Don’t let money control our life. Let us take control instead…
On investing our money..
Take calculated risks and invest! Inflation is around 6-10% every year, do we still want to put our money in Fixed Deposits and get only 3% return, making a net loss of 3-7% yearly? Ensure that our net assets are growing at a faster rate than the rate of inflation. (Net assets = total assets less your total liabilities)
Consider local unit trust funds or shares for returns higher than the rate of inflation. Consult a professional investor before embarking on any kind of investment. Speculating is not investing.
On managing debt....
Eliminate all credit card debt. It's pointless investing our money and getting returns of 8-13% if our credit card is shrinking our money by 18% every year.
Be careful when taking personal loans, ensure that the rate they offer you is the 'effective interest rate' and not the 'fixed rate'. For eg, if a fixed rate for a personal loan of 5 years is 5%, effective interest rate is about 9.17% (you'd need to use a financial calculator). If your effective interest rate is 9.17%, we're better off not taking the loan. Avoid taking unnecessary loans if you don't need the advance cash. Loans = liabilities, and liabilities will reduce your net worth (net assets).
On setting goals....
Calculate how much we may need when we retire and work towards how to achieve that target.
Calculate how much you may need for your kids' education and work towards it while they are still in diapers. Power of compound interest works in our favour the earlier we start.
On buying insurance...
Insurance is important if we have children depending on us financially. For the breadwinners, you would definitely need financial protection, so buy term insurance for life, PA and critical illness and invest the rest. Term insurance is less costly and it comes with higher coverage. Insurance is NOT an investment.
On property investment...
It's ok to invest in property but do calculate your estimated nett returns. Remember that we are borrowing to invest, thus our nett return may not be that great. For example, if we are getting 10% in property appreciation but paying interest of 5% yearly, our net return is only 5%. Minus inflation of 6%, your money is shrinking by 1%. Is it worth it? There are many hidden costs also in property investments such as yearly quit rent, assessment, repairs and maintenance, renovation expenses, security and utility costs and capital gains tax! Furthermore, housing loan rates are usually tagged to the base lending rate. When BLR increases, the tenure of our loan will increase exponentially! Consult a professional financial planner on the returns of your property before signing on the dotted line.
On cash flow and expenses....
Set aside a fund for yearly family holidays, we need to live a life too.
Luxury bags can be put on hold until kids are older, don’t succumb to peer pressure. (unless you got it from US factory outlets, :-))
Don’t own more cars than we need. Buy a basic car just enough to fulfil family needs so that you can ease up your cash flow for savings/investments.
List out all our monthly expenses on a spreadsheet and check which areas are draining our cash-flow. Make sure we include an additional RM 300-500 for unforeseen expenses like wedding ang pow, sudden emergency shopping, etc.
Money is important but don’t let it affect our relationships with our spouses and children. It will cause much unhappiness among the children, stress and breakups in relationships. Changes you are making now can lead to a financially better life tomorrow. Short term pain for long term gain.
“Time, not money, is your biggest asset in life. You need time to invest in relationships (with yourself and your family) or to chase your passion.”