Happy New Year!!!

HAPPY NEW YEAR to everyone! Time passes very fast, year 2008 is already end and year 2009 starts. Year 2008 is not a very good year for investors and businessmen, as the world economy is facing crisis and retrenchment is heard everywhere. Anyway, crisis will end one day. Opportunity is still around during crisis. As a new year comes, we should think properly about the investment opportunity in the crisis time, and also plan properly for our finance.

In a new year, we should have a new goal and plan. In finance, we also should review our financial goals and financial plan. Set some more appropriate goals and have a better financial plan. If you still have a goal and plan yet, you should think about it now. Review your financial status now, set a financial goal, and then drafts a financial plan. Read these posts again for the process:

What is Financial Planning?
Some tools to help assessing our financial status
How to set financial goals effectively?
Setting Financial Goals
Start the Financial Plan – Pay Off the Debt
Is Emergency Fund Important?
Is Insurance Important?

Personal Financial Planning is not something done by rich people only. It is for anyone who wishes to become rich. If you are failed to plan, you plan to fail!

Opportunity is here, did you grab it?

Recently all the people talk about financial crisis, market is going down. When people meet up, no longer ask each other how much you have earned from investment, but asking each other how much you have lost in investment. Anyway, there is always opportunity during the crisis, but did you grab it?

Just share with you a story that I heard last time. There is a guy who is very holy and always prays to the god. One day, it is flood around his house. He thought this is the time for him to see the fruits of his continuous praying to the god. He believes the god will sure rescue him from the flood. He is waiting for the rescue on the roof top of his house.

There is a log flooding on the water coming near to him, other people ask him faster grab the log and move to safer place, but he refuses to. He says the god will sure come and rescue him. After sometime, there is a rescue boat come to get him. The guy says the boat is too crowded, he wants to wait for the god to rescue him. Now the water level is getting higher and higher, the guy is so dangerous. At this time, there is a helicopter coming near the guy and ask the guy to climb up the ladder into the helicopter. The guy does not want to climb the ladder, so he says the god will sure come to rescue him. Soon, the water level is higher than him and he really goes to see the god, he is died.

When he sees the god, he asks the god why the god is bad as did not rescue him although he always prays. The god answers that he already tried to save him for three times but the guy did not grab the opportunity. The god sent him a log, but the guy did not grab it. The god also sent him a boat, but the guy did not go into the boat. The god also sent him a helicopter, but the guy still did not go into the helicopter.

So, although the god has given the guy three opportunities, the guy did not appreciate the opportunities and also did not grab the opportunities. In real life, we should appreciate and grab all the opportunities around us. Do not always just wait for the opportunities. If you did not really think about the opportunity, you will not notice even the real opportunity is just beside you. During this financial crisis, we should analyze and think about it, grab the opportunity that in front of us.

Crisis??? Or Opportunity???

If you are reading newspaper or listening to radio recently, you should know the global share market has been dropping for quite a lot. The bankruptcy of Lehman Brothers and huge debt faced by AIG make the situation worse. Global share markets drops almost 50% from the peak at the early of the year. Crude Oil price and Crude Palm Oil price also has been dropping for quite a lot.

Look at the chart above to see the dropping since the peak of each indice. KLCI has dropped from the peak 1516 points before the general election until the latest 859 points last week. Today, HSI and HSCEI have dropped for 12.70% and 14.00% respectively in a single trading day. KLCI is unchanged due to the public holiday in Malaysia, and the KLSE has no trading. Obviously, KLCI will drop a lot tomorrow when the trading starts.

At this moment, all the papers report about the global financial crisis, unemployment rate, inflation, all the negative issues in economy. Most of the people now are so sad when talking about investment and economy. Investors have suffered a lot of paper loss now. Businessmen tell that business is not good. The whole world is so sad about the economy and investment.

So, what do you feel after you hear this? Sad? Worried? Scared? I believe most of the people will feel these, especially for those who suffer a lot from paper loss. When most of the people think like that, why not you think in another way round? Is this a crisis? Or actually it is an opportunity? Make your mind fresh and think about it properly. Really take some time to think about it…we think about it together and I will share my views and feelings here later.

“When all people is pessimistic, you should be optimistic. When all people is greedy, you should be worried” I believe most of you heard this before, but how many of us can do it?

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.

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!