/hour. Still the same strategy: smile,

silent and don’t offer. He let me choose whether to

receive the summon on the spot or wait for the letter. I

asked how long does it take for the summon to arrive in



my mail box. He said two months. Ok, I will wait. But

eventually, the summon never arrives.

If a summon is inevitable, appeal for discount – Finally, if the

above strategies don’t work for you, you can still appeal for

discount at the police head quarter. I got a 30% discount for

one of my previous summon.

Conclusion, never ever bride a police officer, you might end up

paying more. Don’t act for sympathy. Don’t beg the police to

give you a chance. Don’t give yourself excuse that you can’t

afford the summon. That’s cheap and so wrong! Just smile,

keep quiet and DON’T EVER OFFER to BRIBE!

How Much is Adequate for Emergency Fund Emergency fund is the amount of liquid money set aside for

unexpected circumstances. The emergency fund must adhere

to the following three requirements:

1. Must be liquid and easily accessible through common

instruments like cash or checks.

2. There should be a sufficient margin of safety built into it

3. It should be held as risk free as possible.

Your ideal emergency fund should be able to cushion the worst

possible scenario (specific to your personal situation) that you

can imagine. Add a 20% margin of error to that estimate and

aim for that emergency amount.



If you are putting more money at low risk and liquid account,

you are actually building an emergency fund out of that

practice. In other words, if you are investing most of your

money, you probably increase the risk to get better return,

hence reducing the liquid part of your portfolio.

So the question now is do you separate your emergency fund

account when you plan your investment portfolio?

Here are my opinions about this matter which also represent my

practice:

1. I don’t separate them. I see the emergency fund as a low

risk portion of my investment portfolio.

2. To me, liquid account is an easily accessible account

which can be cashed out within 30-50 days. Why 30-50

days? Isn’t it too long? No, I don’t think that it is a long duration

because I have several credit cards with enough limit to be

used as buffer. Nowadays, you can pay almost everything with

credit card except the debt itself. If the account can be

liquidated within 30-50 days, it is soon enough to pay the credit

card on due date.

3. Liquid accounts to me include unit trust (mutual fund),

bank accounts, flexible home loan accounts, fixed deposit,

and even shares. According to my past experience, not every

share counter I hold are having loss at the same time, provided

that the share portfolio is properly diversified. When it comes

the time you need to sell off some of the share for emergency



purpose, the main concern should be which stocks are

appropriate to be sold: the losing ones or the gaining ones?

4. Is insurance considered for emergency? Yes and no.

Without insurance, there is no use for the emergency fund. It is

just wasting your money if you put it into an emergency account

but not insuring the most valuable assets you own, including

your own life. Yes, insurance will act as an emergency if you

have medical card for hospitalization, or in the event of dreadful

disaster where insurance is claimable. But the answer is NO if

you are facing emergency situation where insurance doesn’t

cover the event such as unemployment. The fact is not

everything in life is insurable.

5. It is better to control or avoid the risk of depending on

emergency fund. If you are employed, or actively involved in

some business activities that will cease providing incomes at

the time you stop working, emergency funds are so important to

you. You might need a substantial amount. That’s why it is so

important to work on getting passive income. Regardless of

whether you have the emergency fund or not, when disaster

come unexpected and not covered under insurance, it will still

eat into your net worth. Better to avoid it and minimize the risk

rather than setting aside money to prepare for it.

Question You Should Ask Before You Sign

the Home Loan Offer Letter When you refinance your mortgage, there are two important

documents you need to sign: the offer letter, and the loan



agreement. Every bank offers different terms and conditions on

home loan package. Most of the time, you will be too busy to

read the offer letter and loan agreement.

The loan agreement is pretty standard and you can’t change

anything. But as for the loan offer letter, it spells out your

specific terms and conditions. So I recommend that you read

every word in the offer letter.

If you can’t get the time to read it, make sure you asked the

following questions before you sign the documents. Get the

mortgage officer to show you these details in the offer letter.

Frequently Asked Questions on Home Loan

1. Can I make capital repayment anytime?

There are banks that require you to produce one month notice

before you make repayment to reduce the principal portion of

your mortgage. It is better to choose the bank that doesn’t

require that. Just imagine that you excitedly bring your hard-

earned bonus to the bank, but the officer asks you to fill up a

form, go home and come back one month later to pay.

2. Can I make advance payment? Does it require notice?

Advance payment is some small amount that you pay before

the due date of your regular installment. It is paid in advance.

Understand the minimum amount required for advance

payment. The lower the better it is.

3. Is there any redraw facility? How long does it take?



Most banks offer redraw facility on capital repayment anytime.

Some take longer time to process. Possibly choose the bank

that can let you withdraw anytime, flexibly and immediately.

4. Daily rest interest calculation?

Daily rest interest calculation based on daily loan balance is the

best choice. You will save interest charges immediately after

you make advance payment or capital payment. Avoid monthly

rest interest calculation, you will eventually end up paying more

interest. As banking system has make tremendous progress

over the years, all banks now use daily rest calculations.

5. How long is the lock-in period?

Industry practice is 3-5 years. The shorter the better. Some

might not have the lock-in period but will come with higher

interest charges.

6. When do you start counting the lock-in period?

When you are borrowing loan to buy a property that is still

under construction, the bank will pay the developer

progressively. Only until your home is completed, the bank will

fully release the mortgage amount. Choose the bank that start

calculating the lock-in period from the first drawdown of the

loan. Avoid those banks that count it starting on the date the full

amount is released. You will end up with longer lock-in period.

7. How much is the early settlement penalty?

You might be able to settle the loan during the lock-in period.

Early settlement will occur also when you refinance mortgage

during that period. Normally the penalty is 3%. Of course, look

for the lower penalty.



8. How do you calculate the early settlement penalty? On

the outstanding loan amount or the loan limit?

Let’s say you borrow RM100,000. After 2 years, your

outstanding loan is RM50,000. If you want to settle the loan,

and the bank calculate the penalty base on the loan limit, you

will be paying 3% of RM100,000 instead of RM50,000. The

amount is doubled!

9. Is there any set up fees or monthly account maintenance

fees?

Try to get those package without service charges. This normally

apply to flexi home loan, where you have a current account with

cheque book, linked to your home loan.

10. Do you absorb the moving fees (loan agreement fees

and stamp duty)?

Usually banks offer different package with lower interest rate if

you pay the charges of loan agreement, house valuation fees,

and stamp duty. The latest practice is that customers will have

to pay the legal charges involved in financing a property

purchase.

11. Do you provide optional payment mode: single or multi-

tier?

Let’s say your loan interest is first year 2.5%, thereafter 6%.

You shall pay lower installment on the first year, and higher

installment thereafter. This kind of multi-tier payment option is

not popular anymore nowadays. In fact, it can be dangerous

when you evaluate your affordability based on the first few

years of lower monthly repayment. What happen when you find



yourself having a hard time when the installment amount is

increased in the future? That’s why happen before the subprime

crisis in 2008. Homeowners pay low mortgage installment

during the first few years. But when the installment keep rising,

banks end up with many non-performing loan.

12. Do you require me to buy MRTA from your bank?

There is no rule that the borrower should fork out extra money

to buy Mortgage Reducing Term Assurance ( or MATI RUMAH

TETAP ADA = MRTA) to protect the bank. If you buy the

MRTA, the insurance policy will be assigned to the bank.

It is the most affordable way to get insured and sometimes

banks let you finance the premium together with the mortgage.

Banks offer slightly lower interest too when you take up their

MRTA plan as a form of discount.

An alternative is to get your personal financial planner to work

out a flexible protection plan for you instead of buying MRTA

from the bank.

13. Ask for their customer service call center number.

Try calling their customer service call center. If the bank provide

good service, you will definitely realize it by calling the number.

Talk to the customer service representatives to have a feel.

Bear in mind that you will be engaged with this bank for years.

Avoid those banks that had nobody answering the phone, or

keep you on the waiting line for very long!



Simple Strategies to PAY YOURSELF FIRST It is well-known that the most effective way to accumulate

wealth and see your net worth growing day after day is paying

yourself first!

The three simple steps to pull off this only saving strategy you’ll

ever need are:

1. Pay yourself first from every paycheck

2. Don’t touch funds from step 1.

3. Invest and grow the funds

These steps look simple and obvious, but human being is

emotional. It takes high discipline to procrastinate your

spending. Impulse buy happens every single day. So for fellow

Malaysians, here is a few simple strategies that might help you

to pay yourself first and pay all the other bills later.

Pay-Yourself-First Implementation Suggestions

1. Save your money in a saving account without ATM card.

It makes withdrawal difficult. You would have to queue at the

teller counter to withdraw your cash. Which means you need to

park your car, get into the bank, press the number machine,

wait for your turn, fill up form and sign some documents.

Moreover, you had to do this during weekday only during office

hour. To save the hassle of withdrawing money, just leave it

there.

2. Don’t activate the internet banking service for that

account, so that you can only transfer money in, but not out.



3. If possible, open the saving account jointly with your

spouse, or mother or anyone who is more disciplined then

you. Both party must be present to withdraw fund.

4. Buy an endowment policy. You will lose money if you stop

halfway. This is the feature of forced saving which will keep you

paying the insurance premium until the policy mature. You will

be surprised that you actually save a lump sum for your

retirement when the policy mature. The problem is that an

endowment policy’s actual annualized return is too low. It is

around 3-5% return per annum, hardly beat inflation.

5. Invest in investment-linked fund using the top up facility

or some high premium allocation plan. The advantage of

investing in your insurance policy account is that it can be paid

by your credit card auto charge.

6. Pay all your insurance policy with credit card. This will

make sure you pay the premium-expenses which is actually

your saving. Especially those policy which had reach the critical

years. It is better to keep paying those policy because 100% of

your money will be debited into your insurance account.

7. Invest in unit trust fund using dollar cost averaging. Ask

your agent to remind you to invest monthly when you get your

paycheck at the end of the month. Isn’t it nice to have someone

reminding you to save money? You can also opt for the

standing instruction facility where banks will automatically

deduct the fund from your bank accounts for unit trust

investment.



8. Contribute more into your EPF account. Instead of

contributing 11%, you can opt to contribute more if your

employer is willing to assist you on the process. You will get

more tax relief and less money on hand to spend.

Do You Love Money? When you love someone, how do you show it? Imagine doing

the same thing if your lover is money $$$

● get some money quote Tattoos on your body: I’ve seen

people tattooing their lover’s name.

● sleep with your money: You should sleep with your lover

every night.

● give your lover more money: Since your lover is

“money”, give it more money certainly help to show your

love.

● speak your love: Tell people how much you love money!

● show your love through your actions: hug it, kiss it and

caress it … don’t let it sit in the boring saving account.

● spend more time with your lover: You should seriously

spend some time regularly for budgeting, planning and

reviewing your financial goals.

● appreciate your lover: When your money leaves you one

day, you will feel sorry for not treasuring it before.

I am not asking you to be a money slave. Just manage your

money well and most of your life problem will be solved.



Money or Beauty? Many people associate a person’s wealth with his appearance.

It is like judging a book by its cover. I believe that it shows some

truth because people only realized that you actually “have” that

amount of money only after you spent it!

You bought a Porsche and drive it to work. Your colleague saw

you in this sports car. This make you look wealthier. But is it

really the case?

You renovate your house gate, only the gate! Your neighbour

saw it when they are passing by. They thought that you must

have been promoted or granted a big bonus. This make you

appear richer.

You spent thousand dollars for hair replacement program. You

grow more hair. You appear more confident and more good-

looking. You also look healthier because your bald head has

been empty for too long. Yes! You definitely look better and

wealthier.

I just hope that you realize that the money spent is no longer

yours. However, those actions really do make you “look”

wealthier. Money or beauty?

Dreaming about Financial Freedom When I first started working as a financial professional, I am so

amazed to find that most of the prospects I approach don’t have



a single idea about financial freedom. Some thank me for telling

them about the concept. Some just ignore the fact and think

that financial freedom will come and it is called retirement. Most

people think that retirement is when you are forced to stop

working and nobody will hire you anymore. Some people even

told me that they will never want to retire because they enjoy

working so much and don’t know what to do if they are going to

retire someday. This obviously shows that they don’t

understand financial freedom at all.

When you are financially free, you can choose not to retire. It is

all up to you. Financial freedom just means that you don’t have

to “work for money” anymore. You can work for fun. You can

work for your own passion. You can fulfill your dream without

ever worry about money. You don’t have to trade your time in

exchange for cash. You can go to live at the place you like. You

can even have your flat nose fixed with plastic surgery. You can

practically do what you dream to do provided that you plan for it

as part of your dream after you achieve financial freedom.

Is it a dream? Even with a realistic plan, it might still be a dream

if you don’t have the burning desire.

How to Settle Your Loans Earlier There are some ways to actually settle our home loans earlier

than the original tenure. I am sure that you are practicing some

of them. However, I am going to share with you more in depth

here. Basically there are three ways to settle your loan earlier:

1. Refinancing



Refinancing works like a charm when you have banks

competing with each other to grab new customers.

The trick is to make use of the better rate offered by competing

banks. With the lower interest rate offered for new customer, it

might be worth it still if you refinance your existing home loan by

paying the early settlement penalty. But before you do so,

please seek professional advice to calculate how much you can

actually save.

2. Lump sum payments using EPF funds

EPF allows you to withdraw your money from Account 2 to

reduce your housing loan. If you don’t care about reducing your

retirement fund receivable from EPF in the future, it might be a

wise move to withdraw it to settle some debt.

EPF also offer another option of withdrawing Account 2 fund to

use as monthly installment for the mortgage. I prefer this way

because the money will be credited to your bank account,

instead of settling the principal of the loan amount. Then I can

use that money to invest for higher return than what I’ll be

getting in EPF dividends or mortgage loan interest.

3. Paying extra

Extra payment means you pay more than the required

installment. There are actually two kinds of extra payment

acceptable if you are servicing home loan. Please note that the

financial jargon used might be different among banks.

Advance Payment (AP)

Let’s assume your installment is RM1000 per month. If you

have extra money, maybe from your mid year bonus or other



savings, you pay RM1500 on that particular month. The extra

RM500 will be treated as advance payment. It will be used to

reduce the principal outstanding loan amount. You will

immediately save the interest charged due to the daily rest

interest calculation.

Let’s say you did this 3 times consecutively so you actually

made an extra payment of RM1500 in total. On the next

payment due date, you suddenly run out of money because of

some emergency. Some banks will deduct RM1000 from your

extra payment and treat it as your regular installment. So your

record is clean. Nothing will be submitted to CCRIS or CTOS.

But if you need to withdraw that RM1500 extra for emergency

use, that is not allowable.

So I conclude the feature of advance payment as:

● automatically offset due installment if it is not paid on

time

● no withdrawal facility

● for extra payment of less than RM1000, it will be

automatically treated as advance payment

Oh … then what happens if you pay extra more than RM1000.

In this case, let’s say you pay RM3000 that month, the extra

RM2000 will be treated as Capital Repayment instead. This

lead us to the next form of extra payment: Capital Repayment.

Bear in mind that you can actually opt for advance payment

instead for the extra RM2000.

Capital Repayment (CR)



As explained above, when extra payment is more than

RM1000, it will be treated by default as capital repayment

unless you opt for the advance payment option. CR is similar to

AP, they both reduce the principal part of your outstanding loan.

But the features is opposite:

● When you are unable to pay installment in the future,

CR won’t be used to offset the installment, unlike the AP

● In case of emergency, you have the flexibility to

withdraw the CR.

● There will be processing fee, about RM10 per

withdrawal.

● Extra payment must be more than RM1000 to be treated

as capital repayment.

Mortgage is still the cheapest loan I know up to date. It is the

cheapest in the sense of lowest interest charges to the

borrower. I personally don’t bother to settle home loan fast,

even the mortgage of the house I’m staying in. It is because as

long as I can use that money to generate higher return, it is a

good debt to keep forever.

Beware of the Lock-in Period of your Home

Loan Offer Letter When you are taking up home loan to finance your house

purchase, I urge that you take the time to read every words in

the offer letter before you sign it. If you find that there is too

much details for you to look at them in depth, ask these

important questions for thorough explanation before you sign

the mortgage offer letter.



One thing to be aware of is the lock-in period. Lock-in period is

the time frame when you do a full settlement of your loan in the

first few initial years of your loan tenure, the lender (or the bank)

can impose a penalty. This is a sample of the full redemption

clause taken from my first home loan offer letter.

Notice that if I settle the loan within five years from the first

disbursement date, I will have to pay 3% from the original loan

amount or RM5000 whichever is higher.

For example, if my original loan amount is RM200,000, when I

choose to settle the loan or refinance it to other banking

institution, the amount I need to pay for penalty is:

RM200,000 x 3% = RM6,000

Before you sign the offer letter, there are two particular issues

that you need to understand:

1. Drawdown date or disbursement date

Drawdown date is the date when the bank release payment. It

is also known as disbursement date. For completed building,

this won’t be an issue. But if you are financing home which is

still under construction, please be aware. For example, your

home is still incomplete, CF (Certificate of Fitness) is not yet

obtained. You bought it in year Jan 2005. The bank will release

a portion of your loan to the developer by stages, or what



commonly known as “progressively”. Let’s assume that it takes

2 years for your home to be completed.

If the banker calculates the lock-in period from the 1st draw

down date, you won’t be penalized if you refinance your home

loan on April 2010. If the period commences from the full

drawdown date, you would have to wait until 2012 Jan to fully

settle your loan penalty-free. That means you are actually

locked-in more than 5 years total.

Conclusion: Demand the lock in period commencement on

the first drawdown date, instead of the full disbursement

date.



2. Penalty on outstanding loan or original loan amount

Some bankers calculate the penalty on the outstanding loan

plus all the capital repayment. Some bankers charge penalty on

the original loan amount. Let’ say you intend to settle your loan

earlier after 3 years, the former will impose less penalty

compared to the latter.

Example:

Original loan amount = RM200,000

Outstanding loan amount at the time of settlement =

RM180,000

Calculate from original loan amount: penalty = RM200,000 x 3%

= RM6,000

Calculate from outstanding loan amount: penalty = RM180,000

x 3% = RM5,400

Conclusion: Demand penalty to be calculated based on

outstanding loan amount plus capital repayment instead of

the original loan amount.

You can always try to negotiate a better deal for your home

loan. No harm trying right?



Time Is The Most Wanted Luxury The Consumer Research Center of the well-respected

Conference Board surveyed almost 2,000 affluent consumers

around the world and found that luxury is defined as time.

Here are some main points worth mentioning:

● Luxury is having enough time to do whatever you want

and being able to afford it

● 75% of affluent consumers rank using a personal

computer, the Internet, or a cell phone as the most-

participated-in lifestyle activities

● 69% say traveling

● Luxury is about the feelings the consumers get rather

than the brand.

Before we get there, I would say that luxury is simply the life

experience that we cannot afford at this moment. When you

already achieve that, it is no longer a luxury, but simply

something that you can afford.

Personal Finance Should be Taught at

Schools It has been suggested the British government should include

personal finance as one of the school subjects.

This would ensure that young people in Britain become as well

versed in savings and loans as they are in algebra and

Pythagoras’ Theorem.



Robert T.Kiyosaki wrote in his book If You Want to Be Rich &

Happy: Don’t Go to School! about the education flaws. One of

the reason Robert suggested that we skip school education is

that school actually “produces” knowledge workers for the

business world. In school, we are taught about algebra but

never apply the simple mathematic plus and minus function in

our money affair.

Do you find that some of your schoolmates who previously

performed poorly in academy who are now doing financially

better than you? Most probably they only know simple algebra.

There are countless highly-educated people who are in deep

debts and poor in money management.

You can have a head start when you have good education and

a good degree. But that’s just a head start. Financial success is

a long term endeavour.

Hacking your Cash Flow & Net Worth Chart I will show you three charts consist of cash flow and asset vs.

liability. Learn to hack the charts and you will be on your way to

the riches.

First, let’s look at the chart of the mediocre.

Hacking the Charts of the Mediocre



Financial situation:

● always spend less than

they earn

● save a portion from their

income every month

● conservative passive

investors who mostly keep their

money in the bank

● buy a house, buy a car,

go to work and wait for

retirement

● net worth grow slowly.

● they are very afraid of

debt and try hard to pay it off as

soon as possible

Being mediocre is definitely

better than being poor.



Hacking the Charts of the

Poor

Financial Situation:

● at first, there is some

tiny saving left at the end of the

month

● but they use the little

surplus to acquire more debt –

buying stuff they can’t afford

● liability is greater than

the amount of asset, resulted in

negative net worth

● excessive amount of

liabilities put more load to the

overall expenses because they

need to pay interest charges –

Negative cash flow

● when they finally got a

career promotion with higher

income, they use the tiny surplus to acquire more

liability — switch to a bigger house, a bigger car etc

● frugal is a word that doesn’t exist in their dictionary



Hacking the Charts of the Rich

Financial Situation:

● they are definitely the

Millionaire Next Door

● normally they work hard

to increase their income

● they earn better than the

mediocre but still spend like the

mediocre.

● they save a lot from every

paycheck which is normally

invested, in the area they are

familiar of, probably in their own

businesses.

● some ultra rich know how

to use the leverage of good debt.

They might get into deeper debt,

but at the same time the debt is

being used to acquire justifiably

greater assets. Assets

contributes more earning and

improve their cash flow chart.

● financially, they are

independent.

● They are the prodigious

Accumulator of Wealth

How do your cash flow and net

worth charts look like?



Money Patterns with Sound Advices

Here, we analyze the movement of incomes and expenses with

line chart illustration. Watch the movement closely and plan

ahead for unforeseen circumstances. Examining the pattern of

your cash inflow and outflow is the most essential part of

determining your financial well-being.

Ideal Income & Expenses Flow

Let’s look at chart below. It shows an ideal movement of income

and expenses of a person’s entire life.

Section A: Learning Phase

Learning phase started since the day you were born. In fact, it

never ends because learning is a lifelong journey. But in this



case, let’s say a person need 20-25 years of education to be

equipped with the skill to earn a decent living. During this

phase, our life is sponsored mostly by our loving parents. There

is no income generated and most people find that it is the best

time of their life. No worry about money. No major commitment.

This result in:

Outflow > Inflow

Section B: Accumulating Phase

When we started our first job on the first day after graduation,

most of us got excited when the first paycheck came in. If you

are money smart, spend less than you earn so that you can

build up your net worth. This is a period when you work hard for

a good career or business. Expenses increase later as we get

married, own a bigger house, buy better cars and provide

education for our children.

Let’s call it the accumulation phase. It ends when we retire, or

at the time we achieve financial freedom around age 40-65. For

those who didn’t fall into credit card debt:

Inflow > Outflow

Section C: Retirement Phase

When we finally retire, or forced to retire, active incomes drop to

zero. We carry on our life with the passive income generated

from our previously accumulated assets. We have to do proper

budgeting so that we won’t be spending too much. If we spend

the principal sum from our retirement funds, the nest egg might

decrease hence reducing the passive income generated. In

order to stay financially independent:

Outflow = Inflow



Ideally, this is what we expect for average person. For the rich,

income shoot up at a higher rate. Their passive income is at a

very high level (proportionately). So the green line actually

didn’t drop after they retire. That’s a perfect chart that

everybody dreams to have.

Now, let’s zoom in to examine a shorter time frame. The short

term cash flow of 1-3 years might not have too significant

movement.



Unforeseen Circumstances that Affect Cash Flow

The ideal plan is a plan that goes exactly as pre-determined.

But life is full of uncertainties. Life is also full of risk. We never

know what will happen tomorrow. This is what makes life the

greatest adventure we won’t miss. There are many unforeseen

circumstances that will affect our cash flow

Unemployment



During economic down turn, a person might lose his job

unanticipatedly. Income suddenly drops to nil. At the other

hand, outflow still goes on. Instead of having a net saving at the

end of every month, there is a deficit that eats into our nest egg.

Preparation: Build up an adequate emergency fund. Losing a

job is just a temporary issue. If you still have your ability and

skill set, getting a new job is just a matter of time.

Illness or Disability



This is something even worse than unemployment. A person

will lose his earning capability, at least temporarily if lucky

enough that it is not a permanent disease. Saving is replaced

by even higher deficit. Having an adequate emergency fund

might not be enough. The better solution is to transfer the risk

to someone else who can afford it.

Preparation: Insure yourself, and all those family members that

depend on your earning to survive.

Besides the above unwelcome events, there are many other

major issues that is not mentioned here, including natural

disasters like flood, fire, earthquake etc. Don’t underestimate

the risk of your family members too. When your next of kin need

your help, you can hardly refuse to lend a hand. Your hard earn

accumulated wealth might not be yours after all if these risks

are not transferred to the insurance companies.

Summary for Action

1. Draft the ideal income & expenses flow chart. You must plot

it the way that you want it to be. It is better to even include the

exact amount of income desired and compromise on expenses.

Mark the details such as earning $50,000 at age 25, $100,000

at age 30, $200,000 at age 40 etc.

2. Study and analyze the past history of your cash flow chart.

Create a proper budget that you can live with. Find out the

unforeseen event that had impacted your financial situation

before. Learn from your own experience.

3. Get prepared for any unavoidable impact on your cash flow.

This includes getting your life insurance reviewed, insuring your



major assets (house, car, theft protection etc), and also building

up an adequate emergency buffer.

4. Tightly monitor your cash flow. Review it often. Use some

software to help you and do it as frequently as possible,

probably every weekend or every first day of the month.



----------------------- The End of Volume 1 ---------------------------

If you find any error in this edition, kindly send an email to

[email protected]

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Hear from you soon.

regards,

KCLau


mailto:[email protected]

http://kclau.com/lp/ebook

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