Introduction to Financial Planning

Learning outcome
1.1 Personal financial planning
- Whats this
- SIRE
- Illustration
1.2 Advantages of Personal financial planning
1.3 Six step process of Financial planning
1.4 Goal setting guidelines
1.5 Influences of Personal Financial planning
- Life situation
- Personal values
- Economic factor
- Economic condition
- Global influences
- Effect of rising inflation
1.6 Tools in every financial planning
1.7 Financial opportunity cost
1.8 10 principle of Personal Financial planning
1.9 Strategies of achieving Personal Financial planning

Chapter 1 Learning Objectives

Analyze the process for making personal financial decisions
Develop personal financial goals

 Assess personal and economic factors that influence personal financial

planning
Calculate time value of money situations associated with personal
financial decisions
Identify strategies for achieving personal financial goals for different life
situations
1.1 Personal financial planning
What is Personal Financial Planning?
The process of managing your money to achieve personal economic
satisfaction.

SIRE

Illustration

Shukry, 2014 (The Edge Financial Daily -27 November 2014)

1.2 Advantages of Personal Financial Planning

Increased effectiveness in obtaining, using and protecting financial

resources.
Increased control of ones financial affairs
Improved personal relationships
Sense of freedom from financial worries

1.3 Six-step Procedure for Financial Planning

Step 1:
DETERMINE YOUR CURRENT FINANCIAL SITUATION
Evaluate income, savings, living expenses, and debts
Prepare a list of current asset and debt balances and amount spent for
various items
Match financial goals to current income and potential earning power
Step 2:
DEVELOP YOUR FINANCIAL GOALS
Identify feelings about money and the reasons for those feelings
Determine the source of your feelings about money

 Determine the effects of the economy on your goals and priorities

Make sure that your goals are your own and are specific to your situation

Goal-Setting The SMART Model

1

2
3

4
5

S = Specific
Goals should be simplistically written and clearly define what you are
going to do Why? What? And How?
M = Measurable
Include tangible measurement of achievement
A = Action-oriented
Should be able to motivate and challenge you towards greater
achievement. You need to have the relevant knowledge, skills and
abilities to achieve the goals
R = Realistic/Result Oriented
Should measure outcomes not activities
T = Time-based
Linked to a timeframe to promote a sense of urgency, or results in tension
between the current reality and the vision of the goal.

What is Financial Freedom?

Means different things to different people
Anthony Robbins:
- Financial Security Amount of money to cover food, housing, cars,
travel and basic entertainment
- Financial independence You dont have to work but all your needs are
covered
- Financial Freedom - You dont have to work but everything you can
dream of is covered

Step 3:
IDENTIFY ALTERNATIVE COURSES OF ACTION

Possible courses of action can be:

Continue the same course of action
Expand the current situation
Change the current situation
Take a new course of action
Creativity in decision making is vital to effective choices
Do nothing can be a dangerous alternative

Step 4:
EVALUATE YOUR ALTERNATIVES

Step 5:
CREATE AND IMPLEMENT YOUR FINANCIAL ACTION PLAN
Develop an action plan that identifies ways to achieve financial goals
Possible action plans can be increasing savings, reducing spending, or
making provisions for taxes
To implement action plans you may need assistance from others
Step 6:
REVIEW AND REVISE YOUR PLAN
Financial planning decisions need to be assessed regularly
Complete review should be done at least once a
year
More frequent reviews may be required for changing personal, social, and
economic factors
Regular reviews of decision-making process can help in making priority
adjustments to achieve financial goals

Developing Personal Financial Goals

1.4 GOAL-SETTING GUIDELINES

Specific: know what your goals are to create a plan

Measurable: with a specific amount
Action-oriented: identify the personal financial activities
Realistic: utilizing your income and life situation
Time-based: identify the time frame to achieve the goal

1.5 Influences on Personal Financial Planning

1. Life situation and Personal Values

2. Economic factors

Forces of Supply and Demand on setting prices

Economics is the study of how wealth is created and distributed
The economic environment includes different institutions
Federal Reserve Bank and its role in the economy

3. Economic Conditions

Consumer prices
Consumer spending
Interest rates
Money Supply
Unemployment
Housing Starts
Gross domestic product (GDP)
Trade balance
Stock market indexes

4. Global Influences

Global marketplace influences financial activities

American companies compete against foreign companies for US dollars
Balance of exports and imports
Foreign investments and their role in the US Money Supply
The level of Money Supply affects interest rates
Inflation Harmful to people living on fixed income
Interest rate Affects the cost of borrowing

5. Effects of Rising Inflation

1.6 Tools in every financial situation

Reduce debt usage

Reduce spending
Review savings investments
Evaluate insurance coverage
Avoid financial scams
Communicate with family

1.7 Financial Opportunity costs

Time Value of Money

 Increases in an amount of money as a result of interest earned

Saving today means more money tomorrow. Spending means lost interest
Saving and spending decisions involve considering the trade-offs. Current
needs can make spending worthwhile
Simple interest= Savings amount (P) x annual interest rate (r) x time
period (t)
Compound interest=P (1+ r)t

Opportunity Costs and the Time Value of Money

1. FUTURE VALUE OF A SINGLE AMOUNT
Future value is the amount to which current savings will increase based
on a certain interest rate and a certain time period
Future value is also call compounding - earning interest on previously
earned interest
2. FUTURE VALUE OF A SERIES OF DEPOSITS
Future value can be computed for a single amount or for a series of
deposits called an annuity
3. PRESENT VALUE OF A SINGLE AMOUNT
Present Value is the current value of a future amount based on a certain
interest rate and a certain time period
Present value calculations are also called discounting
The present value of the amount you want in the future will always be
less than the future value (See Exhibit 1-8C)
4. PRESENT VALUE OF A SERIES OF DEPOSITS
Present value can be computed for a single amount or for a series of
deposits (See Exhibit 1-8D)

1.8 10 Principles of Personal Finance (Keown, 2014)

1.

The best protection is knowledge

2.

Nothing happens without a plan

3.

The time value of money Saving & Investment

4.

Taxes affect personal finance decisions

5.

Importance of liquidity for emergencies

6.

Smart Spending Matters Waste not, want not

7.

Protect yourself against major catastrophes

8.

Risk and return go hand in hand

9.

Mind games, your financial personality and your money

10.

Just do it!!

1.9 Strategies for achieving personal financial goals different life situations
COMPONENTS OF PERSONAL FINANCIAL PLANNING
Obtaining Sources of finances employment, investment, business
Planning Budgeting, tax and savings planning
Saving Resources for emergencies, unexpected expenses, retirement,
childrens education
Borrowing Control over credit purchases
Spending Controlled, impulsive versus compulsive spending, frugality
Managing risk E.g. insurance coverage to reduce financial uncertainty
Investing Regular income, long term growth, asset allocation
Retirement and estate planning

Money management strategy: Financial Statement and Analysis

Learning outcome
1.1 Successful money management
- Whats this?
- How?
- Component of Money Management
1.2 Record system
- Benefits
- How?
1.3 Personal financial statement
- Purpose
- Net worth
- Cash flow statement
1.4 Steps in preparing personal financial statement
1.5 Importance of budget
1.6 Personal ratio
Learning Objectives
Recognize relationships among financial documents and money
management activities.
Develop a personal balance sheet and cash flow system.
Create and implement a budget.
Relate money management and savings activities to achieve financial
goals.
1.1 Successful money management
Whats this?
MONEY MANAGEMENT is the day-to-day financial activities
needed to manage personal economic resources, while working
toward long-term financial security

Component of Money Management

1.2Record system
PERSONAL FINANCIAL RECORDS SYSTEM

Benefits of an Organized System of Financial Records

Handling daily business affairs, including payment of bills on time

Planning and measuring financial progress
Completing required tax reports
Making effective investment decisions
Determining available resources for current and future spending

(A)Items in Your Home File

Personal and employment records
Money management records
Tax records
Financial services records
Credit records
Consumer purchase & auto records
Housing records
Investment records
Estate planning and retirement records
Insurance records
(B)Items in the safe deposit box
Records that would be difficult-to-replace
Birth, marriage and death certificates, copy of will
Citizenship and military papers
Adoption and custody papers
Serial numbers and photos of valuables
CDs and credit and banking account numbers
Mortgage papers and titles
List of insurance policies
Annual stock investment statements
Rare coins and stamps

(C)Records on your personal computer

Current and past budgets
Summary of checks written and other banking transactions
Past income tax returns prepared with tax preparation software
Account summaries and performance results of investments

 Computerized versions of wills, estate plans, and other documents

1.3 Personal financial statement
Develop a personal balance sheet and cash flow statement.
Purpose
Report your current financial position in relation to the value of the items
you own and the amounts you owe
Measure your progress toward your financial goals
Maintain information on your financial activities
Provide data you can use when preparing tax forms or applying for credit

Net worth
Net Worth is an indication of the financial position at any given date

Ways to increase Net Worth

1.
2.
3.
4.

Increasing your savings

Reducing spending
Increasing the value of investments and other possessions
Reducing the amounts you owe

Cash flow statement

1. Cash Flow is the actual inflow and outflow for a given time period
2. The Cash Flow statement is also called Personal Income and Expenditure
Statement

1.4 Steps in preparing personal financial statement

Preparation of The Cash Flow Statement requires using three

Steps
STEP 1: RECORD INCOME

Wages, salaries, and commissions

Self-employment business income
Savings and investment income
Gifts, grants, and scholarships
Government payments, such as Social Security, public assistance, and
unemployment benefits
Amounts received from pension and retirement programs
Alimony and child support payments

ACTIVE
Derived from employment or business
E.g.: Salaries and profits from business
PASSIVE
Derived from savings or investment
Interest, dividends, rentals and royalties

STEP 2: RECORD CASH OUTFLOWS/EXPENSES

Type of expenses
Fixed Expenses

Remarks
Generally necessities and amounts are normally the same
Credit card outstanding balances are included here in full
Includes purchase instalments, rental payments, insurance
premiums

Variable Expenses

Necessities but amounts change from month to month

Includes food, clothing, utilities, phone bills and essential
household items

Discretionary Expenses

Optional expenses non essential items and nice to haves

Dining out, branded clothing, air conditioning, cable TV bills,
internet and non-essential household items

Example
The humble loom band millionaire - the inventor 'worth 80m' who refuses to
splash the cash
Last year his company was reported to have made $44 million (25 million) last
year alone and business shows no signs of slowing down. The firm is now
reportedly worth 80 million, and there's barely a playground in the country that
isn't lit up with the bands' flashes of multi coloured plastic.
But despite the profits, Cheong is clearly a humble man. While he has bought a
BMW for his wife, he is still driving his 12-year-old banger and lives in a
modest 235,000 house in the far-from-glamorous Detroit.
Asked why he hasn't splashed out on a new car or fancy home, he said: "It's a
nice house, why should we move? We're not over-the-top people. Maybe when I
retire I'll buy a boat and go fishing.
"The good thing is now we definitely have the money for the girl's 23
education."

STEP 3: DETERMINE NET CASH FLOWS

 Cash surplus : Inflows > Outflows

(Good)
Cash deficit : Inflows < Outflows (Review Spending)
1.5 Importance of Budget

The main purposes of a budget are to help you

Live within your income
Spend your money wisely
Reach your financial goals
Prepare for financial emergencies
Develop wise financial management habits

Discussion Question 1

Keisha works full-time at an accounting company and she is a part- time

Tupperware sales representative
The net monthly from her first job is RM2, 400.
The average net monthly income from commissions from her part- time job is
RM600.
Her planned fixed monthly expenses include:

RM 500 rent (she shares an apartment with two friends)

RM 675 for car payment

RM 100 for car insurance

Her planned flexible expenses include:

RM 600 for food

RM 300 for petrol

RM 50 for clothes

RM 60 for entertainment

RM 30 personal items

How her monthly income and expenses actually went

What she earned:

Keisha made RM 330 in overtime pay this month

What her expenses actually were:

RM 700 for food

RM 350 for petrol

RM 100 for parking and tolls

RM 220 for car repairs

RM 70 for entertainment

RM 20 for personal items

RM 110 for birthday present for her mother

1.6 Personal Ratios

AKPK http://www.akpk.org.my/
an agency set up by Bank Negara Malaysia in April 2006 to help
individuals take control of their financial situation

Importance of saving early and prudent credit card spending

Learning outcomes
1.1 Developing a saving habits
1.2 Budgeting for skill money management
1.3 Identifying saving goals
1.4 Potential areas of Emergencies
1.5 Selecting a saving technique
1.6 Living within your means
- Needs
- Wants
1.7 Tips of spending wisely
1.8 Consumer credit
- Advantages and disadvantages
- Sources
1.9 Credit
- Advantages and disadvantages
- Types of credit card
- Finances charges
- Calculating the cost of credit
- General rules of credit capacity
- Five Cs of credit- considered by lenders
- Credits report
1.10 Common sources of borrowing in Malaysia
1.11 Credit card spending and debt consideration in Malaysia
1.12 Balance transfer
1.13 Other types of borrowing
1.14 Why you should manage your debt wisely
1.15 Counselling
- AKPK
- OTHERS
1.16 Bankrupt
- How?
- Restriction

Learning Objectives
1. Relate money management and savings activities to achieve financial
goals.
2. Analyze advantages and disadvantages of using consumer credit
3. Assess the types and sources of consumer credit in
4. Malaysia focus on credit card, car and housing loans
5. Determine whether you can afford a loan and how to apply for credit
6. Determine the interest rate effect by calculating interest using various
interest formulas
7. Develop a plan to protect your credit and manage your debts
1.1 Developing a savings habit
Save at least 10% of your income

Emergency funds: 3 to 6 months of living expenses

Adhere to a meaningful financial goal (short, medium and long term)
Make savings a challenge try saving beyond 10% of income
Windfall Bonus, pay rise
Immediately set aside part of it as savings and emergencies

1.2 Budgeting for Skilled Money Management

1.3 Identifying Savings Goals

 To create an emergency fund for irregular and unexpected expenses

To pay for the replacement of expensive items, such as cars or a down
payment on a house
To buy special items like recreational equipment or to pay for a vacation
To provide for long-term expenses such as retirement or the education of
children
To earn income from the interest on savings for use in paying living
expenses
1.4 Potential Areas of Emergencies
1.
2.
3.
4.
5.
6.

Unemployment
Accidents
Medical
Repairs
Natural disasters
Death.

1.5 Selecting a savings technique

Payroll deductions into savings account

 Automatic payments from checking into savings accounts or mutual

funds
Also save coins, make periodic deposits
Write a check each payday as a percentage of income and deposit into
savings

1.6 Living within your means

Living within your means

Wise questions to ask before spending

Is it something that I need?

Can you afford the money to buy it?
Delaying gratification
Saying No to spending now
Look at alternatives/substitutes to your needs and wants

1.7 Tips on spending wisely

1.8 Consumer credit

 Use of credit by individuals for personal needs, except a home mortgage

A major force in our economy

Advantages and Disadvantages of Using Consumer Credit

Sources of consumer credit

Loans
Borrowing money with an agreement to repay along with interest within a
certain amount of time
Inexpensive loans
Parents or family members
Medium-priced loans
Commercial banks, savings and loan associations, and credit unions
Expensive loans

 Finance and check cashing companies

Retailers such as car or appliance dealers
Bank credit cards and cash advances

1.9 Credit

 An arrangement to receive cash, goods or services now, and pay for them
in the future
Based on trust in peoples ability and willingness to pay bills when due

Types of credit card

1. Debit Cards
Debit cards electronically subtract money from your savings or checking
accounts
Most commonly used at ATMs
2. Stored Value Cards
3. Gift cards
4. Prepaid cards
5. Smart Cards
Plastic card equipped with a computer chip that can store 500 times as
much data as a normal credit card
Travel and Entertainment (T&E) cards

 Not really credit cards; balance is due in full each month

Diners Club; American Express
You dont pay for services or goods at the time you purchase them
Sources of Consumer Credit Loans
Borrowing money with an agreement to repay along with interest within a
certain amount of time
1. Inexpensive loans
2. Parents or family members
3. Medium-priced loans Commercial banks, savings and loan associations,
and credit unions
4. Expensive loans
5. Finance and check cashing companies
6. Retailers such as car or appliance dealers
7. Bank credit cards and cash advances
Financial charges of credit card

Example

Financial charge calculation

Calculating the Cost of Credit

1.

Simple interest/Flat Rate

Computed on principal only without compounding
The dollar cost of borrowing
Interest = Principal x rate x time

2. Simple interest on the declining balance

Interest is paid only on the amount of original principal not yet repaid
Interest Payable per Instalment = Interest Rate per Instalment X
Remaining Loan Amount
3.

Add-on interest
Interest calculated on full amount of principal
Interest added to original principal
Payment = Total divided by number of payments to be made

Reducing Balance versus Flat Rate

General rules of credit capacity

DEBT TO INCOME RATIO

Monthly Net Income

8,000

Instalments:
Housing loan
Car Loan

2,025
1,365

Credit card
Total debt instalment

500
3,890

Five Cs of credit- considered by lenders

Credits report

Credit Report or Credit File

Record of your complete credit history
Credit Bureaus
Agencies that collect information on how promptly people and businesses
pay their bills
Credit Bureaus obtain information from banks, finance companies stores,
credit card companies and other lenders
Main Sources of Credit References in Malaysia
CCRIS- Central Credit Reference Information System
http://creditbureau.bnm.gov.my
CTOS Credit Tip Off Services
http://www.ctos.com.my

Sources of information from CTOS

Legal notices in Newspapers

Searches at the Companies Commission of Malaysia (CCM) or
Suruhanjaya Syarikat Malaysia (SSM)
Government Gazettes & Publications
Searches at the Malaysia Department of Insolvency (MDI) or Jabatan
Insolvensi Malaysia
National Registration Department (NRD) or Jabatan Pendaftaran Negara
(JPN)
Searches at the Registrar of Societies (ROS)
Contact information provided by creditors / litigators / trade referees
Information voluntarily provided by subjects themselves

1.10 Common sources of borrowing in Malaysia

1.
2.
3.

Licensed Financial Institutions by Bank Negara

Co-operatives (regulated by Ministry of Domestic Trade)
Licensed money lender
Regulated by Ministry of Urban Wellbeing, Housing and Local
Government
Cannot accept deposits
4. Unlicensed money lender
Illegal loan sharks or Ah Longs
Caution!!

Never ever borrow from loan sharks ..

Loans have very strict terms and conditions
Very high interest rate (Usually daily compounding)
Risk of harassment (blackmail, violence) to you and your family for
repayment
Pressure to borrowing more to repay one debt after another

1.11 Credit card spending and debt consideration in Malaysia

Credit limit
Joining fee - One time/ Initial fee
Annual fee Yearly subscriptions
Finance charges Imposed on outstanding balances. Maximum
18% per annum
Cash advance fees 3% to 5% of amount withdrawn (Minimum of
RM10 to RM 20 whichever is higher)
Late payment charges Imposed on failure to pay minimum
payment by due date
Government service tax RM 50 p.a. (Main) RM25
Supplementary
Administrative cost 1% or 1.5% for overseas transactions

1.12 Balance transfer

Facility allows for transfer of existing debt on one credit card to another
credit card (at lower promotional interest rate).
Minimum repayment of RM50 or 5% outstanding per month (penalty
15% to 18% for late payment).

1
2
3
4
5
6

Need to be aware of the following:

Length of promotional period
Effective interest rate after the promotional period
Whether the promotional rate covers new purchases
Balance transfer fee (if any)
Whether facility cancellation is allowed and whether there is any early
settlement fee
Any lock-in period barring transferring to another card

Creadit card Vs consumer card

1.13 Other types of borrowing

Student loans
Personal loans
Unsecured no guarantor and collateral)
Higher interest rate
Car Loans (next week)
Secured- Hire purchase
Housing loans (next week

1.14 Why you should manage your debt wisely

1.15 Counselling
AKPK
Set up by Bank Negara Malaysia
Three (3) main services Free of charge
1. Financial education programmers and materials on the proper use of
credit and basic money management skills
2. Financial counseling and advice
3. Debt Management Programme (DMP) Develop personalised debt
repayment plans and consults with financial services providers to
structure manageable repayment schemes
OTHERS
Universities, local county extension agents, credit unions, military bases,
and state and federal housing authorities provide nonprofit counseling
services
Check with your financial institution or consumer protection office for a
list of reputable, low-cost financial counseling services
1.16 Bankrupt

How?

Restriction

Car and house purchase decision

Learning outcome
(A)Car
1.1 Wise buying of motor vehicles
1.2 Consideration
1.3 New car purchase consideration
- Advantages and disadvantages
1.4 Used car purchase consideration
- Advantages and disadvantages
1.5 3 types of interest rate
- Example: car loan
1.6 Other consideration of car loans
1.7 Rule of 1978
1.8 Tutorial 1 and 2
(B)House
2.1 Evaluating and buying alternative
2.2 Changing circumstances in life
2.3 Accommodation consideration
2.4 Housing rental activities
2.5 Consideration buying a house in Malaysia
2.6 Market value search
2.7 Cost of home : Loan finance
2.8 Other consideration
2.9 Summary
2.10
Tutorial 3
Learning objective
Discuss the factors involved in a car purchase decision
Discuss the factors involved in a house purchase decision

(A)Car

1.1 Wise buying of motor vehicles

1.2 Consideration

Reliability of car Check with parents, family and friends

Work out budget based on your monthly salary
Shop around for an affordable car loan
Try to pay higher down-payment and apply for a smaller loan
Consider effective rate of interest
DO NOT use the credit card to pay for the downpayment.
Try to pay for petrol, annual road tax, insurance and car maintenance by
CASH.
Avoid upgrading or modifying your car with a sound system or additional
accessories - this may not add value to your car
Do not over-spend on the first car can upgrade later in career

1.3 New Car Purchase Considerations

A.

More expensive than secondhand car

B.

Warranty- Most new cars come with a minimum 3 years warranty

C.

Roadside assistance i.e: towing

C.

Lower interest rates on car loan

Advantages and disadvantages

1.4 Used CAR

Used Car Purchase Considerations

Price is lower than new car

Higher risk and maintenance costs
Previous owners history
If possible, try to find out about any problems associated with the car
Do a complete visual inspection any signs of an accident (collusion) or
major damage cover-up
Get a trusted mechanic to examine the condition of the car
Get PUSPAKOM inspection done

Advantages and disadvantages

1.5 3 types of interest rate

Example

1.6 Other considerations on car loans

How is interest being charged?
HP generally quoted on a flat rate basis Does not consider the monthly
repayments as reducing the principal amount
Keep tenure not more than 5 years
If > 5 years tendency for loan outstanding to be > market value of car
If cannot afford instalments Consider higher downpayment or buy less
expensive car
Early settlement
Rule of 78 Weights earlier payments with more interest rather than
later ones.

Fee/penalty charge


Need to compare redemption value (outstanding balance of loan) versus
market value of the car if more, need to settle the difference before
sale/transfer
Rule of 78

Rule of 78 (sum digits method)

Apportioning the total interest payable under a loan in accordance with an
arithmetic formula. Under the formula the early instalments include a
surprisingly larger interest component than the later ones.
i.e: a 2 year personal loan for RM20, 000 at an interest rate of 5% per
annum.
When interest on the above loan is calculated on a flat-rate basis, the total
interest charged is RM2, 000 (RM20, 000 x5% x2 years) and the monthly
payment is RM916.67. Total cost of the loan comes up to RM22,000
(RM20,000+RM2,000).
Rule of 78 denominator = [n(n+1)]/2 = [24(24+1)]/2 = 300

1.8 Tutorial
Down payment 10%, Interest rate 2.8%, loan tenure 5 years. Calculate:
1)

Total loan

2)

Total interest

3) Monthly instalment
Tutorial Question 2
Shasha is a young executive working in a PR company in Mont Kiara. She has
just received a permanent employee status from her employer a month ago after
undergone 3 months probation period. Upon confirmation, her salary increased
to RM3, 500 per month with 11% EPF deduction and SOCSO deduction for the
amount of RM15 for insurance purposes.
Recently, she saw an advertisement on TV of the new Toyota Vios with a price
tag of RM70,000 and she is excited to own the car.
Currently, Maybank is offering the cheapest hire purchase rate of 2.7% annually.
Assume she pays 10% of the car purchase price as down payment. Calculate the
monthly instalment if she decides to purchase the car and pays off in 7 years.
Decide if she can afford to purchase the car base on AKPK rule on debt to
income ratio.

(B)House
2.1 Evaluating and Buying alternatives

Lifestyle and choice of housing

Selecting a rental unit

Advantages of renting
Disadvantages of renting
Legal details
Costs of renting

How you spend your time and money

Renting vs. buying housing

Lifestyle & financial factor
Short run vs. long run advantages

Rental activities

2.2 Changing circumstances in life

Accommodation consideration

2.5 Consideration buying a house in Malaysia

Down-payment
Loan instalments
Personal savings for investment
EPF Account 2 withdrawals
Debt to income ratio (< 40%)
Margin of financing:
Lenders can lend up to 90% of purchase price

Purchase of a new property from the developer

Reputation of developer
May offer developer interest bearing scheme (DIBS), Free MRTA
Does developer bear the cost of sales and purchase agreement, legal fees
and stamp duty?
Drawbacks:

Property may not be ready for another 2 to 3 years.

Difficult to predict the actual situation and environment :
Who are your neighbors?
What are the developments nearby e.g. shops, amenities etc?
Vacant spaces indicated for development may not be as planned
Future market value may not commensurate with purchase price
Sub-sale purchases from existing owner

Ready to move in save on cost of renovations

Matured neighborhood ready amenities

Loan application processing fee (Some bank waive it depends on package
offer)
- Insurance(MRTA & Fire Insurance) if you take the housing loan)
- Values fees and costs
- Stamp Duties
- Legal fees and costs
- Outstanding utilities deposit (Electric & Water)

Location
- Basic amenities
- Surrounding area shops,
banks, schools, hospitals etc

Type of property
Landed versus
High Rise

- Public Transportation

Ownership Type

Freehold Indefin

Leasehold Usua
up to 99 years from
State Authourity

- Distance to work
- Traffic condition
- Security

Title

Developers Reputation

o Individual Landed

Reputation

o Strata
Condominiums/Apartments

On time delivery
Quality of work

Past customers
satisfaction

Adherence to prom
in advertisements

2.6 Market value search

Home loan repayment schedule

Summary

Make a smart purchase decision

Consider needs and wants wisely
Compare alternatives quality, features and price trade-offs
Do proper research before negotiating purchase
Consider post-purchase maintenance
Choose a vehicle that suits your budget and needs
New versus second hand
Choose housing that meets your needs.
Decide whether to buy or rent
Calculate the other costs stamp duties, lawyers fees etc
Shop around for the best mortgage loan fixed versus adjustable rates

Tutorial 3

Taxation
Learning outcome
1.1 Taxation
1.2 Planning your Tax strategy
1.3 Types of taxes in Malaysia
- Direct taxes
- Indirect taxes
1.4 Individual tax
- Chargeable income
- Offences fines and penalities
- Rate of individual tax
1.5 Types of Income
- Employment income
- Other income
- Exempt income
1.6 Personal tax relief
1.7 Gratuity
1.8 Rate your assessment 2015
1.9 Married couple joint vs Separate assessment
1.10 Zakat
1.11 Tax records to be kept
1.12 GST
- How?
- Examples
(A)Standard rated
(B)Zero reated
(C)Excempt
- GST and investment
(A) Share
(B) Unit trust
(C) Reits

Learning objective
Identify the major taxes paid by people in our society.

 Calculate taxable income and the amount owed for federal income tax.
Prepare a federal income tax return.
Select appropriate tax strategies for various life situations

1.1 Taxation
Oxford dictionary:
Contribution levied on persons, property, or business for the support of
govt.
Law cases:
A compulsory exaction of money by a public authority for public
purposes enforceable by law (Matthews v The Chicory Marketing Board,
1938).
Raising money for the purposes of govt by means of contributions from
individual persons (R v Barger, 1908)
IRB Tax guide
Is an amount of money which is taken from your earnings to help towards
some of the cost of services we received in this country

1.2 Planning Your Tax Strategy

 Know current tax laws as they affect you

Maintain complete and appropriate tax records
Make purchase and investment decisions that reduce your tax liability
Goal:
Paying your fair share but still taking advantage of tax benefits.
1.3 Types of taxes
Direct taxes
1. Paid directly by those on whom it is levied.
2. Example of direct tax : Income Tax, RPGT, Stamp Duty and
3. Petroleum Income Tax.
Indirect taxes
1. Collected via third party.
2. Example of indirect tax : Sales Tax, Service Tax and GST.
1.4 Individual Tax in Malaysia
Governed by Income Tax Act 1967

Self- assessment
Form BE Individuals with no business income
Form B- Individuals with business income
Form M Non-residents with Malaysian derived income
Every person must file a tax return even if income is taxed at
source(Before Y/A 2014)
Option to treat monthly tax deduction as final (Y/A 2015 onwards)
Husbands and wives must file separate returns although they elect to be
assessed jointly.
Final submission April 30 in the year following the year of assessment.
Penalty up to RM2,000 and imprisonment for non-submission - refer
http://www.hasil.gov.my/pdf/pdfam/3717.pd
Employers need to prepare and provide employees with the Form EA no
later than February 28 of each year.

 Registration of tax file refer http://www.hasil.gov.my/goindex.php?

kump=5&skum=1&posi=2&unit=5000& sequ=2
Chargeable income

Offences fines and penalties

Rate of individual tax

Option to treat monthly tax deduction (MTD) as final

(Year of assessment 2015)
Conditions for eligibility for treatment of MTD as final:

The person only derives income from his employment

MTD is made by his/her employer
MTD is not borne by his employer
That persons spouse must not elect for joint assessment that year of
assessment.
The person must only have been employed by the same employer in that
year of assessment.
For ineligible employees, tax is still deducted at source but is not treated as final
i.e. the person needs to file his income tax return the normal way (online or efiling)
1.5 Types of Income (Section 13(1) ITA 1967)

Exempt Income

1.6 Personal tax Reliefs

1.7 Gratuity

Rates Year Assessment 2015

1.8 Married Couples- Joint Versus Separate Assessment

Husband and wives are treated as separate individuals unless one or both
of them elects to be assessed jointly.
Election must be made by April 1 of the year following the end of the
relevant tax year (Form BE- Box A5)
In most cases (not all), joint assessment is not beneficial as a combination
of higher chargeable income leads to higher tax brackets.
However, if the electing spouse has no income or higher deductions in
his/her own name (e.g. for medical expenses)- it may be beneficial.
Spouse relief of RM3,000 is available for joint assessment or in the case
the spouse has no income
The amount of tax payable also depends on which party elects for the join
assessment.

Parents medical expenses In joint deduction, deduction allowed only for

assessable spouse
Rebate for individual (RM400) and for couple (RM800) Only for chargeable
income < RM35,000

1.10 Zakat

1.11 Tax Records to be Kept(7 years)

EA/EC Form

Original dividend vouchers

Insurance premium receipts

Books purchase receipts

Medical receipts

Donation receipts

Zakat receipts

Children`s birth certificates

Marriage certificate

Other supporting documents

Working sheets (if any)

1.12 Malaysian Goods and Services Tax (GST)

Introduced on 1 April 2015

Administered by the Royal Malaysian Customs Department

Governed by the Goods & Services Tax Act 2014

GST will replace the Sales and Services Tax (SST)

Essentially a consumption tax

Claimed to be a more effective, efficient, transparent and business

friendly tax regime.

Categories of taxes

Standard rated

Zero Rated @ 0%

Exempt

@ 6%

Standard Rated

Cooking oil
(palm/groundnut/coconut)
Sardines
Chilli sauce
Books and e-books
generally
Cement, bricks and sand
Commercial properties
including (SOHO and
SOFO)
Petrol RON97
Electricity For
consumption above 300
units
MEPs fees on interbank
ATM withdrawals
Tuition center fees
Manicure, pedicure and
hair styling services
All insurance premiums
(except life insurance)

Zero Rated

Corn oil
Rice
Cili padi, cili
kering
Dictionaries
Religious
books
Newspapers
Petrol RON95

Exempt

Healthcare
providers
Highway Tolls
Education
institution fees
(IPTA/IPTS)
Security Services
Residential property

Investment in stock, bonds and mutual funds

Learning outcome
1.1 Financial planning
1.2 Types of investment
- Bonds
Whats this
Bond investing
Phases
- Share
Whats this
Why are there issues
Why investor purchase share
Examples
Things investor should be aware of when investing in share market
- Stocks
FTSE Malaysia index series
Common stock price quotes
Evaluating a stock issue
Sources of stocks

-Corporate news
-Malaysia information sources
Other factors that influences the prices of the stocks
Behavior finance and stock prices
1.3 Capital Market
- Primary
- Secondary buying and selling stocks
1.4 Long and short term investment strategies
1.5 Dollar cost averaging (DCA)
1.6 Fund
- Investing in Mutual funds
- Why Investors Purchase Mutual Funds
- Unit trust funds in Malaysia
- Note for potential mutual fund/unit trust investors
1.7 Return on investment