Saturday, June 30, 2007

Starting out...

Beginning of this month, my former university, Multimedia University (MMU) has unleashed upon the working world a new batch of fresh graduates from various discipline. Being new and enthusiastic, these graduates rushed into employment and with their new found wealth, they start to think about getting more things such as a car, new clothes, new mobile phone, etc. Without calculating their finance commitments and making efforts to understand the car loan structure as well as the cost to own a car, these new working individuals rush head on to secure their first MyVi (Since this is the best bang for the buck at the moment). I can't really blame them for their lack of financial planning since I would be doing the same thing if I didn't join Great Eastern.

The reason I brought this up is because of the conversations I had with a few of my juniors whom have started working as well as some of my fellow course-mates for the past week. (The older people I met are also bad financial planners but as a case study for this entry, I have opted to talk about young working adults). Practically none of them actually calculate their expenses. The only way they know they have used up their money is when their mullahs in their banks have "mysteriously-vanished" and they have to survive on bread and water till their next paycheck comes in. When this happens, they will rant about not having enough money to spend and they can't afford to go for a vacation in Australia. Sounds familiar? To avoid such predicaments in the future, you can take a few simple steps listed below which worked for me.

Step 1: Start writing down every cent you've spent and balance your account at the end of each week
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(I can already hear some of you saying,"What? Writing down every cent I spend! That's impractical and downright stupid!")

Before you go into a frenzy to shoot down my suggestion, read on. We, human beings are very visual oriented beings and we usually act upon seeing something tangible (just like goals setting but that's for another entry) only do we realize the implications and take concrete steps to address the issue. A very simple analogy would be our usage of shower cream. Each time you take your bath, you'll see that the shower cream decreases by a small amount. This will go on until one point in time when you notice your favourite shower cream is going to run out in a day or two and naturally you will visit your nearest hypermart to get a new one (or risk not being able to shower!). You only realize you're running out of the shower gel because you constantly look at the bottle each time you take a bath. The counter we use to keep track of the gel usage is by looking at the content level in the bottle. Similarly, do you constantly look at your 'finance bottle' each time you spend? Do you have a visual counter to keep track of your 'finance bottle'? By writing down every cent you spend and balancing your account sheets at the end of each week, you will clearly know where your money goes and identify where to cut down. We all know by default that in order to save, we need to reduce our expenses. My question to you is, how would you know where to reduce when you have no idea where your money is going to? I admit it's quite hard and requires a fair bit of discipline to jot down your expenses every day but once it becomes a habit, it will be easy. Once you get this done, you will find that the act managing your expenses isn't as difficult as you thought.

Step 2: Cut your cloth according to your size

To illustrate this point, I will use an example as a case study. Ms. X, a fresh graduate of age 22 who is working in a Multi National Company (MNC) has a pay package of RM2,200 and covers her medical expenses via company group insurance. After deducting 11% for Employee Provident Fund (EPF), she's left with RM1960 (for simplicity sake, I've rounded up the figure from RM 1,958). Now Ms. X has to pay for her rental RM250/month and her conservative daily expenditure on food is roughly RM 20/day which totals up to RM 600/month. Throw in another RM 200 for miscellaneous expenses (monthly phone bill, electricity/water bills, groceries and occasional movies) and her Government Study loan repayment of RM 150, now she's left with RM 760. Having not exposed to the concepts of financial planning, she decides that she must and can afford a car with her new found wealth of RM 760. Without much thinking, Ms. X decided to buy her dream car, the Olive Green MyVi with full accessories and automatic transmission that costs RM 49,000. Knowing her parents will help her fork out RM 9,000 down payment for her new MyVi, she went ahead and secured a RM 40,000 car loan with 4.2% interest with repayment for nine years. The Perodua car salesman happily calculated for her that she will only need to pay a mere RM510/month for 9 years. Considering that she only drives a short distance to and from her office, she assumed that RM 250 is more than adequate to pay for her petrol expenses.

So far, everything seemed fine with the way she manages her money right?
Wrong!

I don't deny that there are certain expenses that can't be avoided such as the absolute need for a car, daily food expenses as well as room rental but Ms. X totally blew her planning by over committing herself. Instead of getting a car that suits her budget, she went for a RM 49,000 MyVi. She did do her math and factored in the monthly expenses of her car but she forgot about the car maintenance (car servicing, replacement of consumables such as brake pads, spark plug, engine oil, tyres, etc). Take note that purchasing the car is never an issue, but the cost of taking care of a car is. Plus, she totally neglected her retirement and the necessary insurance policies/trust/will which are crucial for wealth protection. (I will not go into that as that is a whole topic by itself) My advise would be for Ms. X to get a smaller and cheaper car which is low on fuel consumption, cheap spare parts and reliable built
(that practically rules out Proton and any Korean made cars) such as a 660cc Kancil (RM 22,500) or 850cc Viva (RM 32,500) if it is absolutely necessary. After all, she only needs a car to get around town, why would she need such a large car? Besides, our little lassie here must cut down on some of her expenses may it be her weekly clubbing or her food expenses or her love for shopping. This is where the daily expenses account sheet from step 1 will come in handy to assist you to identify where you can cut down on. The reason is simple, if you don't start saving now, you will never be able to as your salary grows, so will your commitments. By the time you realized you need to save, it's probably too late and you will have to work way beyond your retirement years just to support your cost of living. (I will not dwell into this topic as it was adequately covered in my previous posting of the article "Save young or Save Like Crazy").

Step 3: Avoid temptations!

No, I'm not talking about temptation of the flesh and lust. I'm talking about the temptation to spend when you have some extra cash in hand. It's never easy to resist temptation so the best option is the avoid the situation where you will be tempted. This can be done by simply by having multiple accounts with different banks and label them accordingly. For instance, I have an account with Maybank that used for daily transactions such as payment for bills, payment of commission as well as a means for my beloved and much appreciated clients bank in their insurance premiums. Obviously, this Maybank account has an ATM card, large network of branches and online banking account that enables me to access the money easily. I designated this account to be "General Account". Knowing that I will be doomed to spend whatever savings I have in here, I went to OCBC to open a current, savings and fixed deposit account. I labeled these accounts as "Savings Account". Whatever extra I have in my Maybank account will be deposited in my "Savings Account" in OCBC. For this account, I too have an ATM card but I chose this bank because it has very limited branches nationwide and they charge a whopping RM 8 if I used other banks' ATMs for any transaction. Thanks to this arrangement, whenever I have the urge to spend the savings I have in my "Savings Account", I will be deterred by the hassle I have to go through or the ridiculous service charge they impose if I use my ATM card elsewhere. The final account which is my Fixed Deposit, is my "Untouchable Account". It will always be on a half yearly basis and my standing instructions would be for them to automatically renew the FD term once it reaches maturity. The purpose of this money will be for future use such as the purchase of a property/wedding/children's tertiary education. So, whatever extra I have from my "Savings Account" will be transferred into my "Untouchable Account" after six months. Please take note that this method is not "temptation-proof" per se but with a pinch of discipline, such an arrangement has helped me to minimize the urge the spend and ultimately, I was able to have some savings. (no matter how little it is. I have to start from small amounts right?)

This three steps have worked for me thus far after I have started working for a year and I'm proud to say that I have managed to stay afloat despite my fluctuating income. This is not the most ideal way but it's a start and I hope it will work for you too! Cheers!

Wednesday, June 20, 2007

Save Young or Save Like Crazy

For the past three weekends, The Sunday Star has been publishing articles related to financial planning. This is due to the fact that 95% Malaysians do not have any financial planning. I can't really blame them because the world at large; media, society and yes, even the Government encourages us to spend! (This is mainly due to our nation's economy that is largely driven by Malaysian consumers' spending power) As a financial planner myself, I applaud the publishing of such articles as it will definitely create more awareness in our spend-first-and-save-late- society. However, reading the article is one thing, acknowledging it and taking concrete steps to address it is a another issue altogether. Nonetheless, I have scanned the article into JPEG format and uploaded it into my blog (The Star takes it off their website after 7 days unless you subscribe to their services). Do take note that due to the sheer size of the image (roughly 1.7MB), it might take a while to load. Feel free to save the image and read it at your own leisure or you can leave your email address and I'll send it to you.
P.S: This article was written by Financial Planning Association of Malaysia (FPAM) and published in the Sunday Star on 17th June 2007.


Monday, June 18, 2007

Wheee!!! New laptop!

After months of procrastination and delaying, I have finally cleared the cob-webs and dust that have been accumulating on my precious blog. Now that I've gotten myself a new laptop, (my new beloved but Adel dearie, it will never-ever take your top spot in my heart. Alright, that sounded mushy! LoL) I've decided to return to the so-called "blogsphere". The first item on my agenda was to update my blog's template and settings. Second on my list was to recollect as much as I could what had happened in the past six months of 2007... so here's a brief description of the most memorable events from January up till June.

January
January? What the heck did I do in January? I certainly can't recall all the details but I remembered meeting this individual in KLCC area that had me seething the whole day. Never before in my life had I encountered such a snobbish and arrogant S.O.B. It still makes me boil (to a lesser degree) as I recollect the incident even though it was 5 months ago. The details will not be discussed here but through this experience, I made a point to never treat others the way this person treated me that day. The world has sufficient numbers of snobbish S.O.B's and I don't think I should personally add to that figure.

February
Ah... February. CHINESE NEW YEAR! Muahahahahahah... the time where I managed to recoup some of my savings at the expense of married individuals. Hehe... My "licence-to-collect" will come to an end in a couple of years so I better make the best of it in the next few years! On a more serious note, I attended my first Super Group Agent's Convention Centre in First World, Genting Highlands a few days prior to Chinese New Year. For the uninitiated, Super Group (SG) is the agency I am attached to. We have about 4000++ agents and our 29 branches throughout Peninsular Malaysia contribute to 30% of Great Eastern's total sales each year (Something which we are very proud of. LoL). This convention lasted three days and the first night was our annual dinner cum awards presentation night. To my surprise, about 2000++ agents and managers alike turned up and First World was literally flooded with SG members. Felt as though I was part of some big MNC event (LoL). During the annual dinner, some of my colleagues and I managed to get to the dance floor. As the annual dinner came to an end, the senior SG committee members came to the floor and to my utter amazement, the old farts were wilder than the younger ones. Man... they can really dance. Hahaha...

March
3rd of March 2007, it's the first anniversary of my mum's passing due to cancer. Man... time passes so fast and in a blink of an eye, it has been a year. Mum, your absence still grieves us but we're glad you're up there with Big Bro. You'll always be with us in our hearts. Love you Mum...

April
I had the opportunity to join my agency's roadshow in Tesco Puchong to promote one of our savings product. Two weeks of daily duty has really taken a toll on my morale. At first, it was fun because it was a huge challenge to get information from passersby (Now I know how it feels to be a credit card roadshow salesman) but after a few days of repetitive work, it became a drag. On a lighter side, there were instances where I just couldn't help but laugh out loud (LoL!). There was this lady who was walking pass and as usual, I moved towards her direction to promote our savings product. Before I could take my second step, she spotted me and took flight i.e she literally ran off. My colleagues and I were staring at her as she ran and we couldn't stop laughing (we were laughing real loud) at her silliness. Are we really that scary? Come on... we're human beings just like you and we don't bite!

May
My first vacation of the year! It's back to Sabah; the state which is 20 years behind Peninsular Malaysia in terms of development. This time, six of us flew to Sandakan and we had a great time stuffing ourselves with fresh and cheap (let me repeat that again), fresh and cheap seafood. We even had the opportunity to try out seafood "bak kut teh". Unlike traditional "bak kut teh" where the ingredients are dumped into one huge pot, the seafood "bak kut teh" here separates each ingredient into various pots. It was awesome as each dish has its distinctive flavour due to the particular seafood used. Another exclusive dish they have is the "yau-char-kwai" (no idea what's the English word for it) with kaya and margarine. Not to mention the coconut "tau-fu-fah" (again, I have no idea what's the English counterpart) dessert... the huge clams called "pak-sar" (loosely translated as white sand in English) that have flesh the size of two AAA batteries. Oh... I have also learned that prawns are considered fresh only when it is hard to remove the shell. If it's relatively easy to peel off the shell, it has been frozen for some time. After trying out the seafood in Sandakan, I can daringly say this to Klang-ites and Penang kia's... your seafood doesn't even come close to what Sandakan has to offer.

Oh yeah... on side note. My previous company, Kunoh Technocraft, officially closed down after a year of mismanagement and screw ups. I still remember the time when my former employer said to me that he will wait till the day I go bust in the insurance line and return to his company; LO and BEHOLD! His company went down under and my business is still growing! Talk about irony! LoL...

June
My laptop arrived this month! I've gotten the Dell XPS M1210 from a Lowyat forumer. The usual price with the minimum specifications without delivery is priced at RM3,699 but this individual sold the laptop to me (with full warranty and Vista Business edition OEM) with the specifications I wanted at RM 3,550. Since this laptop will be purely work related, I didn't care much about the processor and graphics. So I settled for a Centrino Duo Core T5500, 2GB of RAM, onboard graphics, DVD-RW drive and a small 12.1" widescreen monitor. Quite a good deal and this baby of mine weighs less than 2kg with the battery. Nice! Just nice for traveling. Now I'm thinking of skinning my laptop and sticking a protective film on the LCD monitor... but that would have to wait for the time being. Almost broke the bank with this laptop and my five-figure investment into land banking in May.

Well, I guess that summed up the most memorable or outstanding events that occurred in the past 6 months. I will be updating my blog fairly often in the future as blogging has always been a favourite past-time. To all Uncle Chan's crap readers out there, I am back for good. Cheers!