Académique Documents
Professionnel Documents
Culture Documents
byKCLau
http://KCLau.com
Theelectronicversionofthisbookcanbedownloadedfreeof
charge.
Feelfreetorepublishexcerptsfromthisbook,aslongasyoulink
backtohttp://KCLau.comforattribution.Anditsalsookayto
sharethisebookinitsentiretywithanyoneyouthinkmightbe
interested.Infact,Idbedelighted.IfyoumissedVolume1,
downloadithere:
http://KCLau.com/lp/ebook
www.KCLau.com page2/106
PublishedbyKCLauDotComSdn.Bhd.
Email:book@kclau.com
Website:w ww.KCLau.com
Copyright2016byKCLau
Allrightsreserved.
ThirdEditionJune2016
Thestrategiesoutlinedinthisbookmaynotbesuitablefor
everyindividual,andarenotguaranteedorwarranted,
whetherexpressedorimplied,toproduceanyparticular
results.Theadvice,ideasandsuggestionsarewrittenas
ageneralguideandspecificprofessionaladvicemaybe
necessary.
Nowarranty(whetherexpressedorimplied)ismadewith
respecttotheaccuracy,adequacy,reliability,suitability,
applicabilityorcompletenessoftheinformationcontained
herein,andboththeauthorandthepublisherspecifically
disclaimanyresponsibilityorliabilityforanydamages,lost
profits,lossesorrisks,whetherpersonalorotherwise,
whichisincurredasaconsequence,whetherdirectlyor
indirectly,oftheuseandapplicationofanycontentsofthis
book.
www.KCLau.com page3/106
ANotetotheReader
WhatsYourTimeWorth?
RelativeValueofMoney
ShouldyoufocusonIncreasingincomeorreducing
expenses?
GetRichwithExcessiveDebt
Areyoutrading?Gambling?Speculating?orInvesting?
Dontspendthemoneyyoudonthave,tobuythethingyou
dontneed,topleasethepeopleyoudontlike!
TheMostImportantPayeeofYourEntireLife
Top5RegularMonthlyExpensesWeDontNeed
HowtoQuicklyEvaluateanInvestmentusingtheRuleof72
TimeValueofMoney:ComputingtheValueofSingleSum
Investment
TimeValueofMoney:FindingtheRateofReturntoMeet
FinancialGoals
TimeValueofMoney:ComputingtheValueofaFixedSum
InvestedRegularly
TimeValueofMoney:ComputingtheRetirementFundin
EPFAccountofanEmployee
TimeValueofMoney:HowtoCalculatetheEffectiveAnnual
Rate(EAR)
HowtoCalculateYourInvestmentPortfolioReturn?
WithdrawEPFMoneyforHomeLoanInstallment:Howit
affectsyourRetirementFund
HowRecessionHappens?8TipstoPrepareforit!
KnowingyourenemyInflation!
FinancialSecurity:Howyoufeelit?
Doyouhavetheassetstopayforyourliabilities?
WhatDoYouKnowAboutBankruptcy?
www.KCLau.com page4/106
FinancialConsiderationforNewParentsinMalaysia
CloningYourLifeValuesviaTrust
Top4MethodstoEnjoyTaxReliefforEducationPurpose
www.KCLau.com page5/106
ThisbookisacompilationofthearticlesandideasIvepublished
online,onmywebsite,oronotherpeopleswebsite,newspaper,
magazinesorothertypesofpublication.
Youmighthavecomeacrosssomeoftheideasinthisbook.The
purposeofmakingthisbookistogiveyoutheconvenienceto
accessmywritinginamoreorganizedformat.
ThatswhyIvemadetheelectronicversionfreelydownloadable.
Meanwhile,thereisnophysicalversionavailableatthismoment.
IfyouprefertoreadaREALbook,Ihaveseveralbooks
publishedandyoucanfindtheminmajorbookstores.
Alsoforyourconvenience,Ivemadethesizeofthisbooksmall
enoughtofitintoyourmobiledevicescreen,sothatyoudont
havetodoexcessivehorizontalscrollingtoreadthepages.
Iwillbeupdatingthisbookfromtimetotime,sinceIamwriting
newcontentonaregularbasis.Ireallyurgeyoutosubscribeto
myemailinglistinordernottomissoutanyfutureupdates.
formanyyears.
ThisisVolume2.IfyoumissedthepreviousVolume,which
containentirelydifferentmoneytips,youcandownloadithere:
http://KCLau.com/lp/ebook.
www.KCLau.com page6/106
Valueofmoneyisalwaystiedtotimeelement.Ifyouwork,you
needtounderstandthebasicconceptthatyouretradingyour
timeformoney.Timeisanonrenewableresource,butmoney?
Youwillbeabletomakemuchmoremoneyifyouunderstand
therelationshipbetweentimeandmoney.Thatswhyoneofthe
fundamentalsubjectsoffinancialplanningisTimeValueof
Money.
SimpleMethodtoCalculateYourHourlyWagewithout
usingtheCalculator
Takeyourtotalgrossincomeperyear,removethelastthree
zerosandhalvetheresult,soRM100,000becomesRM100,
whichhalvedisRM50.SoyourwagesisRM50/hour.Thisisa
verysimplewaytocalculateyourhourlyrateinablink.
Itisbasedon8hoursworkday,5daysworkweek,and4weeks
ofworkingmonth.Trycalculatetherealnumber,itwontbetoo
faraway.
RM100,000/(12monthsx4weeksx5daysx8hours)=
RM52.08
HourlyRate=AnnualSalary/1000/2
ConsideringTax
www.KCLau.com page7/106
However,someportionofthemoneyyoumakeiscontributedto
theIncomeRevenueBoard(IRB)(IncomeTax).Ifyouhourly
rateisRM50andyourhighesttaxbracketisabout20%,your
actualhourlyratewagesisRM42only.
Itwillbemorepracticaltouseyournetincometoestimateyour
timeworth.
KnowingtheApplication
1.Shouldyououtsource,ordoityourself(DIY)?
PeopleloveDIY.Butwecantbeexpertineveryfield.IfyouDIY,
itmightcostyoumorethanhiringanexperttodoitforyou.
InMalaysia,ahousecleaningforeignmaidcostsabout
RM8/hour.Letssayyouaretryingtosavemoneybydoingallthe
cleaningyourself.Youspendthewholedayfrommorningtill
evening,8hoursintotaltocompletethejob.Ifyourhourlyrateis
RM50,youhavejustspentRM400tokeepyourhouseclean.
Ontheotherhand,youcanemployatemporarymaidandpay
herRM8/hour.Shemightgetthejobdonein4hours.Sheisa
professionalhousekeeperandprobablyshecandoabetterand
fasterjobthanyoucan.YouonlyspendRM32.Ifyoumakeuse
ofyourtimeforproductivejob,youmighthaveearnedthe
differenceofRM368.
Mostofthetime,Iwouldhiresomeoneelsetodothelowvalue
jobandfreemyselfuptodothethingsIlovetodo.
Soaskyourselfthesequestions:
shouldyoucookorbuytakeawaypackedfood?
www.KCLau.com page8/106
shouldyouwashyourownclothsorsendittolaundry
service?
shouldyoutypetheletter,printtheinvoiceorhirea
secretary?
Forgetaboutallthosenoncorefunctionthatyouhatetodo.Stop
itimmediately.Therearepeoplewhoaremuchmoreskillful.By
outsourcingthem,youwillhavemoreresourcestobebetter
utilized.
2.Howmanyhoursitworth?
Whenyoubuysomething,youretradingminutesorhoursor
daysofyourlifetopossessthatthing.Sobeforeyoubuythat
nicecloth,doasimplecalculationusingyourhourlyearningto
seewhetheritisworthyourtimespent(onworkingforit,notthe
timespentbuyingit).
IfyoumakeRM10anhourandsomethingcostsRM50,youcan
figurethatittakesfivehoursofyourlifetopayforthatthing.
Nexttimewhenyouaremakingadecisiontobuysomething,ask
yourself,Howmuchtimeisitworth?
Besidethat,thehourlyratealsoapplytootherthingsyoudo
thatsnotproductive.
Example:
Youspendonehourwaitingforyourturntogetthatfree
toy
Youdrive30minutestoasupermarkettogetmilkthatis
50sencheaperthanthegroceriesstorejustnearbyyour
area.
www.KCLau.com page9/106
YouspendanhourcontestingaRM10mistakeonyour
Celcomphonebill.
3.Increaseyourhourlyrate,andbuildincomeontopof
otherspeoplestime.
Sincetimeisalimitedresource,youshouldtryhardtoincrease
yourhourlyrate.TigerWoodsearned$111millionin2006alone.
Hishourlywagesis$55kperhour!
However,thereisalwaysalimitonapersonsearning.Inorder
togrowyourincomefurther,tryimaginethatyouhaveabunchof
associatesthatmakemoneyforyou.Letssaywheneverthey
makeRM10,theywillmakeanotherextraRM1.00foryou.
Icanseethatnowyouarestartingtothinkrich.Indeed,helping
othersmakemoneyisoneofthefastestwaytogetrich.
Ivebeenworkinghardtohelpothersmakemoney.Themore
peopleIhelp,themoremoneyIwillget.Whenyourperspective
change,itisawholenewworldwaitingforyourexploration.
www.KCLau.com page10/106
Thevalueofmoneyrelativelydifferdependsonwhere,when
andhowyoumeasureit.Itboilsdowntothefollowingquestionto
relativelydeterminethevalueofmoney.
#1.Whereisyourmoney?
Whereyouputyourmoneydetermineshowmuchvalueithas,in
thefuture.Putitinbank,yourmoneyisrelativelylower
comparedtoputtingitininvestment.Ifyouhaveyourmoneyset
asidelongterminagreatcompany,orinarealpropertylocated
atprimeareas,thevalueofyourmoneyisrelativelyhigher.
Forexample,youhaveRM1000inafixeddepositgivingyou4%
returnp.a.,after10years,thevalueisRM1,480.24.Ifyouinvest
itwiselynow,inaninvestmentvehiclethatgivesyou15%
averagereturnp.a.,thefuturevalueisRM4045.56.Itismuch
higherthanputtingyourmoneyinFD.
So,whereyouputyourmoneyreallymatters.Thepoorremain
poorifnotpoorer,justbecausetheydontknowwheretoput
theirmoney.
#2.Wheredoyouearnandspendyourmoney?
LetssayyouhaveRM1,000inyourpockettospend.Youcando
manythingsorpurchasemanystuffincertainpartsofChina.But
www.KCLau.com page11/106
formerelyRM1,000inAustralia,youmayspenditallonfood
withinafewdays.
Thatswhyyouknowsomepeopleworkhardatothermore
developedcountries,andsavehardsothattheyhavemore
moneywhentheygobacktotheirhomecountries.
IndonesiansworkinMalaysiaasmaids.
SomeIndiansworkersarewillingtowork12hoursaday,364
daysayearinMalaysianasikandarrestaurants.
SomeMalaysiansworkillegallyinUKaskitchenhelpers.
Filipinos,Indonesians,IndiansandSriLankansworkasdomestic
helpersinSingapore.
Thais,Indians,Chineseworkinconstructionindustriesin
SingaporeandMalaysiaasconstructionworkers.
ITprofessionalsfromIndia,China,etcworkinUS,Singapore,
Europeforanumber
ofyearsbefore
movingbacktotheir
homecountries.
Thatswhyitisgreat
tofreeyourself,and
beingmobilewhileat
work,sothatyoucan
earnUSorEurope
dollar,whilelivingin
China.Therelative
valueofmoneyisgivingyouahighpurchasingpower.
#3.Whendoyouearnandspendyourmoney?
www.KCLau.com page12/106
Moneysvalueiscorrelatedtotime.Thatswhythereare
textbooksandcoursesaboutthetimevalueofmoney.RM1,000
nowmaybemanyfoldsmoreinvaluethanRM1k20yearslater.
Thelongeryoucandefer,oraffordtodefer,itisbetterintermsof
increasingthevalueofyourmoney.
Therichknowthatyouneedtoearnmoneyasearlyaspossible,
andspenditaslateaspossible.Thereisnosecretindeed.You
justneedtomakeandsavealotofmoneynow,andspendjusta
littleportionofit.Lateron,youwillhavemoremoneytospend
eventhoughyouworklessthanyouusedtobe.
#4.Howdoyouearnandspendyourmoney?
Johnsincomeis
RM500/hour.ButLims
incomeisRM10/hour.
Johnisbetterpaidthan
Lim.SoJohncaneasily
affordanewRM2500
mobilephone.ButtoLim,
itis250hoursofhard
worktohavethe
purchasingpowerforthesamephone.Soifyouincreaseyour
earningability,yourelativelyhavebettervalue.
Ontheotherhand,ifJohnspends150%ofhisincome(the
additional50%oncreditcarddebt),butLimonlyspends10%of
histotalincome,thevalueofmoneyisdifferentrelatively.For
www.KCLau.com page13/106
Lim,RM1000madeisequaltoRM900saved.ForJohn,
RM1000earnedequalstoRM500owedtothecreditcard
providers.
Now,whatdoyouknowaboutthevalueofmoney?
Nowyouvelearnttherelativevalueofmoney.Ifyouwanttobe
richandfeelfinanciallysecure,
putyourmoneyatabetterinvestmentvehicle,thatgives
youbetterreturnsinthelongrun
earnmoneyofgreatervalueandspendmoneyatplaces
withlowerlivingcost
saveyourmoneynow,andspenditlater.(Latermeans
whenyoureallyneedto)
stoplivingfrompaychecktopaycheck.Livefrugallyand
earnabundantly.
Cashflowchartinvolvessimplemathematicalcalculation:Saving
=IncomeExpenses.
Savingsistheprioritysinceitappearsfirstintheequation.To
increasesaving,youeitherincreaseincome,reduceexpenses,
ordoingbothatthesametime.Whichoptionrequiresyourmost
attention?
www.KCLau.com page14/106
FocusonReducing
Expenses
Ifyourmainfocusison
cuttingdownyourexpenses,
itisallaboutfrugality.Ifound
thatmanyofthepersonal
financeblogspreachabout
howimportantitistolive
frugally.Isitworthyoureffort?
Whenyoudontknowhowto
increaseyourincome,cutting
downexpensesistheeasiest
routetoincreaseyournetworth.
50thingsyoucandotoreduceexpenses
1. eliminatemobilephone(Iknowyoucantlivewithoutit,
metoo)
2. cancelnewspapers,magazineandotherperiodicals
subscriptions.
3. useenergyefficientlamps
4. purchasegenericprescriptionswhenpossible
5. buyinbulkwhenshoppingforgrocery
6. terminateyourgymmembership
7. readbooksatlibraryinsteadofgoingformovie
8. cutyourvacation
9. stayathomewheneverpossible
10. sticktoyourbudget
11. cancelyourTVsubscription
12. useemailinsteadofphonewheneverpossible
www.KCLau.com page15/106
13. comparebeforeyoumakeanypurchase
14. planmenusfortheweekbeforeyoushopgrocery
15. prepareshoppinglisttoavoidimpulsebuying
16. gotothestorejustonceaweek
17. donotgotorestaurantwhenyouarehungry
18. plantheuseofleftoverfood
19. buyclothingattheendoftheseason
20. shopatdiscountstores
21. buyuseditemwheneverpossible
22. usepublictransportation,ifavailable
23. havegoodhealthhabits
24. avoidsmoking
25. avoiddrinkingalcohol.
26. playboardandcardgames,theyarecheaper
27. attendconcertonlyifitisfree
28. makeyourownhomeaccessories
29. considerlessexpensivehousing
30. Packschoolandworklunches
31. reviewinsurancecoverage.Areyouoverinsured?
32. reducetripsoutsidethehome
33. use10%lessthanusual
34. stopshoppingnotevenwindowshopping
35. changetocheaperbrands
36. lookfordiscountcoupon
37. buyonlywhenyouareofferedrebates
38. drinkplainwateronlywheneveryoudineout.
39. dontkeepmorethantenbuckinyourwallet
40. cutallyourcreditcardexceptone
41. doyourowncarmaintenancesuchaschangingoil
42. stopgoingtoahairstylist
www.KCLau.com page16/106
43. ridesbikeinsteadofcar
44. avoidsillybankfees
45. dontbuyacar
46. justrentasmallroomtostay
47. shareroomandsplittherent
48. staywithyourparents
49. startblogginganditwillcutallyourotherentertainment
50. askfordiscounteverytimebeforeyoupayforsomething
Hardworkandnofun!
Wow!!!Thereisalotofhardwork.Butdoyoureallyhavefun
doingallthosefrugalthings?Icanonlyagreewithitemno.49,
whichhadsavedmealotofmoney.
Howmuchcanyousave?Itislimited.
Nomatterhowhardyoutry,youcanonlycutdownyourcurrent
expensescompletely.Mostpeoplewillcelebrateiftheycancut
10%.30%isalreadytoomuchformostpeopletocompromise
theirlifestyle.Thecruxofthematteris,byconcentratingon
reducingexpense,whatyougetishardwork,nofun,andonlybe
abletosaveasmuchastheamountyoudidntspend.
FocusonIncreasingIncome
Ifyouchangeyourfocustoincreaseyourincomeinsteadof
reducingyourcurrentexpenses,youwillseeawholenewworld
ofopportunities.
25thingsyoucandotoincreaseincomes
1. investinstocks
2. investinrealestate
www.KCLau.com page17/106
3. increaseyourknowledge
4. sellitemsyounolongerneed
5. getaparttimejob
6. rentoutspareroom
7. joinMLM
8. startabusiness
9. learnhowtosell
10. makemoneyonline
11. getaraiseorasecondjob
12. changeyourthinking
13. raiseyourrates
14. getextrawork
15. getmoneyfrompublicaidorcharities,ifyouarequalified
16. gobacktoschooltoacquireadditionalskills
17. buyanestablishedsmallbusiness
18. arrangeabetterfengshuiatyourhomeandyourwork
place
19. startamakemoneyonlineblog
20. investinunittrustfunds
21. takeyourcompanypublic
22. paylesstax
23. learnforextrading
24. investinETF
25. getsponsorshipfromfamilymembers,ifyoudare.
Toughjobbutalotoffun!
Howmuchcanyouprobablyearnandsave?Itisunlimited!
Theskyisthelimit.
Areyouagreatsaveroranincomepursuer?!
www.KCLau.com page18/106
So,howmuchtimedoyouspendinadaytoincreaseyour
income?8hours?12hours?
Isitviabletocutdowntheefforttolivemorefrugal?Andspend
thetimesavedtoactuallyworkoutsomeplanstoincreaseyour
income?
Iamdefinitelyanincomepursuer.Howaboutyou?
Baddebtfreemakesyouafreeman.Butifyouknowhowto
leveragewithgooddebt,thatstheexactsecretofwealthy
people.
Payingdebtislikeanightmaretoordinarypeople.Mostpeople
hatewhenitcomestotheduedateformortgageinstallment,car
loaninstallmentandcreditcarddebt.Probablythereasondebt
getssomuchhatredisbecauseitisassociatedwithbad
consumerdebtmostofthetime.Thosearereallybaddebtsthat
weshouldhateandavoid.Inordertogetrich,makefriendswith
gooddebtsinstead.
HowGoodDebtMakesYouRich
Forillustrationpurposes,Iwillshowyoutwodifferentscenarios
howapersonhandlesdebtthataffectshisfinancialsituation.
Johnearns$10,000eachmonth,spend$5,000andsavethe
other$5,000.Figurebelowshowshiscurrentcashflowandnet
worthcharts.
www.KCLau.com page19/106
Foreasyillustration,letsassumeJohnsonlyassetishishouse
worth$200,000.Hisoutstandingmortgageis$150,000,leaving
himanetworthof$50,000
Scenario1:Buyabiggerhouse
Johnfoundagreatdealtobuyabiggerhousewhichisworth
$500,000.Sohesoldhisexistinghouse,andusethe$50,000
www.KCLau.com page20/106
remainingcashfordownpayment.Afterbuyingthebigger
house,hismortgageinstallmentincreases.Moreover,allother
homerelatedbillsalsoincreasebecauseabiggerhouseneeds
moreelectricityenergysupply,moremaintenanceworks,more
quitrentetc.Thisresultedinhigherexpenses$8,000per
month.Hissurplusdroppedto$2,000permonthonly.
Thefigurebelowshowshisnewcashflowandnetworthcharts.
Scenario2:Buyanother
houseforinvestment
purposes
Insteadofmovingintoa
biggerhouse,John
decidedtoinvestinreal
estatebybuyinganother
houseforrentalincome
andcapitalappreciation.
Thenewhouseisworth
$300,000andhegota
dealthatdoesntrequire
anydownpayment.His
monthlyexpensesriseand
infactitisjustthesame
asmovingintoabigger
houseshowninScenario
1.However,becausethe
newhouseisrentedout
www.KCLau.com page21/106
for$3,000amonth,hisincomerisesto$13,000.Thisallowshim
tocontinuetosave$5,000permonth.Thefigurebelowshows
hisnewcashflowandnetworthchartsaftertheinvestment.
Simplylookingatthenet
worthchart,Scenario1and
Scenario2areidentical.
ButScenario2will
definitelymakesJohna
wealthierpersonbecause
hehasincreasedhiscash
flow.After1year,his
savingisdoubleofthecase
ofmovingintoabigger
house.
Thisisthereasonwhyyou
shouldntbeafraidofdebt.
Aslongasyoucan
generatebetterreturnwith
themoneyyouborrow,you
shouldgetmoreloanto
expandyourinvestment
portfolio.
BadDebtFreevs.
GoodDebtFree
Gooddebtworksforyou.
Baddebtmakesyouits
slave.
www.KCLau.com page22/106
Gooddebtincreasesyourincome.Baddebtdecreasesyour
savings.
Iknowsomepeoplethinkthatmortgageofthehomestheyare
stayinginaregooddebts.Butinfact,itisabadonebecauseit
doesntincreaseyourincome.
Iwanttobebaddebtfree.Atthemeantime,Iwanttolearnhow
toleveragemyinvestmentwithgooddebt.
PleasenotethatifJohnshousesappreciateby10%ayear,itis
calculatedfromthetotalassetsof$500,000.Thismeanshegets
$50,000returnayear.Butifhedidntbuythehouse,howmuch
canhegetfor10%returnfromotherinvestmentsuchasunit
trustfunds?Hecanonlyinvestwiththemonthly$5,000surplus,
whichisjustasmallfractionof$500,000.IfJohnpreferstobe
totallydebtfree,hereducesthechancestogetrichfaster.
Ifyouwanttobetotallydebtfree,itmightcostyouagreat
fortune!
Asmostpeopleunderstand,themortgageoftheirhomeisthe
liability.Youowethebankmoney.Inreturn,youneedtocharge
yourhousetitletothebankascollateral.Soyouthinkyou
www.KCLau.com page23/106
actuallyhaveanassettopayforyourliability.Youthinkyour
actualhomeistheasset,thatwhenyoucantaffordthe
installment,itcanpayoffyourmortgagebybeingauctionedto
thirdparties.Youareright,butitwontgetyourich.
FortherichpeoplewithhigherfinancialIQ,theyknowthatthe
housetheyarestayinginisactuallyaliability.Itisaluxuryitem.It
takesmoneyoutofyourpocket!Infact,ittakesmoremoneythan
youthink.Besidethemortgageinstallment,youarepayingfor
therenovation,electricalappliances,householdbilletc.
Now,letscomebacktothegoldenquestion:DOYOUHAVE
THEASSETSTOPAYFORYOURLIABILITIES?
Alocalentrepreneurinpreschooleducationwantstohavea
newSclassMercedesBenz.Thatsaliability.Herecruiteda
newtalentedbusinesspartnerandopenedupanother
kindergarten.In3monthstime,thechildcareandeducation
centreisgivinghimRM5000netprofiteverymonth.Hispartner
istakingcareofthecentre,whileheisshoppingforhisnew
luxurycar.Thatsanasset.
Ihavesomedownlineinsuranceagentswhoarevery
independentandmakingsalesweekafterweek.Itrainedthemin
thefirstfewmonthsinbusiness,andtheycanpracticallydo
businessontheirownafterthat.Igotoverridingcommissionfrom
everysaletheymake.Theyaremyassets.Theyhelptopayfor
mycarloan,myliability.
So,doyouhavetheassetstopayforyourliability?
www.KCLau.com page24/106
Whenyouarespeculatingorinvesting,itinvolvestrading.
Tradingistheprocessofbuying,orselling.Wedontknowyour
purposebehindthetrade.
Gamblingisanactivitythatmayormaynotinvolvetrading.In
trading,acommoditycanbeboughtandsold.Ingambling,the
ticketorthebetyouwagercantbesold.Gamblingusuallygives
greatestoutcomeintheshortestdurationifitsucceeds.
Trading
Definition:buyingorsellingsecuritiesorcommodities
Gambling
Definition:Thevoluntaryriskingofasumofmoneyonthe
outcomeofagameorotherevent.
Speculating
Definition:Tradingwiththepurposeofmakingprofits.
Investing
Definition:Theactofusingmoneytomakemoremoney
WhenIbuyacompanyshare,Icansellitatanytimeanditis
calledtrading.
www.KCLau.com page25/106
WhenIbuyasharewithoutknowinganythingaboutthe
company,justbasedonmererumors,itiscalledgambling.
WhenIbuyashareandwoulddefinitelysellitweeksormonths
laterwhenithasappreciatedinvalue,itiscalledspeculating.
WhenIbuyashareafterunderstandingthecompanysbusiness
model,futureplanning,cashflowmanagementetcandIamvery
confidentthatitisundervalued,andwillbuymorewhentheprice
drops,itiscalledinvesting.
Areyoutrading?Gambling?Speculating?orInvesting?
www.KCLau.com page26/106
Doyoufindyourselfspendingmorethanyouearn?Yetwhen
youlookback,youfindthatyouactuallyspentthatmoneyon
somethingthatyoucouldhavedonewithout.Worsestill,you
spentthatmoneyonsomeoneyoudidnotnecessarilyhaveto
please.
Howcanyouavoidspendingthemoneythatyoudonothave,
thusreducingincidencesofoverspending?Readontofindout.
www.KCLau.com page27/106
10Exampleshowyoucanoverspendunnecessarily
1. AfreshgraduatedecidestobuyanimportedJapanese
car.Asaresult,heusesup50%ofhissalaryforthemonthly
installments,carmaintenanceandpetrol.Heisthenleftwith
another50%forhisothercommitmentsandexpenses.
2. Youimpulsivelyswipeyourcreditcardtopayforthe
latestAppleMacbookyoualwayshadaneyeon.Attheendof
themonth,youfindthatyouareunabletopaytheamountdue.
3. Yourcolleaguejustmovedintoasemidetachedhouse.
Yousoldyourentireinvestmentportfolioandexistingapartment,
tookupabiggermortgagetobuythehousenexttohis.
4. Anofficeladyusesherentiremonthssalarytobuythe
LouisVuittonhandbag,justbecausehercolleagueshowsoff
onetoher.
5. Youwantyourboyfriendtoproposeonlyifhepresents
youwithaTiffanysring.
6. AfathertookupapersonalloanofRM10,000sothathe
cantakehisfamilyforavacationtoAustralia.Althoughhedidnot
needtotakethisholidaygivenhisfinancialsituation,hedidso
becausehisneighbourjustcamebackfromNewZealand.
7. Haveabreastimplanttoimpressthemanyouare
interestedinalthoughheisnotinterested.
www.KCLau.com page28/106
8. Youboughtanexpensivesetofhometheatresystem.
However,yourarelywatchanyDVDathomesinceyouaretoo
busyatwork.Itisjusttoimpressyourfriendswhovisityour
houseonceawhile.
9. BoughtaRolexwatchduringyourtriptoSwitzerlandjust
becauseyourbosssaidthatitwasagreatinvestment.
10. Youspentlotsofmoneyonyourweddingceremonyand
servethebestfood,althoughallyourwifewantedwasa
honeymooninEurope.
Whatisthemoneyyoudonthave?
CreditcardIfyoucantaffordtopayitinfullwhenthecharges
isdue,itisthefuturemoney,notcurrentmoneythatyou
alreadyhave
Mortgageyouusethebanksmoneytobuyahouseandstayin
it,aslongasyouareabletopayitbacktothefinancier.
Personaldebtgettingapersonalloantospendonsomethingis
thestupidestthingtodo.
Loansharkthosewhodonthavecreditcard,withoutproper
documentstoborrowfrombankswilllookforfavoursfromloan
shark.
Easyinstallmentplantopurchaseconsumerproduct
www.KCLau.com page29/106
Whatarethethingsthatyoudontnecessarilyneed?
Car,aplushhouse,gadgetsandotherthingsthatdonotfall
withinyourbudget.Theruleofthumbistospendlessthanone
thirdofyourincomeontheseitems.
Whoarethepeopleyoudontlike?
Friends,colleaguesandrelativeswholiketoshowoff,
thosewholookdownonyou,
thosewhoslapyouontheback.
Youcanhaveathousandreasonstohateanddislikesomebody,
butyoudonthavetohurtyourwallet.
Haveyoueverdonesomethinglikethat?
Wesometimes,unknowingly,spendmoneyoninstant
gratification,onlytoregretmuchlater.Wesometimesalsogivein
toourtemptationstobuythingsthatwedonthavemuchusefor
orthingsthatareimpractical.
Thenexttime,beforeyoudecidetoblowyourcashon
something,trytothinkabouthowmanyhoursoftoilingatwork
thatmoneyequatesto.Thisdoesnotmeanyouneedtostinge
oneverythingthatyouwishtobuy.Onlybuysomethingifyou
reallyneedit.
Althoughthismaysoundlikeeasyadvice,wealwaysendup
faltering.Wespendmorethanthatwecanearnandintheend,
findourselvesstrugglingtomakeendsmeet.
www.KCLau.com page30/106
Yourmoneycomesinregularlyaslongasyouareearning
moneyactively,orinvestingandgettingmoneypassively.Thats
calledinflowofmoney.
Asmanyotherpeopleonplanetearthinthiscapitalistworld,we
payforsomethingregularlyinourlife.Whichoneisyourpriority?
Yourcreditcarddebt?
Yourmortgage?
Yourcarloan?
Yourparents?
Yourchildren?
Yourmeal?
Yourinsurancepremium?
Yourastrobill?
Yourelectricitybill?
Yourphonebill?
Thelistgoesonandon.Mostpeoplehaveaverylonglist.Mine
isoneofthelongeronetoo.Butmostpeopleomitthemost
importantpayeeoftheirentirelives!
Themostimportantpayee
www.KCLau.com page31/106
Whoisthemostimportantpayee?Youasthepayer,whoshould
youpayfirst?
Theanswerisyou!Thefutureyou!Theretiredyou!Theoldyou!
Amorehealthylistofpayeesshouldconsistofandnotlimitedthe
itemsbelow,astoppriority:
Yourregularinvestment
Yourretirementaccounts
Yoursavingaccounts
Pleasebyallmeans,keepasmuchas30%ofyourtotalincome
forthefutureyou.
ItisundeniablethatthelivingexpensesinMalaysiaaregetting
higheratamuchfasterrate,althoughinflationreportsthatthe
rateislow.Feelingthepressureofpetrolsubsidycut,andrising
costofalmosteverything,fromtollchargestohawkerfoodlife
isdefinitelygettingharder.
Humansareextremelyflexible.Wecancopewiththesituation
withsomecompromiseandsacrifice.Whenmoneyisnolonger
enough,wecanalwaysfindwaystocutsomeexpenses.Being
frugalsimplymeanslivingbelowyourmeans.
However,lessmoneyspentdoesnotindicatelowerqualityof
lifestyle.Becauseoftheadvancementoftechnologyandthe
www.KCLau.com page32/106
Internet,youcanevenspendlesstoenjoythesamebenefit,if
notbetterthanweusedtohave.
IfyouarelivinginMalaysia,herearetopfivemonthlyexpenses
thatcanbecutfromyourbudget:
1.MonthlyAstrobill
IknowmostofusMalaysianshavetheAstroinstalledinour
home.IusedtosubscribetoAstrotooafewyearsago.Nowthe
cheapestpackageismorethanRM50/month!.
Afterhavingitforawhile,Ifoundthatitisreallyawasteof
moneyandtime.Togetyourvalueback,youspendhoursoftime
watchingTV.Butinfact,timeiswastedforunproductive
activities,thatsforpureentertainment.
Ifwatchingmovies,TVseriesorlivesportsissoimportantto
you,therearemanyalternativesthatsfreeofcharge.Youtube
hastonsofentertainingvideosandshortfilms,eventhoughthe
videoqualityisnotasgoodasotherserviceproviders.Butwith
thebroadrangeofusersandcontentproviders,youcanfinda
widevarietyofvideosforyourpureentertainment.Someeven
providevideotutorialandeducationalmaterialsthere.
Therearealsonewservicelikeiflix(theNetflixofSouthEast
Asia)andtheIPTVboxeslike1OTT.Checkthemoutjustfora
fractionofthecostyoupayforAstro.
2.MonthlyNewspaperSubscription
www.KCLau.com page33/106
Doyoustillhavethenewspapersenttoyourhouseevery
morning?NewspapersinMalaysiapublishcontrolledmaterials
andnews.AtypicalChinesenewspaperismorethan100pages!
Thisincludesadvertisement,worldandlocalnews,butmostare
reportingbadnewsandcrimes.
Moreover,youneedaplacetostockyouroldnewspapersand
waitfortherecycleteamtodrivebyandsellthemofafew
ringgits.Thisisapurewasteofpaper,andtrees.
Ioptforamoreenvironmentallyfriendlyoption.Ireadthenews
andarticlesontheInternet.
3.MonthlyFixedLineHomePhone
IamusingtheUnifipackagenowonthe20MBpsplancosting
RM250/month,duetobusinessneeds.Comparingthistoother
developedcountries,wearestillpayingarelativelyveryhighfee
forbroadbandservice.Nevertheless,IstilluseTMUnifibecause
therearereallynocompetitorsallthesetime.However,recently
somemobileconnectionserviceproviderssuchasMaxisand
Digihavecomeupwithbroadbandplans.
Now,atleastwehavesomechoicestoswitchtomobile
broadbands,whichprovideunlimitedusageanywhere,anytime.
IfStreamyxisnotgoingtoabsorbthefixedphonerental,Idont
seeanyattractivenessinitsbroadbandpackageanymore.
4.CreditCardInsurance
Banktelemarketerscallyoufromtimetotimeaskingyouto
subscribeforoneschemeortheother.(hospitalizationincome
www.KCLau.com page34/106
benefit,accidentalplan,etc)Haveyoueversignedupforone?I
neverdo.Buttherearesomewhowillsignupeventually,ifnot,
thetelemarketerswillbeoutofjobs.
Thosewhosignedupprobablyaresoldbecauseofthe
seeminglybetterbenefitsandlimitedoffer.Butdontforgetthat
therearetermsandconditionsthatyoumighthaveoverlooked.
Everytimeyougetthiskindofsalescall,askfortheblackand
whiteofthetermsandconditions.Askthefollowingquestions:
Whatarethetermsandcondition?
Howdoyoucancelitinthefuture?
Whoisgoingtohelpyou,giveyoupersonalservicewhen
itcomesthetimetomakeclaim?
Anothertypeofcreditcardinsuranceisonethathelpsyoucancel
yourcreditcardliability.Thismeansthatwhenthecardholder
passedaway,theliabilitywillbecancelledoff.
Thisbenefitrequiresapremiumofafewringgitsdependingon
whatyourcreditcardbalanceis.Butdoyoureallyneedthis?
Whenyouchargethepurchasesonyourcreditcard,youare
supposedtohavethemoneyreadytopayitoffinthefirstplace.
Ifyousayitisfortheestatecreation,fortheprotectionofyour
family,itshouldbeproperlydonewithinsuranceplanning,not
throughatelemarketerwhosellsyouthisstuff.Theyprobably
neverpurchasetheseprotectionforthemselves.
5.TripstotheBanks
www.KCLau.com page35/106
Thisisanactivitythatcostsyoupetrol,parkingfees,andmost
importantly,acompletewasteoftime.HereishowIhandlemy
bankaccounts,monthlybills,andalsocreditcards.
Setupautodebitinstructiontochargemycreditcardfor
recurringbills,suchaselectricity,mobilephone,
broadband,lifeinsurancepoliciesetc.
Useinternetbankingtodointrabanktransfer(freeof
charge),andinterbanktransfer(costRM0.11).Internet
bankingletsyoupayyourbillsandtransfermoneyfrom
anywhereaslongasyouareconnectedtotheInternet.
So,theonlytriptobanksistowithdrawafewhundredringgits
cashforthewholemonthexpenses,plusdepositingcheque
paymentsthatIreceive.Thesetwotaskscanbedoneusingthe
ATMmachinesandchequedepositmachines.
However,ifyourtransactionrequiresapersonalserviceatthe
counter,youcandoitduringOFFofficehourstoo.How?Some
bankshavebranchesinsideshoppingmallsthatopenfrom11am
to7.30pm.Justplanyourtripandyoudonthavetosqueeze
yourselfinthelongqueueanymore.
www.KCLau.com page36/106
TheRuleof72isabasicinvestmentrulethatestimatesthe
amountoftimeitwilltaketodoubleyourmoney.Itisgenerally
usedasasimpleandstraightforwardmethodforestimatingan
investmentsdoublingtimeorhalvingtime.
HowtoapplytheRuleof72
Theserulesapplytoexponentialgrowthanddecayrespectively,
andarethereforeusedforcompoundinterestasopposedto
simpleinterestcalculations.
Yearstodouble=72/InterestRate
www.KCLau.com page37/106
Takethepercentageofinterestonyourmoneyanddivideitinto
72.
Forexample,aninterestratecompoundedat9%percentwould
doubleineightyears(72/9=8).
Ifmedicalfeesincreaseat8%perannum,theruleof72gives
72/9=8yearslater,yourmedicalbillwilldoubleanexact
calculationgives8.0432years.Afteranother8years,youwill
needtopay4timesofthemedicalbillcomparedtopresent
situation.
Whenyourunittrustconsultanttoldyouthataparticularfund
gives100%returnin6years.Youroughlyknowthatthefunds
annualized72/6=12%returnperannum.
Ifinflationratesgofrom2%to3%,yourmoneywilllosehalfits
valuein36or24years.
Astockyoubought8yearsagoisonlyworth1/4ofitsprevious
value.Usingruleof72twice,theshareshrinksatarateof18%
p.a.(Fortheinitial4years,itfallstohalfofitsvalue.Waitanother
4years,itfallsfurthertoonlyaquarterremaining)
WhentousetheRuleof71,70and69.3
Theruleof72providesagoodapproximationforannual
compounding,andforcompoundingattypicalrates(from6%to
10%).Buttherearesituationwhereotherruleswillgivemore
accurateanswer.
www.KCLau.com page38/106
lowratesforlowerratethan6%,Ruleof69.3willgiveabetter
resultthanRuleof72.
dailycompoundingSincedailycompoundingiscloseenough
tocontinuouscompounding,formostpurposes69.3or70is
used
higherratesabiggernumeratorwouldbebetter(e.g.for
20%,using76toget3.8yearswouldbeonlyabout0.002off,
whereusing72toget3.6wouldbeabout0.2off).
Thisisbecause,asabove,theruleof72isonlyanapproximation
thatisaccurateforinterestratesfrom6%to10%.Outsidethat
rangetheerrorwillvaryfrom2.4%to14.0%.Foreverythree
percentagepointsawayfrom8%thevalue72couldbeadjusted
by1.
MillionairesEstimation
FelixsCorollaryprovidesamethodofapproximatingthefuture
valueofanannuity(aseriesofregularpayments),usingthe
sameprinciplesastheRuleof72.Thecorollarystatesthatfuture
valueofanannuitywhosepercentageinterestrateandnumber
ofpaymentsmultiplytobe72canbeapproximatedbymultiplying
thesumofthepaymentstimes1.5.
Asanexample,12periodicpaymentsof$1000growingat6%
perperiodwillbeworthapproximately$18,000afterthelast
period.Thiscanbecalculatedbymultiplying1.5timesthe
$12,000ofpayments.ThisisanapplicationofFelixscollorary
www.KCLau.com page39/106
because12times6is72.Likewise,8periodicthousanddollar
paymentsat9%willresultin1.5timesthe$8000,or$12,000.
Themillionairesestimationisasimplesavingscalculator,posing
thequestionHowmuchmustIsaveperyeartohavesaved
$1,080,000?Ofcourse,theannualinterestrateisafactor.In
theoriginalchallenge,thenumber$1,080,000waschosendue
toitsmultiplicativerelationtothenumber72.
UsingFelixscorollary,onecanestimatethatbysavingtwothirds
ofthetotal,inperiodicdeposits,theinterestwilltakecareofthe
rest(since1.5timestwothirdswillequalthedesiredgoal).So
thegoalbecomestosetaside$720,000inequalperiodic
deposits,suchthatitgrowstoapproximatethetargetamountof
$1,080,000.
www.KCLau.com page40/106
Ifyouwanttobeamillionairein12years,justsave$60,000a
yearinaninvestmentvehiclethatgivesyou6%ayear.
Ifyouwanttobeamillionairein6years,justsave$120,000a
yearinaninvestmentvehiclethatgivesyou12%returnper
annum.
SummaryforAction
TheRuleof72isasimplifiedwaytodeterminehowlongan
investmentwilltaketodouble,givenafixedannualrateof
interest.Ibetyoudontwanttobringyourfinancialcalculator
whereveryougo.JustapplytheRuleof72toquicklymakea
roughestimateofaparticularinvestment.Tryestimatetheroute
yourfriendsorfamilymembercanbecomeamillionaireusingthe
FelixsCorollaryandtheRuleof72.
www.KCLau.com page41/106
Now,wewillstartwithlearningthecalculationofthevalueof
singlesuminvestment.
CommonProblems
#1.YouhaveRM10,000inafixeddepositaccount,giving3.7%
returnannually.Ifyoudontcashouttheinterestearned,how
muchifthetotalmoneyaccumulatedafter15years?
#2.AliborrowedRM5,000fromaloanshark5monthsago.He
agreedtopaycompoundedinterestof3%permonth,calculated
basedontotalamountowed.ButAlinevermadeanypayment
untilnow.HowmuchshouldtheloansharkclaimfromAli?
Theory
BeforeIlearnthetheoryoftimevalueofmoney(TVM),Iusedto
createspreadsheetusingMicrosoftExceltoautomatethe
repetitivecalculations.Now,saveyourselfthetrouble.Usethis
formula:
www.KCLau.com page42/106
FV(Futurevalue)=futurevalueofinvestmentattheendof
period
PV(Presentvalue)=presentsumofmoneysetasideforthe
investment
i=rateofinterest
n=numberofperiods
Solutions
Example#1:
YouhaveRM10,000inafixeddepositaccount,giving3.7%
returnannually.Ifyoudontcashouttheinterestearned,how
muchifthetotalmoneyaccumulatedafter15years?
PV=RM10,000
i=3.7%perannum
n=15years
FV=?
Usingscientificcalculator,substitutethevaluesintotheformula
FV=RM17245.72
Theeasierwayistouseafinancialcalculator.Youdonthaveto
buyaphysicalfinancialcalculator.Therearemanymobileapps
application.Youcanalsosearchonlinewiththekeywordfuture
valuecalculatortousesomefreeresourcesalreadyputup
there.
Example#2:
www.KCLau.com page43/106
AliborrowedRM5,000fromaloanshark5monthsago.He
agreedtopaycompoundedinterestof3%permonth,calculated
basedontotalamountowed.ButAlinevermadeanypayment
untilnow.HowmuchshouldtheloansharkclaimfromAli?
PV=RM5,000
i=3%permonth
n=5months
FV=?
Substitutethevaluesintotheformula,youwillget
FV=RM5796.37
Youshouldnevermesswithaloanshark.
Exercise
1.AunittrustagenttoldyouthatFundAgiveareturnof10%
perannum.IfyouinvestRM50,000now,howmuchwouldyou
expectthetotalfundvalueofyourinvestmentafter8years?
2.Thecurrentinflationrateisabout3.5%perannum.Nowyou
payRM10.80foracupofStarbuckscoffee.Howmuchwouldit
costswhenyouretireafter23years?
3.LetsassumetheUSdollarisdepreciatingataconstantrateof
1%permonth.Now,USD1equalstoRM4.20.After8months,
howmuchUSdollarcanyougetfromRM5.00?
www.KCLau.com page44/106
CommonProblems
#1.YouhavesetasideRM10,000foryourfuturedreamhome
downpayment.YouwanttohaveatleastRM15,000after5
yearstimetopurchaseyourdreamhouse.Whatistherateof
returnrequiredifyouweretoinvesttheinitialRM10,000inorder
togetRM15,000,5yearslater?
#2.YouinvestedRM5,000inabalancedunittrustfundthatgives
anaverageof10%returnperannum.Howlongyoumustkeep
themoneyinvestedinordertohaveRM10,000tofundyour
childstertiaryeducation?
Theory
Usethisformula:
FV(Futurevalue)=futurevalueofinvestmentattheendof
period
PV(Presentvalue)=presentsumofmoneysetasideforthe
investment
i=rateofinterest/rateofreturn
n=numberofperiods
www.KCLau.com page45/106
Itcanbemodifiedtodeterminetherateofreturnrequired.Inthis
case,weknowthevalueofFV,PVandn.Whatwewantto
computeisi.
Youcanusetheinterpolationmethodorthetrialanderror
methodusingexcelspreadsheet.ButIwouldprefertheeasiest
routeusingfinancialcalculator.
Solutions
Example#1:
YouhavesetasideRM10,000foryourfuturedreamhomedown
payment.YouwanttohaveatleastRM15,000after5yearstime
topurchaseyourdreamhouse.Whatistherateofreturn
requiredifyouweretoinvesttheinitialRM10,000inordertoget
RM15,000,5yearslater?
PV=RM10,000
FV=RM15,000
n=5years
i=?
i=8.45%
www.KCLau.com page46/106
Example#2:
YouinvestedRM5,000inabalancedunittrustfundthatgivesan
averageof10%returnperannum.Howlongyoumustkeepthe
moneyinvestedinordertohaveRM10,000tofundyourchilds
tertiaryeducation?
PV=RM5,000
FV=RM10,000
i=10%p.a.
n=?
n=7.27years
Exercise
#1.Aunittrustagenttoldyouthatoneofhiscustomerwho
invested5yearsagohadachieved200%totalreturnthisyear.
Whatistherateofreturnperannum?
#2.Yourmothertoldyouthatacupofcoffeeatthelocalkopitiam
costsRM0.10onlywhensheis20yearsold.Nowsheisretired
www.KCLau.com page47/106
atage55.ThepriceofacupofcoffeenowisRM1.00.Whatis
theaverageinflationrateperyear?
#3.LetssayyouhaveRM100,000inyourinvestmentportfolio.
Duetoconsistentmonitoringandinvestmentresearch,youare
abletogetanaveragereturnof15%p.a.forthepast5years.If
everythinggoesaccordingtoplan,howlongwillittakeforyouto
becomeamillionaire?
Forinstance,whenyouaresettingasidearegularandfixed
amountforsaving,orunittrustdollarcostaveragingstrategy,
therewillbeaconstantsumofmoneyinvestedatregular
intervals.Thisseriesofcashflowsisalsoknownasanannuity.
CommonProblems
YouinitiatedabankstandinginstructiontodeductRM200/month
fromyourbankaccountforunittrustinvestment.Therateof
returnisabout15%p.a.Howmuchisthetotalofyour
investmentvalueafter5years?
Youboughtanendowmentpolicy,payingtotalpremiumof
RM988perannum.Youragenttoldyouthattheinsurancepolicy
willmaturein25yearsjustontimeforyourretirementfund.The
www.KCLau.com page48/106
maturitybenefitisprojectedatRM50,000.Whatistherateof
returnperannum?
Youapplyahousingloantofundthepurchaseofyourfirsthome.
ThehousevalueisRM200,000.YoupaidRM20,000down
paymentandfinancetherest.Assumingthebankisofferingyou
afixedloanrateof5.8%p.a.,howmuchisthemonthly
installmentsforloantenureof30years?
Theory
ThisformulagivestheFutureValueofanannuity(assuming
compoundinterest):
wherer=interestraten=numberofperiods.
PaymentamountisnormallyindicatedusingPMT
www.KCLau.com page49/106
Forannuitycalculations,wemustfirstunderstandthetimingof
thepayment.
AnnuitydueAnannuitywithpaymentsmadeatthebeginning
ofeachperiod.Alsocalledadvancepaymentannuity.
Examples:
unittrustdollarcostaveragingstrategy
payingregularinsurancepremium
payingtuitionfeeseverymonth
OrdinaryAnnuityAseriesoffixedpaymentsmadeattheend
ofeachperiodoverafixedamountoftime.
Examples:
housingloaninstallments
carloanorhirepurchaseinstallments
periodicinterestonbondswherethecouponratesare
fixed
Solutions
Example#1:
YouinitiatedabankstandinginstructiontodeductRM200/month
fromyourbankaccountforunittrustinvestment.Therateof
returnisabout15%p.a.Howmuchisthetotalofyour
investmentvalueafter5years?
PV=0
BeginningMode
n=5x12=60months
i=15%p.a./12=1.25%permonth
PMT=RM200/month
www.KCLau.com page50/106
FV=RM17,936.34
Example#2:
Youboughtanendowmentpolicy,payingtotalpremiumof
RM988perannum.Youragenttoldyouthattheinsurancepolicy
willmaturein25yearsjustontimeforyourretirementfund.The
maturitybenefitisprojectedatRM50,000.Whatistheeffective
rateofreturnperannum?
PV=0
BeginningMode
n=25years
PMT=RM988/year
FV=RM50,000
i=?
www.KCLau.com page51/106
i=5.066%p.a.
Example#3:
Youapplyahousingloantofundthepurchaseofyourfirsthome.
ThehousevalueisRM200,000.YoupaidRM20,000down
paymentandfinancetherest.Assumingthebankisofferingyou
aflatloanrateof5.8%p.a.,howmuchisthemonthly
installmentsforloantenureof30years?
PV=RM180,000
EndMode
n=30yearsx12=360months
FV=0
i=5.8%p.a.=0.48333%permonth
PMT=?
www.KCLau.com page52/106
MonthlyinstallmentisRM1056.16.
Exercise
Youwanttobeamillionairein15yearstime.Now,youalready
havealumpsumsavingofRM50,000incash.Aftersomedeep
consideration,youdecidedtoinvesttheRM50,000ina
singlepremiuminvestmentlinkedinsurancepolicy,whichhasa
pasthistoryofgiving12%returnperannum.Besidethe
insurancepolicy,youwillalsosetasideRM1000permonthfor
unittrustinvestmentusingdollarcostaveragingmethod.Whatis
theminimumrateofreturnoftheunittrustportfolio,sothatyou
canachievemillionairestatusin15yearstime?
www.KCLau.com page53/106
TocalculatethetotalretirementfundintheEPF(Employee
ProvidentFund),wehavetomakesomeassumptionsinorderto
computethevalue
theamountofdepositwillincreaseovertimeata
constantrate(thenormalsalaryincrementrate)
interestarepaidatyearendandalwaysatthesamerate
CommonProblems
Youstartedyourcareerasanengineerat24yearsoldwitha
startingpayofRM2500permonth.Contractualbonusisone
additionalmonth.Theaveragesalaryincreaseduringyour
lifetimeisestimatedat7%peryear.EPFpaysanaverage
annualdividendof5%p.a.YourcontributiontoEPFis11%of
yoursalaryand12%iscontributionfromyouremployer.How
muchwillyougetwhenyouretireatage55?
Theory
Usetheformulabelow:
where
i=EPFdividendrate
n=numberofyears
A=initialamountofdeposit
g=rateofsalarygrowth
FV=futurevalueofEPFaccount
www.KCLau.com page54/106
Solutions
Youstartedyourcareerasanengineerat24yearsoldwitha
startingpayofRM2500permonth.Contractualbonusisone
additionalmonth.Theaveragesalaryincreaseduringyour
lifetimeisestimatedat7%peryear.EPFpaysanaverage
annualdividendof5%p.a.YourcontributiontoEPFis11%of
yoursalaryand12%iscontributionfromyouremployer.How
muchwillyougetwhenyouretireatage55?
Firststepistofindoutthevariousvariables.
Theinitialamountofdeposit,A=RM2500x(12+1
months)x(11+12)%
A=2500x13x0.23
=RM7475
Thenumberofyears,n=5524=31years
TheEPFdividendrate,i=5%p.a.=0.05
Thesalarygrowthrate,g=7%p.a.=0.07
Substitutethevariablesintheformulaabove.
ThetotalfundinEPF,FV=RM1.379million
Inordertogiveyouconvenienttools,thereareseveral
webbasedEPFcalculatorsdeveloped.Justgoogleforit.
www.KCLau.com page55/106
www.KCLau.com page56/106
Exercise
Tanstartedhiscareerasanexecutiveinalocalfirmatage18
withastartingpayofRM1200permonth.Theaveragesalary
increaseduringhislifetimeisestimatedat5%peryear.EPF
paysanaverageannualdividendof5%p.a.Hiscontributionto
EPFis11%ofandhiscompanycontributes13%.Howmuchwill
Tanentitledtowithdrawatage50?(AssumingEPFwithdrawal
rulesstillremainthesameasyear2007)
Thisisprobablythemostimportantlessoneverybodyshould
learnabouthowtocalculatetheactualeffectiveannualrate
(EAR).
CommonProblems
IfyouhavedepositmoneyinaFixedDeposit(FD)account,the
bankerwillaskyouaboutthetermofyourdeposit1month,3
months,6months,1yearorlonger?Thebankgivesdifferent
ratefordifferenttenure.LetssayMaybankisgiving3.7%for12
monthsFD,and3.4%for6monthsFD,whatistheEARfor
6monthsFD?Isitbetterthan12monthsFD?
Theory
Scenario112monthFD
www.KCLau.com page57/106
Referringtothesituationabove,letssayyouaredepositing
RM10,000inFDfor12monthstenure.Attheendoftheterm,
youwillgetyourinitialinvestment(RM10k)plusthe3.7%interest
(RM370)
Return=3.7%p.a.,whichisalsotheEAR.
Scenario26monthFD
Ifyouopttoputthemoneyin6monthsFD,after6months,you
willget
Return=3.4%x(6/12)=1.7%,whichisequaltoRM170
interestearned.
ThenyourenewtheFDwithoutwithdrawingtheinterestearning,
youwillhaveRM10,170intheFDforanother6months.
Attheendoftheyear,yourwillgetanotherearningof1.7%x
RM10,170=RM172.89.
SoyourtotalreturnisRM170+RM172.89=RM342.89
TheEffectiveAnnualRate(EAR)=RM342.89/RM10,000=
3.4289%
ToeasilycalculatetheEAR,usetheformulabelow:
www.KCLau.com page58/106
where
i=nominalannualrate(normallystated)
n=numberofcompoundingperiod(compounding
frequency)
Fortheaboveexample
EAR=[(1+0.034/2)^2]1
=3.4289%
NominalInterestRate
Nominalinterestrateiswhatweusuallyseeonfinancial
products.Mostofthetime,theseratesmaynotbetheactual
annualrate.
Aninterestrateiscallednominalifthefrequencyofcompounding
(e.g.amonth)isnotidenticaltothebasictimeunit(normallya
year).
Example:
interestrateonhousingloan(EARishigherwhenitisdailyrest)
publishedFDratesfordifferentterms(1month,2months,or12
monthsetc)
Themorefrequentyoucompound,thehighertheEAR.
www.KCLau.com page59/106
Whenyouwanttocompareplans,firstyoumustcalculatethe
respectiveEARforeachplan.ThencomparetheEAR.
YoucansearchGoogleforEARconvertor
Exercise
YouhaveRM7,000inFixedDepositwithCIMBBank.YourFDis
renewableeverymonthandCIMBbankprovides3.2%p.a.
interest.YoulettheFDrenewedfor2years.Fromthe3rdyear
onwards,thebankloweredtheFDinterestrateto3.0%p.a.But
youdontneedthemoney,soyouleaveitthereforanother3
years.Whatsthefinalamountyouwillbeabletowithdrawatthe
endof5years?
www.KCLau.com page60/106
Youjustneedanextrasteptocalculatethereturnofyour
investmentportfolio.
Letssayyouinvestinseveralassetclasses.Yourgold
investmentgivesover100%returnlastyear.Yourstock
investmentturnedsouraftertherecentGeneralElection.The
apartmentyourentedoutgivesyouaconsistentreturnmonth
aftermonthbecauseofyourloyaltenants.Manytypeof
investment,allwithdifferentreturn.Sohowdoyouknowyour
overallinvestmentportfolioisdoing?Isitontrack?
Thisisasimpletutorialonhowtocomputeyourportfolioreturn.
Returnofportfolio=(W1xR1)+(W2xR2)+(W3xR3)+
..(WnxRn)
WhereW1,W2,W3andWnstandfortheweightingsin%of
assets,forasset1ton,intheportfolio.Whereas,R1,R2,R3
andRnarereturnsfortherespectiveassets,1ton,inthe
portfolio.
www.KCLau.com page61/106
Example1:
Morethanhalfisinvestedinrealestates.
Weightofstocks=50k/293k=17.06%
Weightedreturnofstocks=25%x17.06%=4.27%
Overallportfolioreturn=4.27+0.44+1.01+4.10=9.82%
Example2:
Thisisaveryconservativeassetallocation.about73%invested
infixeddeposit.
Example3:
Thisisanbalanceportfolio,investedinfourassetclasswith
equalshare.
www.KCLau.com page62/106
Downloadtheexcelspreadsheet:investmentportfolioreturn
Bytrackingyourportfolioreturn,youwillbeabletoconstructa
properassetallocationtogetthedesiredreturn.
EPFwasstartedforthesolepurposeofforcingemployeestoset
asideacertainpercentageoftheirincomefortheirretirement.It
wasgenerallyperceivedthatifthecontributionsweretobeused
forotherpurposes,thiswouldhaveadetrimentalimpactonthe
sizeoftheretirementnestegg.
However,usingthesecontributionstofinanceoutstanding
housingloansisalsoanotherformoflongtermsavingasthe
propertyislikelytoappreciateafterthemortgageissettled.
HowitWorks?
Thistypeofwithdrawalinvolvesyouwithdrawingmoneyfrom
yourAccount2tofinanceyourmonthlyinstallmentsforyour
housingloan,whichwastakenupeithertobuyanewhouseor
buildanewone.
www.KCLau.com page63/106
ContributorsneedtogototheEPFtoapplyforthemonthly
withdrawalonlyonce,andsubsequentpaymentswouldbe
directlycreditedtotheirpersonalaccountseverymonth.
Pleasenotethatthistypeofwithdrawaliscreditedtoyour
personalbankaccount.Itisnotalumpsumwithdrawalthatis
paiddirectlytothefinancier,whichisalsoanotheroptionof
withdrawal.
HowDoesWithdrawingEPFAffectYourRetirementFund?
IfcontributorswithdrawtheirEPFforhousingpurposes,theywill
inturnhavefewerfundsfortheirretirement.However,atleast
theycanbesurethattheyhavearooftoliveunder.Fornow,
propertyisaffordableinMalaysia,butoneneverknowswhatwill
happentothepropertymarketinthefuture.LookingatKorea
andTaiwan,itisalmostimpossibletoownadecenthomeatbig
cityifyouarenotrich.InSingapore,100%oftheirCPF(the
SingaporeequivalentofEPF)canbewithdrawntopaythedown
paymentofhousepurchase,andtheinstallmentcanbepaid
usingCPFtoo.
ThemovetoallowwithdrawalofEPFtofinancehousingloans
wouldbenefitmostEPFcontributors.Contributorswho
previouslyfounditmonetarilytighttobuyapropertycannow
considerdoingsowiththisnewwithdrawalscheme.Thisway,
somecontributorswouldbeabletoownbetterhousesandyet
beabletolessentheirmonthlyfinancialobligations.
www.KCLau.com page64/106
Contributorswhoarecurrentlyhomeownersandarepaying
mortgagecanalsoexperiencebettercashflowaslessmoneyis
spentoutofhandfortheloan.
Thisnewwithdrawalschemeisalsogoodforthosewhoknow
howtomanagemoney.Theycanusethisfacilitytogrowtheir
wealth.Forinstance,consumerdebtintheformofcreditcard
loans,personalloanscanbepaidofftheycaninvestforbetter
returnorevenfundhighereducation.
However,forthosewhoarefinanciallyilliterate,moremoney
equalsmoretrouble.Theywillspendforinstantgratification
withoutthinkingoffutureneeds.Thismaycauseasocialproblem
inthefuturewhenretireehasinadequatefundstoliveon.
5SuggestionstochannelEPFwithdrawalbacktoyour
retirementfund
Withproperknowledge,youcantakeadvantageofthis
withdrawalfacilityandgrowyourretirementfurther.Hereare5
suggestionstochannelyourEPFmoneybacktoyourretirement
fund:
1. BuyunittrustfundthatwilloutperformEPFdividendby
applyingringgitcostaveragingstrategy
2. Investinsharesbuyundervaluedstockswithgood
dividendpayout
3. buyanotherpropertytoreceiverentalincomeafter
retirement
4. buyanannuityplantoreceiveyearlyincomeduring
retirement
www.KCLau.com page65/106
5. Paytowardstheprincipleofyourhousingloan,thus
shortentheloantenureandsaveoninterestcharge.
Aneconomicrecessionissimplydefinedasasignificantdecline
intheeconomicactivityspreadacrosstheeconomythatusually
lastsmorethanafewmonths.Moreeconomicallyspeaking,a
recessionisadeclineinacountrysGrossDomesticProductora
negativerealeconomicgrowthfortwoormoresuccessive
quartersinayear.Thelatterisawidelyknowndefinitionof
recessionsaswellasawidelyacceptedone.
Asevereorlongrecessionisreferredtoasaneconomic
depression.Adevastatingbreakdownofaneconomy
(essentially,aseveredepression,orahyperinflation,depending
onthecircumstances)iscalledaneconomiccollapse.
IsMalaysiaheadingtowardsarecession?Wellneverknowuntil
ithappens.
Whatcausesrecession?
Thereasonsbehindeconomicdownturnsremainlargely
unsolved.However,thereareseveraltraditionalexplanationsto
thephenomenon.
www.KCLau.com page66/106
ThetraditionalexplanationEconomywidechanges
Thetraditionalexplanationspostulatethatrecessionsarecaused
byeventsthathaveaneconomywideimpact,suchasan
increaseininterestrates
declineinconsumerconfidence.
Firmsreduceoutputandlayoffworkers,whichfurther
decreasesdemand,andtheeconomyslowsevenmore.
Causedbyeventsthathurtparticularfirmsorindustries
Economicrecessionscanbecausedbyeventsthatwouldhave
animpactonspecificcompaniesorindustries.Forinstance,a
majorinnovationcanadverselyaffectsomefirms,causingthem
toreduceproduction.Thiswouldinturnleadtoaretrenchment
ofworkers.Ontheotherhands,positivelyimpactedcompanies
wouldneedextrahandsandseekadditionalworkers.
Itnaturallytakestimeforthedisplacedworkerstofindnew
meansofemployment.Duringthisphaseofreallocationa
situationofrecessionmayoccur.
www.KCLau.com page67/106
www.KCLau.com page68/106
Whathappensduringrecession?
#1.RiseofUnemploymentrate
Duringarecession,thereisageneraltrendofrising
unemploymentratesanddecreasingoveralloutput.Withfewer
peoplecontributingtotheeconomy,theoveralleconomyis
boundtobeaffected.Incomegrowthwouldbestalled.While
therewouldbemorepeopleinthemarketlookingfor
employment,thedemandforrecruitingpeopleisfarlesser.
Whenpeopleareearninglowerincomes,theirspendingpower
decreases.Assuch,thereisareductioninspending.Businesses
arelimitedintheirabilitytopassalonganyincreasesinexpenses
intheformofhigherprices.Inordertomovegoodsoffthe
shelves,businessesaremorelikelytoreduceprices.This
eventuallycausesdeflation.
Withpricesdriftingdownwardandcommoditiesbecomingmore
affordable,consumerspendingwillonceagainkickoffand
increase.Theincreaseinconsumerspending,overtime,leadsto
anincreaseinindustrialproduction.Thisinturnimproves
corporateprofitsleadingtoincreasedemploymentandimproved
earnings,etc.Thisishowtheeconomiccycletakesplace.
Thatswhypeoplesayeconomywontgrowthcontinuously
withoutrecession.
#2.Stockmarketplummet
Peoplearegenerallyconservativeduringrecession.Thosewho
losetheirjobsbecauseofrecessionstartsellingofftheir
investmentsbecausetheyneedmoneytosustainwhiletheyget
www.KCLau.com page69/106
anotherjob.Theincreasednumberofpeoplesellingtheirstocks
causesthestockmarkettofallsharply
#3.RealEstateplummet
Duringarecession,peopleturntofiscalconservatism.This
affectstherealestateindustryaswell,asthereislesserdemand
intherealestatemarket.Peopleputoffbuyingandsellingof
propertyduringtheperiodsofeconomicrecession.Another
scenarioiswheretheincreasinglevelsofunemploymentduringa
recessioncauseaffectedhomeownerstoselltheirhometo
accommodatechangingjobdemands.
Ontheotherhand,becauseofthehighersupplyofhouseson
saleascomparedtothelowdemand,aneconomicrecessionwill
forcefullyreducethesellingpricesofhomes.Assuch,the
economicrecessionhasapositiveimpactonpotential
homebuyers.Thisisalsobecausetherearelowermortgage
ratesthatarecausedbychangesininterestrates.
HowARecessionImpactsYourDailyLife?
#1.Loseyourjob
NewspapercolumnistSidneyJ.Harrisdistinguishedtermsthis
way:arecessioniswhenyouloseyourjobadepressionis
whenIlosemine.
#2.Cantaffordtopaybackyourmortgage
Asuddenlossofjobcancauseretrenchedemployeesto
experienceanegativemonthlycashflow.Asimilarsituationcan
alsohappenifyouremployersgobankruptsuddenly.Arrearson
www.KCLau.com page70/106
mortgagecanalsocauseshomestobeauctioned.Ina
worstcasescenario,sometimes,evenafterthehomesaresold
forcefully,peoplestillowethebank,money.
#3.Watchyourinvestmentportfolioshrinkinvalue
Highexposureinequitywillresultinasharpfallinthestock
market.WhenpeopleareInvestingtooaggressivelyinabubble
economy,itisextremelyriskythatonedayyourstockportfolio
justshrink50%withinafewdays.
Howtoprepareforrecession?
#1.Createaworstcasescenario
Createaworstcasecashflowforecast.Predicthowbaditcould
beifyoulostyourjoborifyourbusinessdroppedinsalesby
about50%.
#2.BuildupanEmergencyfund
Prepareanemergencyfundwithenoughmoneytocoveratleast
6monthsofexpenses.
#3.Haveaconsistentlyrebalancedinvestmentportfolio
Thisensuresthatyoulockthecapitalgainofcertainasset
classeswhenitisbooming.
#4.Nomatterwhatfieldofyourprofession,alwaysstriketo
bethebest
Alwaysstrivetobethebest.Avoidbecomingredundantorfat
inyourcompany.Ifyoudonotproveyourworth,youwillbethe
firsttobeledtotheexitdoorduringarecession.
www.KCLau.com page71/106
#5.Diversifyyourincomesource
Pleasebewareifyouareinabusinessthatservesjust12major
customers.Youwillbeatagreatriskduringarecession.For
employees,workoutsomeformsofalternativeincomebesides
themainemployment.
#6.Knowyourfundingsourcesandmanagethe
relationshipproperly
Anotherwaytoprepareyourselfforaslowdownistoknowyour
fundingsourcesandmanagetherelationshipproperly.
Remember,whenfundingsourcestightentheydososelectively
andthisappliestotheirsourcesofbusinessaswellasthe
credits.
#7.Learntoliveonlessthanyourincome
Youmayseepaycutsinyourjobduringaneconomicrecession,
solooknowforwaystotrimyourbudgetasmuchaspossible.
#8.Lastresortcompromiseonyourlifestyle
Wheneverythingdoesntseemtoworkoutforyou,goforthelast
resort:tryreducingyourlifestyledramatically.Sellthatluxurycar.
Movetoasmallerhouse.Cutdownonexpensivedining.
CashisKing
Cashiskingduringrecession.Itisonlyinyourbestfinancial
interesttoacquireassets(stocks,realestate)duringarecession.
Changesininterestratelevelsaremadebythecentralbank
regulator(BankNegara,FederalReserveetc)asawayto
regulatetheeconomy.Inaperiodofeconomicdownturn,interest
www.KCLau.com page72/106
ratesarereducedinanattempttorevivetheeconomy.Thisis
becausereducedinterestratesareusuallyattractiveto
businessesandforpeoplewhowanttoborrowmoneyor
refinanceexistingloansatareducedlevel.Consequently,lower
interestrateswillresultinlowermortgagerates,whichproduce
monthlymortgagepaymentsthatareadvantageousforhome
buyers.
Conclusion
Thereisapossiblerecessionlooming.Somepeoplewillbe
harmedandsubsequently,theeconomywillbeblamed.Theyare
probablyrightnowmaintainingthestatusquoandsimplyhoping
itdoesnthappen.
Preparenowandyouwillfindthatyouwillnotbeaffectedvery
dramatically.Thiswillleaveyouinabetteredge.Preparationfor
arecessionwillenableyoutoreacttochangingtimesandtake
advantageofselectopportunities.
Afteraheavymealatalocalnasikandarrestaurant,Ibought10
senofHacks(yes,thecandy).IstillrememberthatIcouldget3
candiesfor10sen.Lateron,itis5candiesfor20sen.Ithas
beenalongtimeIdidntspendmoneyoncandy.SoIaskedthe
cashierincaseitismoreexpensivealready.AnditisluckythatI
asked,becauseitisselling2for10sennowadays.Thepricerise
www.KCLau.com page73/106
50%after20years.Thatsinflation!However,Hackscandiesare
stillveryaffordable.
Inflationistheriseinthegenerallevelofpricesofgoodsand
servicesinagiveneconomyoveraperiodoftime.Itmayalso
refertotheriseinthepricesofsomemorespecificsetofgoods
orservices.Ineithercase,itismeasuredasthepercentagerate
ofchangeofapriceindex.
Inlaymanterms,severalexplanationofinflationsishowfast
pricesrise,orhowfastyourmoneybecomeslessvaluable.
Whatcauseinflation
Therearetwocampsthatdisagreedstronglyonthemaincauses
ofinflation
Monetaristsarguedthatmoneysupplydominatedall
otherfactorsindetermininginflation
Keynesiansarguedthatitisrealdemandthatcauses
inflation
Buteconomyissuchahugesubjectthatthereisnoonesure
thingthatcausestheother.
Howtocalculateinflation
Avarietyofinflationmeasuresareinuse,becausethereare
manydifferentpriceindices.Twowidelyknownindicesforwhich
inflationratesarecommonlyreportedarethe
ConsumerPriceIndex(CPI)measuresnominal
consumerprices,
GDPdeflatormeasuresthenominalpricesofgoods
andservicesproducedbyagivencountryorregion.
www.KCLau.com page74/106
Inflationiscausingyourmoneytobecomelessvaluable,ifyoudo
nothingaboutit.
BasedonUSCPI,whatcost$1000in1997wouldcost$1309.22
in2007.Also,ifyouweretobuyexactlythesameproductsin
2007and1997,theywouldcostyou$1000and$785.20
respectively.
Howtooutstripinflation
Forsure,ifyoudonothingtoprepareforinflationseffect,your
buyingpowermaydropinthefuture.
#1.Livingbelowyourmeans
Humanbeingisaveryflexiblecreature.Whenthecertain
productsgetmoreexpensive,anditfinallyhurtsourwallet,we
willbeflexibleenoughtouselessofit.Youcaneither
buylessofthemoreexpensivestuff,andmoreoftheless
expensivestuffORletyourstandardoflivingfall
#2.Investforbetterreturns
Youjusthavetogetyourmoneytoworkharder,andgetareturn
thatshigherthaninflationrate.
Intheareaofwealthaccumulation,inflationisanenemythat
approachingyoustepbystepquietly.Bythetimeyounoticethat
andfeelthepainofitsattack,itisprobablytoolate.Thelast
resortistoseeyourstandardoflivingfallunderneath.
www.KCLau.com page75/106
Financialsecurityisaboutknowingandfeelingsafethat
whateverdisasterarrives,youknowyouwonthavefinancial
trouble.Exceptforsomeextremelyrichfolks,financialsecurity
doesnotseemtobethatsimple.
Canwedefinefinancialsecuritysimplybyputtingupanumber?
Wouldamilliondollarsgiveyousecurity?Oryouwontbefeeling
financiallysecuredunlessyouhave10milliondollarsassets?
Ithinkmerelygivingitanumberdoesntdefineitfairlyneither.
AskTheseQuestionstoTestYourFinancialSecurityLevel
Whathappenstomychildren,myparents,myspouse
andmyfamilyifIpassedawaysuddenly?
Whatifbothyouandyourspousepassedawayatthe
sametime?Willeverythingbewelltakencareof?
www.KCLau.com page76/106
AmIpreparedforthenextrecession?
WhathappensifIlosemyjobtoday?
Ifyouareabletoanswerallthequestionsaboveinapositive
manner,congratulations!Youaredefinitelyfinanciallymore
securethan80%ofthepopulationintheworld.
FiveStatesofmindofBeingFinanciallySecured
Financialsecurityconsistsoffourthings:
Beingdebtfree
Beingincontrolofyourexpenses
Consistentlyincreasingyoursavings/assets/networthon
amonthlybasis
Notbeingforcedtoworkatajobyoudislikejusttopay
thebills
Forabroaderandmorecomprehensivedefinitionofbeing
financiallysecure,Iwouldliketoaddanotherimportant
stateofmind:beingwellthoroughlyprotected.
Whenyouknowandfeelthatyouarefinanciallysecure,hereis
whathappens:
#1.Neverworryaboutdebt
Youdonthavetobedebtfreetofeelsecured.Butknowingthat
nomatterwhathappens,youwillbeabletopayoffyourdebt
makesyoufeelsafe.Letssayyoustillowealotofmortgage
payment.Ifyouloseyourjobtoday,canyoustillpaythe
mortgageforthenext24months?Theanswerisyes,if
youhaveasubstantialreservefund.
www.KCLau.com page77/106
youareacapablepersonandfindinganewjobjust
requireafewweekstime
youhaveothersourceofincome
Whatifacarhitsyoutodayandyouloseyourabilityto
earnanincome?Canyoustillaffordtheloaninstallment?
Theanswerisyesifyouarewellprotectedwithlife
insurance.
#2.BeinginControlofYourExpenses
ItisaverydangerousstatementifyousayIcantcontrolmy
expenses!Yes,Iknowyoucancontrolyourexpenses.
Somepeoplesay:
Ineedtospendthemoneytopleasemywife
Ineedtobuythosethingstopleasemykids
Ineedvacationsbecausemyjobsistoostressful
Ifmoneyisspentonanythingthatsnotwithinyourbudgetplan,
youhavelostcontroloveryourspendinghabit.Alltheaboveare
justcheapexcuses.
Anothersituationiswhenafamilymemberneedsthatmoney
whichisnotwithinyourbudget.Forexamples:
yourmotherneedmedicalaid
yourchildneedsalotofmoneytostudyoverseas,butall
youhadsavedforhimisjustenoughforlocalcolleges.
yourbrotherneedstoborrowfromyoubecausehis
businessisgoingsouth.
Theseareproblemsthatcannotbetackledeasily.Butwith
properplanning,wisedecisionscanbemadetopreventthat.
www.KCLau.com page78/106
Whyshouldyourbrotherriskyourmoneytorescuehis
company?Whycantyourchildcompromisetoenterlocal
colleges?Whydidntyoubuymedicalinsuranceforyourmother
inthefirstplace?
#3.ConsistentlyIncreasingyourNetWorth
Thebestrewardofproperbudgetingistoseeyournetworth
growsdaybyday.Whenyouknowthatyouaregettingricher
everyminute,itjustmotivatesyoutodoevenbetter.
#4.Notbeingforcedtoworkatajobyoudislikejusttopay
thebills
Worktakesup1/3ofyourweekdays.Ifyouarestuckwithajob
youhate,Icanimaginehowmiserableyourlifeis.Ifyouwanta
joyfullife,youshouldhaveajobyouarepassionateabout,
besidehavingaspouseyouaredeeplyinlovewith.
Thefreedomtodowhateveryouwant(legally)issoprecious.I
amnotyetrich,butIfeelsecuredinthisareaaboutjobs.Ihavea
fulllistofwhatIcandotomakemoney,andnoneofthemare
thingsthatIdislike.
ThefactisthatIdontworryaboutlosingmyjob,becauseIhave
manyjobsthatIliketodo.Hereismylist:
FinancialplanningservicesIreallycantseehowitmay
failbecauseIhavehundredsofclients.Thisbusinessisa
longtermrelationshipbetweentheplannerandclients.
Mycustomersaresodiversifiedthatsomeofthemare
engineers,lawyers,businessmen,managersetc.
MusicproductionIdomusicarrangement.SometimesI
amselectiveabouttheprojectsIwanttoworkon.
www.KCLau.com page79/106
MakingmoneyonlineThishasbecomemyfulltime
businessnow.
Liveperformanceoneofmybestfriend,whoisa
professionalpianistoftenasksmetoplaygigs.NowI
seldomperformbecauseIwanttospendmoretimewith
mysonandwifeatnight.Butifeverythingturnsintoa
disaster,Icanstillgoouttoperform,andgivemusic
lessons.
PleasedontfeelthatIambragging.Iamcertainlynotearninga
lotatthismoment.ButIhavefunallthetime,duringworkand
outofwork.Ijustwanttourgeyoutobuildupyourownfinancial
security,inyourownpassionatefields.Youshouldturnyour
passionintomoneymakingmachines,andneverworryabout
losingyourjobanymore.
#5.Beingwellthoroughlyprotected
Whenyouarewellprotected,youcanberestassuredthatall
yourdependentscanstillliveonatthesamelifestyleifyou
passedawaysuddenly.Someareasthatpeopleoftenoverlook:
HaveyourWillwellplannedandwrittenup
Havealivingtrustsetuptoprovideeducation,
maintenance,guardianallowanceincaseofdouble
tragedy
Haveyourbusinesswellprotectedwithkeyperson
assurance,liabilitycancellationplan,andalsoafunded
buysellagreementifnecessary
Haveyourowninsuranceproperlyplanned,andgetthe
bestbenefitwiththemostaffordablepremium
www.KCLau.com page80/106
Haveallyourdependentsinsuredaswell.Pleaserealize
thataseriouslyillfamilymemberwilleatupyournestegg
too.
Wouldyoufeelfinanciallysecureafterdoingalltheabove
suggestion?
InMalaysia,thetotalnumberofbankruptcycasesnationwidehas
risenovertheyeartohundredsofthousandsindividuals.
Bankruptcylawexiststohelpboththebankruptandthecreditor.
Itwillstopthecreditorfromharassingthedebtorandit
safeguardstherightsofbothparties.
WhatisBankruptcy?
Simplysaid,itisalegalprocessinitiatedbyanindividualora
companyduetotheinabilitytosettlehisdebts.Bankruptcy
happenswhenapersonisunabletosettlehisdebts(knownasa
debtor)owedtothepeopleorpartywholoanhimthemoney.
Thepeopleorpartywhogaveouttheloanisknownasthe
creditor.Creditorscanbeabankinginstitutionorevena
companygivingouthirepurchaseschemes.
www.KCLau.com page81/106
Toprotecthimselfagainstpossibleharassmentorfromanyother
legalactionsbythecreditors,thedebtormayfileforpersonal
bankruptcy.
Ontheotherhand,thecreditorsmaytakeactionfirstagainstthe
debtorbyservinghimabankruptcynoticetorecoverthemoney
owedbythedebtor.
Beforefilingabankruptcypetitioneitherbythedebtororcreditor,
thefollowingcriteriahavetobemet:
ThesuminvolvedisRM30,000ormore
Thesumofmoneymustbeascertainable(liquidated
sum)
Thereisadefaultperiodofsixmonthsfortheactof
bankruptcytohaveoccurred
Beforethepetitiondate,thedebtormusthaveresidein
Malaysiaforatleastoneyear
HowDoesaPersonBecomeaBankrupt?
Generally,apersonfallsintobankruptcyduetoseveralreasons.
ThosementionedbelowarenotuncommoninMalaysia.
#1.TakingUpaLoan
Therearevariousloansavailabletocaterfordifferentneedsand
wants.Theseloanscanbepersonalloans,studyoreducation
loans,housingloansandevenbuyingacarundera
hirepurchasescheme.
#2.ActingAsaGuarantor
www.KCLau.com page82/106
Aguarantorcanbeasocialguarantororacorporateguarantor.
Apersonwhostoodasaguarantorforloanslikeeducation,
house,carhirepurchase,scholarshipandalsothirdpartyloans
isknownasasocialguarantor.
Acorporateguarantorisapersonwhostoodforloansrelatingto
businessloans,forexampleinabusinesspartnership.
Aguarantorisalsoliabletofacebankruptcywhensummonedby
thecreditors.Thecreditorswillgoaftertheborrowerfirstandif
thatfailstorecovertheamountowed,theywillgoafterthe
guarantortosettlethedebts.
#3.DefaultingOnCreditCardPayment
Theinabilitytopayuptheamountowedinthecreditcard
accountisalsoonereasontogobankrupt.
WhatDoesItMeanToBeaBankrupt?
Whenapersonhasdeclaredbankruptcy,thecourtwillappoint
theDirectorGeneralofInsolvency(DGI)toadministeroverthe
bankruptsassetsinordertosettletheoutstandingdebts.The
DGIwillinitiateaninvestigationtofindanyassetsorproperties
thatbelongtothebankruptandtosellordisposethemtorepay
thecreditors.
ForaMalaysian,beingabankruptistoughfortheindividual.
Amongotherthings,theindividualfacesthefollowinghurdlesor
restrictions:
Hehastogiveupallhisbelongingsandassets.
Heisnotallowedtoopenabankaccountwithoutthe
approvaloftheDGI.
www.KCLau.com page83/106
Heisnotallowedtotraveloutsidefromthecountry
withoutfirstgettingapprovalfromtheDGIorthecourt.
TheDGIwillholdhispassport.
Heisnotallowedtodoanybusinessnorbecomea
companydirectornorevenbepartofthecompanys
management.
Hehastosacrificeacertainpercentageofhismonthly
incometotheDGItorepayhisdebts.
HowToAvoidFromBecomingaBankrupt?
Astraightforwardanswertoavoidbecomingoneofthestatistics
issimplytotakeresponsibilityforonesfinancialaffairor
wellbeing.Itmeansnottotakehugeloanstopurchase
somethingifyoudonothavetheabilitytopaybackthemonthly
installments.Italsomeansbeingincontrolofonesspending
habitsandnottoovercommitontoomanyloansincludinghire
purchase.
Thesamegoesforthesocialguarantorwhodoesnothavethe
resourcesandmeanstosettlethedebtsontheborrowers
behalf.Sothinkrationally(notemotionally)andactcarefully
beforesigningonthedottedlines.
Forthoseintendingtoopenabusiness,doyourresearchwork
properlyandthoroughly.Ensurethatyouhaveenoughfinancial
resourcesandstaminaforthestartupandforthefirstfewyears.
Mostbusinessesdonotmakemoneyinitiallyandmaytakeafew
yearstoshowaprofit.Imaginetheworstscenariohappening
andwhetheryoucansurvivefinancially.Havingjustthestartup
www.KCLau.com page84/106
capitalisnotenough,youneedtohavebackupplansand
supportavailable.
Therearecaseshoweverwhenillfatestrikesandaperson
becomesbankruptduetounforeseencircumstancessuchasa
seriousillness,adebilitatingaccidentorbeingcheatedina
businesspartnership.
Thentherearecaseswhereapersonwillinglyfilesfor
bankruptcyforthesolepurposeofwipingoffallhisunsecured
debts.Thesenongenuinebankruptstakeadvantageofthe
legalprocesstowriteofftheirbaddebtsandtheamountcan
runupintothemillionsbutisstilllivingaluxuriouslifestyle.
HowaPersonisDischargeFromBankruptcy
Abankruptwillbedischargedfrombankruptcywhen
Hehassettledhisdebtsinfulltothecreditors.
Ifthecreditorsaccepttherepaymentschemeofferedby
thebankrupt,thenthebankruptcanmakeanapplication
tothecourttogetanorderofdischarge.
Certificateofdischarge:
TheDGIcanalsousehisdiscretionarypowerto
dischargethebankruptbyissuingacertificateof
discharge.Thisispossibleafteraperiodoffiveyears
fromthedateofbankruptcyeventhoughtherestillremain
unsettleddebts.However,theDGIwillhavecertain
criteriatoevaluatebeforemakinghisjudgmentsuchas
thebankruptsconductorbehavior,theageandthe
financialstatus.
Orderofdischarge:
www.KCLau.com page85/106
Thebankruptcanmakeanapplicationtothecourtto
requestforanorderofdischarge.Thecourtwillreferto
theDGIsreportbeforeanydecisionismadetogranta
dischargeornotortograntadischargewithconditions
attached.
Whenfacedwithdebts,apersonshouldseriouslyconsider
beforechoosingtofileforbankruptcy.Theremaybeotherbetter
optionstochoosefrom.Besidestherestrictionsmentioned
above,thebankruptmayfaceotherpersonalchallenges.His
futureplansandpersonaldevelopmentmaybenegatively
affectedduetohisbankruptreputation.Societynaturallywill
seehiminadifferentlightandtreathimdifferently.Inaddition,it
mayaffecthisabilityoropportunitytoapplyforfutureloansin
ordertoadvancehimselfinhiscareerorbusiness.
Therefore,consideryourselftohavebeenforewarnedonthis
subjectmatter.
Onlyafterbeingpromotedtofatherhood,Igottolearnthata
childreallytakesupalotofmytimeandalsomoney.
Pregnancyanddeliverycost
www.KCLau.com page86/106
TheregularcheckupduringpregnancyisbetweenRM50300
pervisitataprivatehospitalinMalaysia,asfrequentasoncea
month.
Mywifehadtogothroughcaesareanbecausemysondidntturn
hisheaddownduringdelivery.Istayedinthehospitalforabout
10daystogetherwithmywifeandmyson.Tokeepthestory
short,wespentaboutRM13,000intotalofhospitalbill.Luckily
hercompanycoversthemedicalbillincaseofcomplication
duringdelivery,weendeduppayingonlyaboutRM3,000.
Usually,anormaldeliverywillcostaboutRM3000atprivate
hospital.Itcostsalotlessifyougotothegovernmenthospital
whichisfullysubsidised.Ofcoursetheonlydifferenceisthelevel
ofservice.YoumayonlyneedtopaylessthanRM100for
deliveryinagovernmenthospital.
MaternityInsuranceCoverage
InMalaysia,thenormalHospitalizationandSurgicalbenefit
insurance(a.k.a.HealthCardorMedicalCard)doesnotcover
pregnancyrelatedhospitalization.
Therearetwoexceptions:
1.Yourcompanymayprovidegroupinsurancebenefitsthat
coversmaternityclaim.Normallyyoucangetthesebenefitsif
youareworkingforMNC(MultinationalCorporationlikeIntel
etc)
2.Someladycareinsuranceplansespeciallydesignedfor
ladyrelatedillnessesandmaternitymaygivesomeminimum
www.KCLau.com page87/106
coverageforchilddelivery,neonataldeathorsomeother
pregnancycomplication.Buttheseinsurancepoliciesnormally
wontpaythemedicalbillsascharged.
ConfinementMonth
ItisatraditionforaChinesemothertobeconfinedfor30days
aftergivingbirth.Thisperiodoftimeallowsthemothertorest
andrejuvenate.
1.Stayingatconfinementcentre
AtypicalconfinementcentrechargesaboutRM25003500.My
wifestayedatAiXinconfinementcentreatBatuMaung,
Penang.Theyemploylocalbabysitterstolookafteryourbaby.
Youwillbeserved5mealsaday.
2.Employaconfinementlady
ThiswillcostaboutRM3000andabove.Youwillneedtoprepare
aplacefortheconfinementladytostay.Normallyshewillhelpto
takecareofthebabyandcooksomespecialfoodforthemother.
Mostconfinementladiesdontdohouseworks.
Ifyourmotherormotherinlawcanreplacetheconfinementlady,
youwillbeabletosaveafewthousandringgits.
Insuranceforthechild
Themostimportantcoverageforyourbabyisthemedical
insurance.Forastandalonemedicalcard,thepremiummaybea
fewhundredringgitsperyear.Somepeopleliketobuythe
packagedplanwherethereislifecoverage,including36critical
illnesses,medicalcardplussomesavingsforfutureeducation.
www.KCLau.com page88/106
Dependsonyourbudget,youcanstartaplanaslowas
RM100/month.
Medicalbills
Forahealthybaby,parentswillstillpaymedicalbillsfor:
1.NormalsicknessRM25100.Itcostsmoreifyouareseeking
consultationsfrompaediatrician.
2.Vaccinationnowadays,therearesomanyvaccination
neededtobeinjectedintoyourbabysbody.Itcausespainon
ourbabyandalsoourpocket.RoughlyoverRM2,000neededto
bespentonfullvaccinationataprivatemedicalcentre.Of
course,everythingislikelytobefreeofchargeifyoubringyour
kidstogovernmentclinicsorhospitals.
NewTaxreliefforparents
Withanewbornbaby,youcanpaylesstax.Severaltaxbenefits
youcangetinclude:
1.ChildreliefRM1000(onlyforoneoftheparent)
2.ChildEducationpolicyRM3000(forbothparents)
3.SkimSimpananPendidikanMalaysia(SSPN)RM3000(for
bothparents)
FamilyProtectionPlanning
Ihavehadmanyclientswhotopuptheirlifeinsurancecoverage
aftertheyhaveababy.Mostwillwriteawillorrewritetheir
WILLstoincludethenewbornbabyasthebeneficiary.
Onethingmostparentsusuallyneglectistosetupafamily
protectiontrust.Thisisaveryusefulandpowerfularrangement
www.KCLau.com page89/106
incaseofdoubletragedy(wherebothparentspassawaydueto
accident).
AnormalprivatetrustcostaroundRM1000.AsimpleWILLis
aroundRM500.Financially,bepreparedtospendaboutRM2000
onetimefeesforthoroughprotection,plusafewhundredringgits
amonthtotopuplifeinsurance.
Caringforthebaby
Aftertheconfinementperiod,youwillhaveanewmemberat
home.Ababyneedsalotofcaring.Youwillhavetoarrangeone
ofthefollowing:
1.Employababysitter
Youcansendyourbabytothebabysitter.ItwillcostRM550800
forweekdaydaycareonly,orRM8001200for24hourcare.Iwill
prefertohavemybabysleepunderthesameroofwithus.My
babyissocuteandlovely.Iwouldntwanthimspendingmostof
thetimeatotherpeopleshome.Ababywillbringalotofjoyto
yourfamily.Whywouldyougivemostofthehappinesstoan
outsider,right?
2.Beingafulltimestayathomeparent
Somenewmotherwillresignfromworkforafewyearstolook
aftertheirbaby.Thisreallymakessensebecausethefirstfew
yearsareverycrucial.Thebabygrowssofast!Ifyougotowork
tooearly(whenyourbabyisstillasleep),andcomebacktoolate
(whenyourbabyalreadyasleep),youwillonlyseehim/hergrow
longer,nottaller.
www.KCLau.com page90/106
3.Maidservice
Anotherpossiblearrangementistoemployaforeignmaid,and
haveaseniorathometowatchoverthemaid.Upfrontfeesof
aboutmorethanRM10,000neededtobepaidtotheforeign
workeragencytoengageamaid.Pleaseexpectthemaidto
arriveabout2monthslater.Youcanchoosemaidfrom
Indonesia,Myanmar,Vietnam,Cambodia,andPhilippines.Some
experiencedmaidswhoarepreviouslytrainedorexperiencedto
takecareofbabyrequiresmorethanRM1000/monthwages.
Prepareforleavefromwork
InMalaysia,anewmotherwillbegiventwomonthspaid
maternityleave.Butthereisnosuchleaveforthefather.You
mayneedtodothenecessarypreparationtobeawayfromwork
forquitealongwhile.
Anotherconsiderationisnottowasteyourannualleave.Ifyou
areanemployee,somehowyouwillneedtotakeemergency
leavetobringyourbabytothedoctorsfromtimetotime.
Thingsforthebaby
1.Food
Sincemysonwasborn,themilkpowderhasincreasedinprices
severaltimes.SomebrandedmilkpowdersuchasEnfalacA+
costRM70/tin.Onecanonlylastaboutaweek.Bepreparedto
spendoverRM250/monthforthebestbabyfoodifthemother
cantorwontbreastfeed.Lateron,whenthebabygrowsover6
months,youcanbuythestep2milkpowderanditwillbealittle
cheaper.
www.KCLau.com page91/106
2.Clothes
Iactuallyseeclothesasawasteofmoney.Ifpossible,getused
clothesfromyourrelativesandfriendsforyourbaby.Used
clothesarenotsonicelooking,butsofterandmorecomfortable.
Ifyoubuytoomanypiecesofclothes,mostofthemwillbeworn
afewtimesonlybecausethebabyreallygrowsrapidly.When
yourbabyis3monthsold,buythe612monthsclothes.When
he/sheis6monthsold,buythe1218monthsclothes.
3.Diapers
TherearesupercheapdiaperlikeTescobrand,andalsothe
mostexpensivebrandeddiaperlikeMamyPoko.Ifpossible,you
canuseclothdiaperwhichwillsavesomemoneyinlongterm.
Weactuallyuseallthediapersmentionedabove.
WeuseMamyPokoatnight,whichcanabsorburineefficiently
andlastfor12hours.Weusethecheaperdiapersduring
daytimewhenwecanhelpmysontochangeregularly.Our
babysitterusestheclothdiapers.
4.Toys
Idontknowaboutotherbabies.Butmysondoesntreallylikehis
toys.Heplaysanewtoyforafewminutesandhewillbebored.
WhathelikesthemostismyiPhone andmybooks.
However,sometoysareworthinvesting.Inevitably,youwillhave
toallocatesomebudgetfortoys.
Preparetosacrificeyourownpersonaltime
www.KCLau.com page92/106
Ababyissodemanding.Mysonneedsalotofattention.Last
time,weusedtoworkorenjoysomefreetimeatnightand
weekend.Butwithababyathome,allyournonworkingtimeis
devotedtoyourbaby.
Anyway,everyminuteisworthspendingonyourbaby.Youwont
realizethewonderandmagicmomentuntilyouhaveababy.
Doyouneedabiggerhome?
Weusedtostayedinasinglestoreyterracehouse.Butbecause
ofhavingababyathome,wefeltthatthereisnotenoughspace
anymore.Wehadmovedtoasemidetachedhousewhenheis2
yearsold.
Putitbrief,ifyourcurrenthomeisnotbabyfriendly,youmight
needtoconsideramoresuitablehouse.Youmayneedmore
rooms,morespace,biggergardenetc.
Someparentsalsopurposelymovetosomebetter
neighbourhoodinordertogiveahealthyenvironmentfortheir
children.Someevenconsiderthepossibilityofgettingintoa
specificwellknownschool.Thisisbecausetheaddressprinted
onyourbabysICisgoingtodeterminewhichpublicschool
he/shewillgotointhefuture.
Totalcostofhavingababy
Thenumbersbelowisjustanestimation.Itisforthepurposeof
givingyouafinancialguidelineifyouareplanningtohaveanew
baby.
Onetimecost:
www.KCLau.com page93/106
1. DeliveryRM3000
2. WillWritingRM1000
3. LivingTrustSetupRM1000
4. ConfinementperiodRM3000
Regularexpenses(permonth)
1. insuranceforthebaby>RM100
2. babysitter/maid>RM550
3. babyfood~RM200
4. medicalbills~RM100
5. clothes/diapers/toys~RM200
So,bepreparedtohaveanetworthcutduringdeliveryand
confinement,andthenacutofatleastRM1000everymonth
fromyourcashflow.
Itistruethatraisingachildmightcausemorethanamillion
ringgits.Butisitworthy?
MyanswerisabigYES!Youcantbuythehappinessofbeinga
parent.Itcertainlycantbemeasuredinmonetaryterms.
www.KCLau.com page94/106
Here,wewilldiscussthepossibilityofcloningyourlifevalues,
whichisanessentialpartofleadingapersonslife.
Atthemomentyouleavethisworldwhenitisunplannedand
unexpectedyourheirsunderstandingaboutyourlifevalues
cease.Wouldntitbenicetohaveaseriesoflifetutorialvideos
madeandpassedontoyourchildren,sothattheycanwatchitat
thesuitabletimejustincaseyoucantmakeit?Beforeyouturn
onthevideocamera,letmeshowyouhowyoucanpassonyour
lifevaluesvialivingtrust.
Atrustisanarrangementwhichyoucansetasidecertain
amountofassetstoapartycalledtrustee,tobeusedforthe
benefitsofthebeneficiaries.Thebeautifulpartofatrustisthat
youcandeterminethetermsandconditionswhichthe
beneficiariesmustfulfillbeforetheyareentitledfortheincentive.
Thus,youcancallthesetypeoftrusttheIncentiveTrust.
Someexamples:
ToHaveTimewithFamily
Trustprovision:Eachchildshallreceiveamonthlydistributionif
shecanengageinsuchaprofessionthatallowshertoworkfrom
home.
Toacquireknowledgeandwisdom
Trustprovision:Eachchildshallreceiveadistributionindicated
uponachievingtertiaryeducationBachelorDegree$100,000,
Doctorate$200,000.
PersonalAchievement&HardWork
www.KCLau.com page95/106
Trustprovision:Eachchildshallreceiveanannualdistribution
equalto50%ofhisearnedincomereportedofficiallytheprevious
year.
Tobecreativeandinnovative
Trustprovision:Eachchildshallreceive$100,000forevery
successfulpatentfiled.
Toappreciatemusic
Trustprovision:Eachchildcanclaimforreimbursementforall
thefeeswiththeproofofparticipatinginmusiclessons
Abovearejustafewexamples.Becreative!Andmakesureyou
shareaboutyourlifevalueswhenyouarediscussingtheissueof
settingupatrustwithyourestateplanner.
Educationisaliberalconcernbecauseitisaboutempowering
peoplewiththeskills,knowledge,attitudeandaspirationto
developthemselves.Somebelievethatinordertohavea
brighterfuturewithbetterearningcapability,highereducationisa
www.KCLau.com page96/106
must.Here,youwillfindthecompleteguideforaMalaysianon
howtoenjoytaxrelief
ortaxdeductionfor
educationpurposes.
Therearefourareas
thatyoucantake
advantageoftaxrelief
foreducationpurposes:
1.Childeducation
insurancepolicy
MaximumRM3,000
2.SkimSimpananPendidikanNasionalMaximumRM6,000
3.PostgraduateeducationMaximumRM5,000
4.BookpurchaseMaximumRM1,000
#1.ChildEducationInsurancePolicy
Achildeducationpolicyisalifeinsuranceproductspecially
designedasasavingstooltoprovidealumpsumofmoneywhen
yourchildreachestheageforentryintocollege.Ifyouoptfora
payorbenefitrider,aneducationpolicyprovidestheassurance
that,intheeventofanuntimelydemiseoftheparentsorlegal
guardian,thechildwillhaveaccesstofundstohelpfinance
his/hereducationexpenses.Underachildeducationpolicy,the
childisthelifeassured,whiletheparent/legalguardianisthe
policyowner.
Typesofchildeducationpoliciesavailable
www.KCLau.com page97/106
Therearetwomaintypes,i.e.anendowmentor
investmentlinkedpolicy.Thedifferencebetweenthetwoliesin
thestructureaswellasthenatureofinvestments.
1.EndowmentPolicy
Anendowmentpolicycombinesasavingscomponentwith
protectioncoverage.Endowmentpolicymaybeeither
participatingornonparticipating.Asthenameimplies,
nonparticipatingpolicydonotparticipateinthelifeinsurance
fundsprofitsbutallinsurancebenefitsarefullyguaranteed.On
theotherhand,forparticipatingpolicy,aportionofinsurance
benefitsareguaranteed.However,theultimateamountof
benefitsatmaturityarenotguaranteedasthesedependonthe
performanceoftheinsurancecompanysparticipatinglife
insurancefund.
2.Investmentlinkedpolicy
Aninvestmentlinkedpolicycombinestheelementsofinvestment
andprotectionbasedonyourrequirementasthepolicyowner.It
offersflexibilityasyouareabletoincreaseortopupyour
monthlypremiumcontributionasyourincomeimproves.Ifyou
wishtobemoreaggressivewiththeinstrumentsofinvestment,
aninvestmentlinkedpolicywillalsoallowyoutochoosethe
typesoffundsyourmoneywillbeinvestedin.However,likeany
othersimilarinvestment,therearehigherrisksinvolvedandthere
arenoguaranteesonthereturns,whichmaybehigherorlower
thanprojected.
TaxincentiveofRM3,000forChildEducationPolicy
www.KCLau.com page98/106
Oneofthebenefitsofusinglifeinsuranceasasavingstoolfora
childseducationpolicyisthetaxadvantage.Insuranceproceeds
aretaxfreeandyoucanalsoobtainanannualtaxreliefofupto
RM3,000forthepaymentofpremiumsforeducationinsurance,
subjecttoapprovalbytheInlandRevenueBoard.Inorderto
qualifyfortaxrelief,
theeducationplanmustbetakenupbytheparent/legal
guardiananditmustmaturewhenthechildreachesthe
ageofbetween13to25.
Itisalsoimportantthatyouoptforapayerbenefitrider
throughoutthelifeofthepolicy.
Makesurethepolicyhasathewordeducationprinted
inthepolicytitle
anothermethodistopurchaseanendowmentpolicythatthelife
assuredistheparent,butthebeneficiarymustbenominatedto
thechildandmaturebeforethechildreach25yearsold.
Remember,ifyourwifeelectsforseparateassessment,shecan
alsoclaimthesameamountofreliefonherlife,educationand
medicalinsurancepremiumsbutnotonthesamechild.
#2.PTPTNSkimSimpananPendidikanNasional
www.KCLau.com page99/106
PerbadananTabungPendidikanTinggiNasional(PTPTN)
introducedasavingsschemewhichputsemphasisonSavings
TowardsHigherEducation.Besidesensuringannualdividend
returns,theSSPNalsoprovidesspecialfinancialincentivesin
theformofMatchingGrantsespeciallyforlowincomedepositors.
Inaddition,insurancecoverageandpaymentofdeath
compensationisprovidedfreeofchargetoalleligibledepositors.
HowtoOpenaSSPNAccount
Toopenanaccount,theapplicationformmustbesubmittedto
PTPTNcounterandanycollectionagentalongwiththefollowing
documents:
AcopyofthedepositorsMyKad/Military/PoliceIdentity
Card
AcopyofthechildsMyKid/BirthCertificate/MyKadand
Certificationofadoption(iftheSSPNaccountismeant
foranadoptedchild).
ForafamilywhosehouseholdincomedoesnotexceedRM2,000
permonth,thelatestincomestatementofthefamilymustbe
submittedalongwiththeapplicationformandacopyofthe
spousesMyKad/Military/PoliceIdentityCard.
Theminimumtotaldepositforpurposesofopeninganaccount
andincreaseofdepositisRM20foreachnominatedbeneficiarys
account.Depositincreasecanbemadeassoonasthe
membershipcardisreceived.
EligibilitytoapplyforPTPTNeducationfinancing
www.KCLau.com page100/106
ForhouseholdincomeexceedRM2,000permonth,a
minimumdepositofRM3,000isrequired
ForhouseholdincomedoesnotexceedRM2,000per
month,aminimumdepositofRM500isrequired.
Benefits:
TaxreliefonsavingsuptoRM6,000peryear.
FreeinsurancecoverageuptoRM50,000(dollarto
dollar)fordepositorswhohaveanaccumulateddeposit
ofaminimumofRM1,000(Eligibilityforinsurance/death
compensationisonlyfordepositorsbetween18and65
years,whereasdeathcompensationisawardedonlyto
beneficiariesaged1to28years)
Matchinggrantwithamaximumendowmentof
RM10,000perfamily(Afamilywhosehouseholdincome
doesnotexceedRM2,000permonthiseligiblefora
matchinggrantwhenthechildisacceptedintoahigher
learninginstitution)
DepositaslowasRM20atanytimedeemednecessary
andgovernmentguaranteeonsavings
Competitivedividendrateandtaxexemptionondividend
Withdrawal
Withdrawalofsavingscanonlybedoneafterone(1)yearof
savingintheSSPN.Thewithdrawalof10%ofthebalanceinthe
accountorRM500(whicheverislower)onceannuallyisallowed
(afteroneyearofbecomingmember).Withdrawalofupto100%
ofthebalanceoftheaccountisallowedifthebeneficiaryfulfills
oneofthefollowingcriteria:
IsacceptedtoanygovernmentrecognisedIPT
www.KCLau.com page101/106
Withdrawsvoluntarilyfromtheeducationsystemoris
terminatedforspecificreasons
Chronicillnesswithnohopeofrecoverywithdoctors
certification
Permanentdisabilityor
Death
#3.PostGraduateEducation
TopromoteacultureoflifelonglearningamongMalaysians,the
GovernmentproposestaxreliefofuptoRM5,000oneducation
feesbeextendedtoallpostgraduatestudies(Mastersand
Doctorateleve),effectivefromYearofAssessment2008.
EveryindividualareeligibletoclaimaRM5,000reliefeachin
respectivetaxreturnsprovidedthatthepostgraduatestudiesare
atinstitutionsorprofessionalbodiesinMalaysiathatare
recognisedbytheGovernmentorapprovedbytheMinister
undertakenforthepurposeofacquiringlaw,accounting,Islamic
financing,technical,vocational,industrial,scientificor
technologicalskillsorqualifications.
#4.BookHunting
Tofurtherinculcatethereadinghabitandinlinewithlifelong
learning,theGovernmentprovidestaxreliefonthepurchaseof
booksuptoRM1,000peryear.Allthetextbooksforyour
children,oryourownpostgraduatestudiesareeligiblefortax
relief.EventheHarryPotterAndmagazineyoubuyfrombook
storescanbeusedtodeducttax.Butyoumustkeepthebook
purchasereceiptfortaxauditlater,ifyouarelucky.
www.KCLau.com page102/106
Somereminders
buybooksandmagazinefromchainbookstore,suchasPopular,
MPH,BORDERSetc.Youwillnoticethereceiptprovidedby
Popularhave[BK]printedforbookitems.
YoucanevenorderyourbookviatheinternetAmazon,Barnes
andNoble.
Normally,therewontbeanyreceiptproducedwhenyoubuy
magazinesfromlocalbookstall.Ifyouwantyourexpensestobe
taxdeductible,avoidthis.
www.KCLau.com page103/106
www.KCLau.com page104/106
Ifyoufullyutilizedthetaxrelieffortheaboveelaborated4areas:
1.ChildeducationinsurancepolicyMaximumRM3,000
2.SkimSimpananPendidikanNasionalMaximumRM6,000
3.PostgraduateeducationMaximumRM5,000
4.BookpurchaseMaximumRM1,000
ThereisatotalofRM15,000taxrelieftobeclaimed.Iwill
definitelyuseupitemno.1,2,and4.Butforitemno.3,thereisno
cleardefinitionofpostgraduatestudyandlistofcoursesthatis
eligible.Itwouldbeniceifcollegesanduniversitiescanindicate
thetaxreliefeligibilitywhenpromotingtheircoursesforworking
adults.
Ifyourtaxbracketis21%,youwillsaveuptomaximumof
RM3150taxpayableyearly.Lastbutnotleast,Iwouldurgethat
youtakeadvantageofthemallduringyearend.
Purchaseyourchildinsurancepolicyandpayyearlyin
Decemberthepremiumpaidwillbeeligiblefortaxrelief
immediately.Donotethatsomeinsurancecompanyhave
offerforcertaincreditcardsthatyoupayyearlyupfront
withcreditcard,butpaybackthebankin12installment
withoutinterest.
OpenSSPNaccountinDecember,andmaxitupto
RM6,000.
Consolidatethereceiptofbookpurchase,anduseupthe
RM1,000ifyouenjoyreadingbooks.Ifnot,trybuybooks
asgifttootherswheneverpossible.Booksaregreat
birthdaygift.
www.KCLau.com page105/106
Byusingthis"yearend"strategy,youhavekeptthemoneywith
youforafullyearandalreadyreapthefullinvestmentreturn.
TheEndofVolume2
Ifyoufindanyerrorinthisedition,kindlysendanemailto
book@kclau.com
DoyouwanttogetthenextVolumeofthisebookseries?Visit
thispagehttp://kclau.com/lp/ebook/topostacommentandenter
youremailstogetonmyemailinglist,soIcansendyouVolume
3whenitisdone!
Hearfromyousoon.
regards,
KCLau
www.KCLau.com page106/106