Financial Planning Talk (5): Start the Financial Plan – Pay Off the Debt

After setting the goals, we can start to come out with the financial plan. The financial plan should be aligned with the goals. For each short term goal, we need to plan accordingly to achieve the particular goal.

Typically, the first thing in our financial plan should be paying off all the debts, if got any. It is glad that you are free of debts. If you have any, paying off the debts should be the first goal that you must achieve.

The rule of paying off debt is, pay off the debts with highest interest rate first, and pay off the debts with lowest interest rate last. Normally, credit card debts have the highest interest rate, which is 18% p.a. If you have credit card debts, you must pay off all your credit cards debt as soon as possible. Stop to swipe your card, purchase using cash. Do balance transfer and negotiate with banks to pay off the debts in a certain period with lower interest rate.

Besides credit card debts, personal loans are the second high interest rate loan, then followed by car loans and housing loans. Normally, we will pay off the car loans and housing loans in long period, such as 5-7 years and 20-25 years respectively.

There is something we must bear in mind. Never invest your money while you have debts, unless the return of the investment is higher than the debts interest rate. For example, credit card debts annual interest is 18%, while FD interest rate is only 3.7%, unit trust investment gives annual return 8-10%, and stock investment gives annual return 12-15%. So, we should always pay off all the credit card debts before we do investment or saving.

Financial Planning Talk (4): Setting Financial Goals

Before we set our financial goals, we should understand well about our current financial situation. After we set our financial goals, then we can plan for implementation plan according to our financial goals. For financial goals, we should set long term goals and short term goals. Having short term goals, it is easier for us to plan for the implementation plan to achieve the goals. And these short term goals are the progress to achieve the long term goals.

Why we need short term goals? If we set our financial goals as to retire early with 1 million ringgit after 15 years, it is very difficult for us to have a proper investment plan which can help us to achieve the goals. However, if we consider our current financial situation and set some short term goals which can help us to achieve the financial goals eventually, it is easier for us to have a good investment plan.

Typically, we should first examine our assets and debts. Debts must be paid off before we start our investment plan, unless the interest of the debts is less than the return of the investment. So, for this example, we can set some short terms goals, such as pay off all bad debts within 1 year, then save for a certain amount for investment within 3 years, meanwhile invest the money into different investment tools with different rate of return, targeting to get 200 thousands within first 5 years, then 500 thousands after 10 years, and eventually achieve 1 million after 15 years.

By having a clear target within a shorter period, we can set a proper investment plan easily and more important, we can review our financial planning periodically and justify if we are going the right way. If we cannot achieve the short term goals, we should review our long term goals and investment plan, and revise the plan in order to achieve our financial goals eventually.

This is just an example, we can set any short term goals that we need to, such as for some purchases or traveling and so forth. Anyway, we should always set goals which fulfill the 5 features that I mentioned in earlier post, which are SMART (Specific, Measurable, Attainable, Realistic, Timely).

Example:

Public Bank announce 2Q FY2008 Report

Public Bank has just announced its Financial Year 2008 Second Quarter financial report.

These are the few key points about its performance:
- Group’s pre-tax profit for the financial half year ended 30 Jun 08 of RM1,762.2 million is 25.2% higher than the previous corresponding half year.
- Net profit attributable to equity holders improved by 31.0%
- Group’s domestic bank, Public Bank, recorded a pre-tax profit of RM1525.5 million for the financial half year ended 30 Jun 08 and was 20.3% higher than previous corresponding half year.
- Pre-tax profit contribution from overseas operations increased by 16.8% to RM202.7 million.
- For the single 2nd quarter, the group registered a pre-tax profit of RM791.6 million, 8.0% higher than previous corresponding quarter.
- Its gross non-performing loan (NPL) decreasing by 21.9% to RM1.22 billion and Group’s net NPL ratio improved to 0.9% from 1.5% over the same period.
- EPS for 2nd quarter and financial half year is 17.69 cent and 39.08 cent respectively.
- Net assets per share is RM2.7921.

Public Bank has announced an interim dividend of 30% less 26% tax, which is 30 cent per share.

The 10 Richest Malaysians

1．Robert Kuok
Net Worth: US$ 10 billion
Age: 84
Main Business: Wilmar International, PPB

2．Ananda Krishnan
Net Worth: US$ 7.2 billion
Age: 70
Main Business: Maxis, Astro and India Aircel

3．Lee Shin Cheng
Net Worth: US$ 5.5 billion
Age: 69
Main Business: IOI Group

4．Teh Hong Piow
Net Worth: US$ 3.5 billion
Age: 78
Main Business: Public Bank

5．Lee Kim Hua & Family
Net Worth: US$ 3.4 billion
Age: 79
Main Business: Genting Group

6．Quek Leng Chan
Net Worth: US$ 2.4 billion
Age: 67
Main Business: Hong Leong Group

7．Yeoh Tiong Lay & Family
Net Worth: US$ 2.1 billion
Age: 78
Main Business: YTL Corporation

8．Syed Mokhtar AlBukhary
Net Worth: US$ 1.8 billion
Age: 56
Main Business: MMC Corporate, Malakoff

9．Vincent Tan
Net Worth: US$ 1.3 billion
Age: 56
Main Business: Berjaya Group

10. Tiong Hiew King
Net Worth: US$ 1.1 billion
Age: 78
Main Business: Sin Chew

Pump Petrol Using Credit Card

The petrol price has been increased by 40%, we as consumers really suffer from the high petrol price and high inflation rate. To fight with the high inflation, we always try to save more petrol when driving and get as much as rebate when pumping petrol.

Recently there are few banks offering credit cards that getting rebate when pump petrol, I found that Direct Access Mastercard is quite good, getting 2% rebate in any petrol station. Maximum rebate per month is RM50. Moreover, we still can use loyalty card to get loyalty points, example BonusLink in Shell, Smiles in Esso and Mobil, Mesra card in Petronas and so forth. I personally use Direct Access Mastercard together with Smiles card in Esso or Mobil, so that I can get 2% rebate from credit card and get 1 point for RM1 from Smiles card. 1000 Smiles points can redeem RM15 petrol, so in total, I can save 3.5%.

Looking at other credit cards, Citibank Shell Card only can get 1.5% rebate if you have no outstanding balance. Maybank and CIMB Petronas Card can get more treats points and 2% rebate respectively, but no loyalty points can be collected using these two cards.

Anyway, DO pump petrol using credit card ONLY if you are discipline enough to pay the bills on time every month to avoid from interest charges. Also, always consider to apply Free For Life credit cards.

Historical Performance of Malaysia Equity Funds (30 June 2008)

1 Year Return Ranking:

1. OSK-UOB Resources – 18.56%
2. HLG Industrial and Tech Sector – 14.62%
3. PB Asean Dividend – 12.39%
4. PRUGlobal Basics – 10.64%
5. MAA Capital Guaranteed 2 – 9.63%
6. OSK-UOB Emerg Oppty – 9.63%
7. MAA Capital Guaranteed 3 – 9.35%
8. AMB Value Trust – 9.22%
9. MAA Capital Guaranteed 1 – 9.08%
10. PB Growth – 7.66%
11. AmNew Frontier – 7.54%
12. CIMB Islamic DALI Equity Growth – 7.28%
13. Public SmallCap – 6.97%
14. PRUlink Guaranteed Account – 6.85%
15. CIMB Islamic Small Cap – 6.75%
16. AmGlobal Agribusiness – 6.26%
17. Public Far-East Select – 6.10%
18. CIMB Islamic Equity – 6.01%
19. CIMB-Principal Small Cap – 6.00%
20. CIMB-Principal Equity Growth & Income – 5.88%

3 Year Return Ranking: (Annualized Return)

1. OSK-UOB Smart Treasure – 34.23%
2. CMS Islamic – 31.89%
3. HLG Industrial and Tech Sector – 31.03%
4. AMB Value Trust – 29.10%
5. OSK-UOB Emerg Oppty – 28.68%%
6. PB Growth – 28.41%
7. Public SmallCap – 27.72%
8. AMB Ethical Trust – 27.25%
9. Public Aggressive Growth – 27.02%
10. Uni Aggressive – 26.70%
11. Manulife Equity – 26.47%
12. MAAKL Progress – 26.42%
13. CIMB Islamic DALI Equity – 25.18%
14. CIMB Principal Equity – 24.90%
15. Public Islamic Opportunities – 24.52%
16. OSK-UOB Small Cap Opportunity – 24.52%
17. MAAKL Value – 24.41%
18. ING OA Inv- ING Ekuiti Islam – 23.65%
19. ING Dana Suria Ekuiti – 23.53%
20. CIMB Principal Equity Growth & Income – 23.44%

5 Year Return Ranking: (Annualized Return)

1. PB Growth – 24.77%
2. Manulife Equity – 22.75%
3. AMB Value Trust – 22.11%
4. Public SmallCap – 21.85%
5. Public Aggressive Growth – 21.04%
6. CMS Islamic – 20.80%
7. ING Dana Suria Ekuiti – 20.80%
8. AMB Ethical Trust – 20.06%
9. Public Ittikal – 19.77%
10. Public Industry – 19.56%
11. OSK-UOB KLCI Tracker – 19.40%
12. CMS Premier – 19.33%
13. ING Equity – 19.02%
14. Public Equity – 18.90%
15. MAAKL Progress – 18.73%
16. MAAKL Al-Faid – 18.60%
17. Public Islamic Equity – 18.55%
18. Public Growth – 18.29%
19. Lion Progressive – 18.16%
20. Public Savings – 18.16%

Sources: Lipper

Financial Planning Talk (3): How to set financial goals effectively?

After assessing our financial status, we should set our financial goals. Without goals, we have no target in our financial planning and we can achieve nothing. Without goals, it is very difficult to draft up a proper financial plan for ourselves. Goals are actually what we wish to achieve. However, most of us have no idea how to set the financial goals effectively.

Typically, one of the methods to set goals effectively is getting S.M.A.R.T.

Specific. When we set our financial goals, the goals must be specific. Keeping the goals specific, we can set our plan easier, as we can plan for specific action to achieve specific goals.
Example: To get enough education funds for the son to study at Australia by using both education plan policy and bluechips investment.

Measurable. As we need to revise our financial plan regularly, we need to make sure our goals are measurable. If we cannot measure it, we cannot imagine it. Measurable goals make us clearer what is our goals and easier for us to judge if we have achieved, partial achieved or not achieved. Having a measurable goal, we can see the change occurs.
Example: To get RM300,000 of the education funds for the son to study oversea from both education plan policy and bluechips investment.

Attainable/Achievable. When we set our financial goals, we will think of the way we want to achieve the goals. The financial goals must be achievable and not too far from our ability. The feeling of success helps you to remain motivated.
Example: To get 15% average annual return from the bluechips investment and 7% average annual return from the education plan policy.

Realistic. Realistic means something do-able. When we set our financial goals, we must be realistic. Looking at the resources that we have and the status that we are in, set a realistic goal.
Example: By using RM10,000 as capital and yearly top up of RM5,000 to invest in bluechips. Pay RM300 per month for the education plan policy.

Timely. All the goals that we set must be put a time frame. Without time frame, we will never start to move towards the goals. No time frame, no commitment.
Example: To get RM300,000 of the education funds for the son after 15 years.