Happy Chinese New Year & Gong Xi Fa Cai!

This is the beginning of a new lunar year, a "Water Dragon" year, do you all have your own financial planning yet? Although the financial planning series here is not updated for quite some time, it's still worthwhile to reread the series and check if you are going towards financial freedom. If you are still not clear about how to plan your financial, you may go through the financial planning series here again, and set your goals as well as your financial planning.

1) What is Financial Planning?

2) Some tools to help assessing our financial status

3) How to set financial goals effectively?

4) Setting Financial Goals

5) Start the Financial Plan – Pay Off the Debt

6) Is Emergency Fund Important?

7) Is Insurance Important?

If you have any question about financial planning, you may leave a message here. We can discuss and improve ourselves together. Lastly, wishes all of you a very Happy Chinese New Year and Gong Xi Fa Cai! May the new year bring you abundant of fortune and happiness.

How to become a successful financial advisor?

In the previous post, I have mentioned that the Personal Money in June (Issue #118) has an article about how to become a good financial advisor and I wish to share it here. Recently, I am quite busy, so delay the sharing until now.

These are the five criteria to become a successful financial advisor:

1. Commit to lifelong learning

Financial planners need to be committed to continuous learning in a fast-changing business environment. Planners need to keep updated on the technical knowledge related to different aspects of financial planning, and then translate what you have learnt into practice. Only an educated financial planner can educate his client. After doing the research, he can then share it with their clients. A good financial planner will be able to help clients be discerning with the burgeoning choices of financial products in the market. Financial planners can stay competitive by staying relevant. Keep up to date with news and global events.

2. Define your service.

Planners need to understand what they are trying to accomplish from the financial planning practice. Thus, financial planners should decide whether they want to be generalists capable of providing a comprehensive financial planning plan or specialists who focus on one area of financial planning. Financial planners should avoid over-promising and under-delivering. Also, invest in supporting systems and tools, the planner needs a robust process to assess the risk the client is willing and able to take.

3. Be transparent.

It is critical for consumers to know what they are paying for and how they are paying for it. Be as transparent as possible when discussing compensation for the financial plan and/or advice. Financial planning is a process of setting objectives, assessing assets and resources, estimating future financial needs, and making plans to achieve certain goals. To better educate his clients, it is advantageous for the planner to explain the entire financial-planning process. This helps them understand why they should pay you.

4. Build values and skills.

The skills required in establishing a relationship, identifying clients’ needs, presenting strategies and communicating them are necessary soft skills that a financial planner should have. To create trust, the financial planner has to have integrity and always out the clients’ interest first. To be respected, planners need to uphold the reputation of the profession at all times. To establish a good relationship with clients, update them frequently.

5. Aim to minimize diversions and errors.

Planners need to have a logical and defensible position for every assumption they take. Each assumption should be documented. Conduct “what-if” analyses and scenario testing to prepare for any eventuality. Planners should not paint a rosy picture by selecting a particular time frame. Instead, select different start and end points, and test them out. By preparing different scenarios, the planner will be able to demonstrate and clarify the trade-offs and propose options to close any gaps and create a buffer against unforeseen circumstances. Most importantly, it is to remind the clients that a financial plan is not static.

Even if you are not a financial advisor, you may look at your financial advisor/planner if he/she has the criteria above.

Enjoy your financial planning journey!

What are the trademarks of a good financial adviser?

In the Personal Money June 2011 (Issue #118), there is a letter in the Question of the Month written by me. The topic of the month is “What are the trademarks of a good financial adviser?”

Here is the letter that I submit and be published in the issue:

“A good financial adviser is not only providing financial advice to customers, but sharing the knowledge and awareness of financial planning with the customers. To be successful in providing financial advice, advisers need to ensure the customers having same thought and relevant knowledge to agree and be confident on what the advisers recommend. Only when both parties are aligned, the financial plan can be executed smoothly. Besides, a good financial adviser should understand and recommend based on the customers' needs and situation, but not keep promoting the same products to every customer, which gives better commission to the advisers. Review periodically on the customers' portfolio is needed to align the portfolio with the bearable risk level.”

The said issue of the Personal Money also has an article about good financial advisers. I will share the article with you in next post. Please stay tuned!

1Pengguna.com – 1 Pengguna Portal, a smart consumer portal

Recently, our government has launched a 1Pengguna.com portal (http://www.1pengguna.com/) , which is used to compare all the goods price of different stores. In this high inflation era, this is a good move of government by creating this online portal for rakyat to compare the consumer product price, so that we can choose the right store to buy at cheapest price.





I have surfed the portal, which idea is really good. It allows us to know all the price of the goods sold in different stores, including convenient store, mini market, super market and hypermarket. With all these information online, we can obtain these by just clicking on the mouse, without going to each of the stores to compare the price. For example, if you are going to hold a small gathering, and need to buy some soft drinks. You can always go to this website to check which store selling the soft drinks at the cheapest price. By having this, you can go to the particular store directly to buy the soft drinks without spending petrol for going to few stores to compare price.

However, there are a lot of improvements need to be done in this website. Ignoring the security loophole of the website, there are still a lot of improvements need to be done in terms of features and functions. The main problem of this website is, the query procedure is too complicated, where we need to click for many selections to compare the prices. There are limited varieties of goods and stores as well. To make this website to be more successful, the government should include all the hypermarkets, such as Tesco and Giant. We wish that the government can improve in these so that more people can benefit from the website, and we can save from the consumer products.

We, as the consumers, should make use of this website to reduce our expenditure by being a smart consumer. No doubt, this is a good news for the consumers to fight with the rising cost of living.

Financial Planning Talk (7): Is Insurance Important?

Earlier, I have mentioned that before we start to invest, we need to have sufficient emergency fund. Actually, beside this emergency fund, we still need to protect our wealth before we start to invest. Saving money and invest is to accumulate our wealth and gain more wealth. In order to make sure we are able to accumulate and gain more wealth, we need to protect our wealth in the first place.

Why do we need to protect our wealth? During our wealth accumulation, if there is any accident or we are so unfortunate and get illnesses, we may spend all our wealth for our living expenses or medical fees after the accident or illnesses. If we have no any wealth protection, all the money which are accumulated over few tens year may be spent finish in a short while.

How to protect our wealth? When we talk about wealth protection, it is insurances. Insurances can pay for us when we need to be admitted into hospital. Insurances can provide some money when we get serious sicknesses. Insurances can leave some money for our family when we are not around anymore. So, insurance is the tool for us to protect our wealth.

When we are considering buying insurance, we need to understand our ability. There are a lot of insurance plans. We need to understand the coverage, premiums, terms and conditions when we decide to buy a particular plan. We need to consider our ability, do not buy a high premium policy which makes us stress when saving money to pay the premium.

Besides, buying insurance does not need to buy much. Just buy whatever you need, just buy whatever you can, then it is good enough. Personally, I prefer to buy traditional policy instead of investment-linked policy or some saving plans. Life insurance, medical card, 36 critical illnesses, and personal accident policies should be sufficient for normal individuals. Insurance is to protect our wealth, it is not to earn money. It is advisable that we invest in other investment tools to gain return instead of signing up investment-linked policy.

Maybe you can look for a good agent to explain to you in details about all these policies and try to figure out the best combination of policies you should buy. I feel that most of the policies out there are almost same, so I would choose a good agent and buy from him or her. A good insurance agent is very important, as he or she can always review the policy together with you according to your dependants and income. When you need some advice about insurance, he or she can be always available to help you. Try to emphasize more on the quality of the agent, but not only the premium and policy.

Financial Planning Talk (6): Is Emergency Fund Important?

After we assess our financial situation and set our financial goals, we will come out with a financial plan or investment plan. Earlier, I have stated that paying off all the debts should be the first step in our financial plan. So, if we have paid off all the high interest debts, then we should save money and invest to gain more money with money.

Many people neglect the first step before they invest, they do not have any cash for emergency case, so when they need some cash urgently, they need to cash out their investment even their investment is facing paper loss. This is not the right way, as investment need to be long term.

An emergency fund is very important for us before we start to invest. The objective of investment is to earn money comfortably and make our future life better. So, when we invest, we should make sure we are comfortable with the investment and we will not worry about the investment everyday until cannot sleep or cannot eat. By having a sufficient emergency fund, we should not be worry about our investment and let the investment grow over the time.

Then, how much is sufficient for an emergency fund? This depends on our expenses. Normally, financial advisors will advice us to prepare an emergency equivalent to our 6-month expenses. This can make sure we still can survive for 6 months if we lose our job suddenly. For those who are still single and not the main source of income for the family, you can consider preparing an emergency fund equivalent to 3-month expenses. It is not easy for career newbie to accumulate 6-month expenses as emergency fund.

How we can prepare the emergency funds? We should save a portion of our salary, maybe 10% or 20% every month to accumulate this emergency fund. The best way to put this emergency fund is Fixed Deposits (FD) which we can cash out money immediately (if it is business day) if we need the money urgently. If your job is extremely safe and your income is not the only income for the family, you can consider putting 70% of it into FD, and 30% of it into some low risk funds, such as bond funds.

The last thing to remember, while our expenses increase along the way, our emergency fund should increase as well. Review our expenses regularly and add more into the emergency fund to maintain our emergency funds to be always equivalent to our 3-month / 6-month expenses.

6 Tips to Get Out from Debts

Recently I read an article at Money Compass magazine, feel that these 6 tips should be beneficial to those who have credit cards debts currently. So, I just translate it to english and post here.

Tips 1: Face the debt honestly
There are many people not clear how much debt actually they have. Normally, they just pay the minimum payment after they receive the bill. If you have any debt, take out all the bills immediately and calculate how much debt you have now. Face your debt honestly.

Tips 2: Plan for a budget, compare the interest rate, and repay the debts as soon as possible
Everybody should plan for own budget and spend wisely. When expenditure is higher than income, we will take loans and get credit card debts. Try to avoid instalment when doing purchase, thus can save some interest. We should manage to calculate the interest for each type of loans or debts, and find the best way to save the interest. If we know that we have not enough money to spend, we must spend wisely, spend on needs, but not spend on wants. Beside, we also need to increase our income by getting part time jobs.

Tips 3: DO NOT use credit cards if you are not self-discipline
To enjoy in a short while may cause you into financial trouble for a long time. Do not think to enjoy first and pay later. When you want to swipe your credit card, you must justify if you are able to pay the bill. Make sure to clear all the credit cards bills before the due date. Reminder: credit card is a payment tool which provides us convenience. If we are not self-discipline enough, DO NOT use credit cards.

Tips 4: Restructure the debts and manage the debts
While settling the debts, we should settle the high interest debts first. Meanwhile, we can discuss with banks to restructure the debts, trying to get the plan with best interest rate, and manage the debts properly. Beside, we also can look for assistance from AKPK consultants, get out from debts by managing the debts effectively.

Tips 5: Record all the expenditure
We should record down all the expenditure according to different types of expenditure, such as meal, purchase daily necessary, phone bills, etc. With this record, we understand where we spend our money to. By adjusting our expenditure, we can allocate a portion of the money as emergency fund or for investment.

Tips 6: Forced Saving
If we have no saving at all, it is useless we mention about investment or financial management. It is very important we have savings. According to our expected standard of livings, set appropriate financial goals, force ourselves to save money regularly. It does not matter on the amount, even it is just small amount, it helps to achieve our financial goals. When there is economic crisis, this is very important, we should prepare 3 to 6 month expenditure as emergency fund. If you plan your financial early, there is no worry even during economic crisis.

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:

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.

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:

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.