Story Telling: Patience and Determination

I would like to share with you a story that I heard recently. There is a very high tower, and a group of frogs are going to jump to the top of the tower to see the view there. At halfway, one of the frogs said that it is so tired and hot, it does not want to continue and give up. Some of the frogs also give up when this frog stops, while the rest continue to jump. After a while, another frog said that there should be nothing special at the top of the tower, and we need not to suffer from the tiredness to jump up to the top of the tower. So those who listened to the frog, also agreed to stop and give up. At the end, there is only one frog jumping up to the top of the tower. All the frogs are so surprise and ask the frog, why are you so determined and preserved to jump up to the top of the tower? Then, they realize, the frog is actually deaf. Due to it cannot hear what the other frogs say, so it can jump up to the top of the tower patiently.

This is only a very short story, but let me to have a very good lesson. Some of you might not understand the morale of this story, it is ok, I would like to share what message I get from this story.

Some of us know about the importance of financial planning, also spend time to assess our financial status and set our own financial goals, as well as prepare our own investment plan. After we implement our investment plan for a period of time, probably someone around us would say that our investment plan will not be successful, and investment is very risky. There might be also some people would say that we do not know what will happen tomorrow, of course we should enjoy life now and do not need to save money for investment. This is same as what happened in the story. If we cannot pretend to be deaf at this moment, we might listen to them and give up our investment plan. Finally, we cannot achieve financial freedom. Only if we can pretend to be deaf, we are able to implement the investment plan with full of determination and patience, and eventually achieve the financial freedom.

For those who are investing in stock market, most of us will learn from Warren Buffett, to choose some good stocks, invest and keep for long term. However, after some time, when people around us said that their stocks are rising fast, but our stocks are not moving much, we should change stocks and invest in same stocks that they have. There might be some people will tell us that there is rumour that there are some stocks will rise since there will be speculation. So, at this moment, if we cannot pretend to be deaf, we might listen to these rumours and change to invest in those rumour stocks which we know nothing about them. In stock market, we as normal investors are not able to win over the professional speculators. So, if we can pretend to be deaf, and do not listen to what other people say, we will keep going with our investment plan. Investing in good stocks for long term, having dividend and compounding effect, we can earn a pretty return.

While implementing our financial plan or during our investment, sometime we should not listen too much what other people are saying. Prepare a good plan for ourselves, keep following the plan patiently and with full of determination, eventually we can achieve financial freedom.

Financial Planning Talk (2): Some tools to help assessing our financial status

Earlier, I have mentioned that the first step in personal financial planning is assessing our current financial status. This step is very essential as we need to know how much our net income is, how much assets we have and how much debt we have. We should take all these into consideration before we choose the most suitable investment strategy for our financial plan.

Each of us may have our own way to assess our current financial status, but for those who still have no idea how to know about our financial status, this is the guide for us to assess our financial status in general. For those who are very good in accounting, they can build their own balance sheet and income statement. These two tables can give them a clear picture how much assets, debt and cash they have. Normally balance sheet will include assets (such as property, equity, bank deposits, bond, etc), and debt (such as housing loan, education loan, personal loan, credit card debt, etc). Income statement should include your income and expenditure, and this can show you how much net income you have every month.

However, most of us have no idea about proper accounting, so we can do it in another way. We can list down the monthly income (such as salary, allowance, side income, etc), and monthly expenditure (such as house installment/rent, car installment, daily life expenditure, etc). Then, we also list down the yearly income (such as year end bonus, equity dividend, bond/deposit interest, etc) and yearly expenditure (such as insurance premium, roadtax, income tax, etc). From these two listings, we can calculate our monthly net income and yearly net income.

Beside, we also need to list down our current assets and debts. List down assets (such as properties (own use/rental), unit trust funds, bank deposits (saving, current, and fixed deposits), stocks, gold, etc), and debts (such as housing loan, car loan, credit card debt, personal loan, etc). At last, we also list down the insurance that we have and the sum-insured.

Here is the example of the lists:

Historical Performance of Malaysia Equity Funds (30 May 2008)

1 Year Return Ranking:

1. OSK-UOB Resources – 28.10%
2. OSK-UOB Emerg Oppty – 26.30%
3. Public SmallCap – 25.32%
4. Public Far-East Select – 22.58%
5. CIMB Islamic SmallCap – 21.28%
6. PB ASEAN Dividend – 20.22%
7. HLG Industrial and Tech Sector – 19.57%
8. PB Growth – 18.33%
9. PRUglobal basics – 17.93%
10. HwangDBS Glo Emerging Markets – 17.84%
11. AmGlobal Agribusiness – 17.84%
12. Public Regional Sector – 16.84%
13. CIMB Principal Small Cap – 16.60%
14. AMB Value Trust – 16.46%
15. OSK-UOB Smart Treasure – 16.16%
16. CIMB Islamic Equity – 16.11%
17. CIMB Principal Equity Growth & Income – 16.10%
18. Public Islamic Opportunities – 15.94%
19. PB Asia Equity – 15.25%
20. CIMB Islamic DALI Equity – 15.23%

3 Year Return Ranking: (Annualized Return Stated)

1. OSK-UOB Smart Treasure – 38.62%
2. CMS Islamic – 34.98%
3. HLG Industrial and Tech Sector – 34.88%
4. OSK-UOB Emerg Oppty – 33.09%
5. PB Growth – 32.65%
6. AMB Value Trust – 32.16%
7. Public Aggressive Growth – 32.07%
8. Public SmallCap – 31.13%
9. Manulife Equity – 30.96%
10. AMB Ethical Trust – 30.46%
11. MAAKL Progress – 30.14%
12. CIMB Islamic DALI Equity – 29.78%
13. CIMB Principal Equity – 29.60%
14. Uni Aggressive 29.34%
15. CIMB Principal Equity Growth & Income – 28.62%
16. CIMB Principal Equity Aggressive 1 – 28.48%
17. MAAKL Value – 28.15%
18. CIMB Islamic Equity – 28.06%
19. OSK-UOB Small Cap Opportunity – 27.88%
20. CIMB Principal Equity Aggressive 2 – 27.78%

Source: Lipper

Financial Planning Talk (1): What is Financial Planning?

Personal financial planning is the process of achieving financial freedom or our financial goals through the proper management of our finances. The aim of the personal financial planning is to evaluate our current finance status and decide which investment mode is suitable for us to achieve financial freedom. In simple word, personal financial planning helps us to achieve our financial goals from where we are today. Personal financial planning consists of six major components: cash flow management, insurance, investments, income tax management, retirement planning, and estate management.

The general guideline for personal financial planning consists of six steps. First, we need to assess our current financial status to understand better our current ability. The most common way of assessment is through our personal balance sheet and income statement. Thus, we have a clearer picture what kind of assets or liabilities that we have, and how much is our income, expenditure and net income. After that, we should set target or goals. In other word, the goal is the situation where we achieve financial freedom.

By knowing our current financial status and financial goals, we need to develop a proper financial plan. This financial plan should consist of cash flow management (budgeting), insurances, investments, estate management, income tax management, and retirement planning. After having a plan, there is the most important stage in a successful financial planning, which is implementation. Discipline is much needed to implement the plan effectively.

The world is changing while time past. Things change very fast, so that our plan also needs to be changed accordingly. Periodically monitoring the progress and revising the plan and goals can make sure we achieve financial freedom eventually.

So, do you have any financial plan? If no, you can think about it and come out one financial plan that suits you.

Invest Early or Invest Late?

These 2 tables show that the difference between starting investment early and starting investment late. Assuming that the annual return of the investment is 8%:

Mr. A invests RM1200 every year for 10 years, but Mr. B wants to enjoy life first, so he plans to invest RM1200 every year for 20 years on 11th year onwards. In the 30th year, Mr. A has around 40% more than Mr. B, although Mr. A just invests for 10 years while Mr. B invests for 20 years.

What happen if Mr. B still wants to enjoy life first, and he said that he will have higher income after 10 years and he is able to invest double of Mr. A’s investment?

We can see from the table, Mr. B invest RM2400 every year for 10 years on 11th year onwards. In 30th year, Mr. A still has slightly more than what Mr. B gains.

Time is very valuable and it cannot be bought using money. From the calculation above, we can conclude that time is a very important aspect for the investment to grow. The compounding effect is significant. Investing earlier definitely generate more money for you compared to investing later.

Is Retirement Too Far from us?

Many people especially youngster have a perception that retirement is too far from us and retirement planning only needs to be done when we enter 50s. This is not correct! Once we start work and earn money, we should plan for our retirement. Traditionally, EPF (Employee Provident Fund) is one of the major sources for our retirement fund. However, in this high inflation era, EPF is no longer enough for our retirement life. We need to get alternative to prepare for our retirement fund.

Since EPF is not enough for our retirement life, we should look for alternative. Saving is another method to fund our retirement life, but if you just put your saving into bank FD (Fixed Deposits), how much interest you can earn? Most of the banks now offer 3.7% interest per annum for FD. 3.7% is obviously lower than the inflation rate. After the recent fuel price hike, inflation this year is estimated to increase to 4-5%. Your money in bank FD is actually losing value in terms of purchasing power.

So, we should save money every month since we start work, and invest the money into investment tools that are suitable for us. Regardless what kind of investment tools, time is a very important aspect. If you invest in properties, the properties need time to appreciate. If you invest in stock market, your stocks need time to grow as companies need time to grow and generate profits. Any kind of investment need time to grow, and the magic of compounding effect will make your investment grow faster and faster in a long run.

Obviously, if we want to prepare a sufficient fund for our retirement, we need to start planning fast. Earlier you start to plan, higher the chance you can be successful, and more fund you can get for your retirement. Very soon, I will show you the difference between start invest early and start invest late.

DO NOT hope that your children will take care of you financially in future. Nowadays, we get married late and when we retire, normally our children just come out to work or not even work yet. They do not even afford to support themselves financially. PLAN FOR YOUR RETIREMENT FUND ASAP!!!

Why Financial Planning is Important?

What is the role of money in your life? Do you realize that life is closely related to money and it will be a difficult life without money? When I am in secondary school, I never think of the importance of money and financial planning. At that moment, I just think that getting a job which I like and enjoy without considering the salary. However, I face the reality of this cruel society when graduate from university. We need to spend so much and we just have income once a month. Then, I realize the importance of money.

It is really a bit weird that, we learn so many things during our school day or even our university life, but no single teacher teaching us about managing the money and financial planning. Our parents and teachers always ask us to study hard so that we can get a high paid job in the future. They ask us to earn more income, but did not teach us how to manage the money. In fact, there are so many high income persons nowadays are in credit card debt. So, to achieve financial freedom, the most important aspect is not how much you earn, but how much you save from your income.

Maybe you will ask, do you mean that I can achieve financial freedom if I save money every month? I will answer you, NO. However, if you do not save every month but spend all your income every month, definitely you cannot get rich or financial freedom. Having a good financial plan is the only way to achieve financial freedom.

How to define financial freedom? I believe everybody has their own definition of financial freedom. Some may say they want to have 10millions, some may say they want to have sufficient passive income every month, and some even may say they want to start a business and get the business public listed. So, we should set our target or goal for our financial plan, which means we achieve financial freedom. For me, my definition is free of debt, maintaining the quality of life after retired by having passive income equivalent to my income before retirement, and having 1million worth cash or equities investment.

Financial planning is not a subject in school, and in eastern countries, normally parents also will not talk much about money to us. That is the reason why so many people are in credit card debt and according to EPF (Employee Provident Fund), 70% of the retirees spend all of their EPF withdrawal within three years after they retired. People do not know how to manage their money and spend more than what they earn. Even high income person, most of them do not actually save money, and just think that having a car and house is enough in their life, but they do not think far ahead that how they going to survive after they retired and have no income at all.

In fact, financial planning is so important for us in order to achieve financial freedom and have a great retirement life. And, this is the purpose I write this blog to share with you all especially youngsters about personal financial planning. Let us go towards financial freedom together!