What Dad Told Son

I was having a meal with my friend, Dr. Anand, an Indian National who is a Permanent Resident in Malaysia. He was been working in a local hospital for more than 20 years and loved Malaysia for its weather, diversity of food and culture.

We were talking about the state of youth and how they use money, when he shared with me what his father taught him. Now in his 60s, this advice has served him well and he has enough to retire to a simple lifestyle that he had planned for.

Whilst today’s clarion call for retirement planning is to start saving from the day you start work, this one had a different angle and the story is worth telling.

Dr. Anand’s father was a government accountant during the British rule in India. The position was a privileged one as he handled the country’s money. His father was also a very prudent, highly ethical and disciplined person.

When Dr. Anand started working and received his first pay check, his father sat him down and shared this tip with him.

Dr. Anand had studied very hard to get his degree in medicine and become a doctor. Working life is going to be a long journey before retirement, so for the first 2 years of his life, he should spend his salary on:

1.      Investing in good work clothes and accessories

2.      Plan an affordable holiday break

3.      Spend on things he likes which he can afford i.e., movies, books, gadgets, etc.

After 2 years, in year 3, he should put aside 30% of his monthly salary for retirement. “Put aside an amount you need to replace worn out clothes and accessories. Start building an emergency fund for rainy days. You may start saving for a car which you can afford to maintain without any parental aid,” his father added.

It was such a simple tip and easy to follow. Dr. Anand is rather a disciplined man himself and for that, he was rewarded with a life where he can afford the things that he planned for. He has enough to retire today, but continued to work because he loves what he do and the income that he is earning now gives him the little luxuries in life every now and then.

Don’t get me wrong, Dr. Anand is still a very prudent man. On an ordinary day, he will have simple meals and dresses in shirts from departmental stores. But he likes his creature comforts in terms of good working and casual shoes, a good bottle of whisky and a nice car to whisk himself around.

How can the young adults today extrapolate that to their lives today? Well, EPF already gives you a minimum of 23% savings. You have SOCSO which covers you for accidents and injuries going to, during and going back from work.

What you will need is to top up another 7% of your income in the form of savings which you can choose to invest. The Government has in place the Private Retirement Scheme (PRS) which invests in unit trusts. If you are in your 20s, the Government will give you a one-time incentive of an additional RM500 into your account if you start one with RM1,000.

Here is a quick scenario to help you:

A earns RM2,500 in her first job. Her take home pay is about RM1,750 after deducting EPF and SOCSO. She stays with her parents and travels to work on public transport.

If she can put aside RM125 per month for her retirement, then plan the balance of RM1,625 for her daily transport and meals as well as her monthly personal care items and entertainment, she will find that she can manage nicely on her starting pay.

This is a very simple illustration. If you need assistance, seek out the services of a Licensed Financial Planner who can help you plan your money management and avoid pitfalls. The fee you pay for this service is worth the pain of huge payments in debts and interests if wrong decisions are made.

My story for the following month will be a ‘Tale of Two Countries’. If you like such stories, stay tuned for the next installment.

This article is written by Linnet Lee, CFP CERT TM, IFP® and CEO of FPAM, our regular contributor who shares real life stories of financial planning professionals encountered in her own fascinating journey in the industry.

Red Pill, Blue Pill

Reality is harder.  That is the theme from the 1999 movie, “The Matrix”

Take the blue pill and return to a life conditioned by others.  Comfortable but meaningless. Take the red pill and live a real life.  Harsher but fulfilling.

The problem is no different for any of us.  Which to choose?

For most, the blue pill becomes the choice.  Comfortable job.  Quiet neighbours. Well-behaved children.  Good pension.  Orderly society.  Security.  A good life.

Comparing fiction and real life is problematic.  Fiction has to make sense and truth does not.  Reality has more dimensions.

Many people have found that, in the real world, the blue pill wears off.  The company moved to China, went bankrupt, down-sized or just topped out.  Maybe your career became obsolete.  Divorce.  Illness.  Who knows?  What we do know though is that most of the blue pill consumers are ill-prepared for the harsher life.

The red-pill gang do not seek comfort and predictability first.  They take risks.  They trust themselves.  They experience failure.  Probably more failure because the expose themselves to the possibility.  They develop resources to deal with crises.  They are resilient.

For them adversity is just a step along the way.  Most successful people have adversity somewhere in their lives.  Failure defines no one.

Consider these folks who went bankrupt.

1.     Henry Ford, twice before 1903

2.     Donald Trump, 1990

3.     Walt Disney, 1921

4.     Milton Hershey, 1880

5.     Abraham Lincoln, 1833

6.     H.J. Heinz, 1875

Fired from the company they founded

1.     Jerry Yang, Yahoo

2.     Mike Lazaridis, Blackberry

3.     Steve Jobs, Apple

4.     David Neeleman, Jet Blue

Adversity is not your enemy and it may be your friend.  You learn much more when you are wrong.

The problem is that as a society, we have been sold a blue pill hoax that says life should be easier.  Success is possible without risk, effort, deferred gratification, or time. 

Not so, sorry!

The red pill tactic exposes you to adversity and gives you the opportunity to learn from failure.  Start early when most of the failures are not life threatening.  It gets harder to make those decision when you have more responsibilities.  Recognize that some risk can be taken away by others.  Insurance for example.

Each of us is Neo.  We need to find our personal Morpheus.  We need a little more knowledge to make the decision that leads to our greatest self development.

It won’t be easy because if you listen careful to the media or politicians or social media, you will discover that some think there is a purple pill.  Like taking both.  Red when you want to be entrepreneurial, blue when you want predictability and leisure.

Taking both does not work.

Try something that has the prospect of success.  Look for your Morpheus.  Everyone needs a mentor. 

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Find a stable job, get a loan, buy a car and house?

Recently, there was a report which stated that young people are grappling with higher debts than they can handle. We borrow to buy houses, cars, and even basic necessities, such as tertiary education.

The same report also claimed that “Malaysia has the highest personal debt among 14 Asian economies, with the rate jumping to 88% of gross domestic product from around 60% in 2008”.

Part of the problem lies with young people for not making wise financial decisions. Moreover, there is that deprivation of financial literacy in our education system.

I do not get why we are not teaching personal financial management in school. It is not like most of us are going to utilise the knowledge from chemistry, biology and civics classes anyway.

The only thing that I applied from two years of physics was when I used inertia to put ketchup into my food. But this article wanted to direct us to another aspect that is seldom examined: social reality and expectations.

We, the young graduates and working adults, have always been told that we need a job to survive. It is often along the line “get a stable job, rise up the ranks, buy a car and house, get married, save and invest, buy a property or two, and buy more stuff”.

We seldom question the veracity of this age-old narrative, as if it is a verse from the scripture for the modern times. The question is, can we live a fulfilling life by sticking to this routine?

For those of us who had just graduated, it is crazy. Just a few months ago, the toughest thing we had to do was probably figuring out how to divide the bill during dinner outing with friends.

We were told that we were not mature enough to talk politics and make our own decisions. We were told that all we should do was focus on our studies, get a string of As, and receive that paper scroll.

Suddenly, we are expected to make decisions which will bind us for the next 20 to 30 years. We are bombarded with the expectations that we have to embark on a stable and financially rewarding career, preferably a position with social prestige as well.

We have to own a nice car, they said (by “they”, I mean the conglomeration of individuals, groups, marketing, and societal expectations). Let us take up loans that will put us back five, seven, or nine years to pay off for a car which costs RM40,000 to RM60,000.

Keep in mind that the scope of financial dilemma that we face prior to this juncture is often trivial matters compared to this big purchases, for example, “should we go to TGIF or the mamak stall?”, “should I buy that Nike shoes for RM200?”, “should I buy that rare book?”, or “should I take the taxi or the bus?”

Then they told us that we have to get a nice car and soon, a house. We are talking about a decision that involves a huge sum of money.

While not denying the utility of such property in this capitalist society, we cannot succumb to social expectations so easily without examining whether it is what we want to do and be.

At the end of the day, it is us who have to bear the burden of debt and pay it off for the next half a decade. That’s a few years of our lives. Why don’t we buy a cheap second-hand instead of a brand new car?

We do not want to work and live like indentured servants for the sake of pleasing others. My dad made a point that people who drive imported cars “look nice from the outside”, but they borrow money to buy the car and need to pay it off for a long time.

They are not that rich after all.

When we take loans to buy things, we accumulate debts which necessitate us to have stable income throughout the payment scheme.

Not only do we have less freedom to determine our career choice (such as working freelance in another country, or starting a startup), we also have less disposable income which could be used to provide quality living.

For example, I used AirBnB for my work trip to Singapore. I got a private room in a bungalow which I will probably never be able to own. I buy books as if they are chocolates.

I take flights on a weekly basis. I can do all that while earning fresh-graduate-income because I don’t have commitment and loans I need to pay off and I don’t own much things. Once I start to tie myself with debts, I would have less room to maneuver and do the things I want.

There will be some who might accuse those of us who questioned this standard career path of stable income and debt accumulation as “a bunch of whining graduates who want to be spoon-fed”.

Honestly, I don’t care what other people think. I would even admit there’s some truth in their statement. Yes, it’s an elitist privilege to be able to do what we want. Not everyone has the background, freedom, or capabilities to break away from the standard narrative.

But I think I do have a choice. I think many people who read this article have that choice. The fact is that we are relatively well-educated, well-to-do, and endowed with certain set of skills and capabilities.

We may not earn that much or own many things, but we can be ourselves and do what we want to do.

I shuddered when my Uber driver told me that it will take up to 30 years for Singaporeans to pay off their HDB (Housing and Development Board) houses. For me, it’s like signing away 30 years of your life and bind yourself to work like indentured servants.

It’s not like I would want to stay at the same place for 30 years anyway (I get bored easily). Another way of looking at property ownership is to invest and sell. That is actually more rational, but it would mean that I will be practicing a philosophy which I criticise, such as the scheme of buying houses for investment, thus inflating the price of houses and depriving others who need a house for real.

Sometime ago, I read that a person is either green and growing, or ripe and rotting. Maybe I am rebelling against social reality and expectation because I am afraid that if I stay and stick to the routine long enough, I will forget my dreams and be ripe and rotting.

I would become comfortable, and less likely to take chances and try new adventures.

Like my boss said, there are many things we want to do in life and let us not waste time on things and people we do not want to deal with. There are approximately 196 official countries in the world. I have only been to six.

I still have not explored all the 13 states and three federal territories. I have not written books and journal articles which can be considered an important work and significant contribution in my field.

I have not climbed Mount Kinabalu, Gunung Tahan, and the amazing national parks of the United States. I still want to go back to Grand Canyon, the most beautiful work of God (or nature) that I have ever seen, and hike through the various trails.

It is risky of course, but I want to live dangerously than safely rotting away. I would rather die as myself than to live like an indentured servant.

Source : Ooi Kok Hin graduated from The Ohio State University with a degree in Political Science and Philosophy.

Lessons About Money From the World's Richest People

The rich folks in the world think and act differently than everyone else. The thing is, a lot of the wealthiest people not only had to earn their wealth, but now they also have to add to it and maintain it. If you ever wanted to know how they achieved that sort of financial success, you have to start with what the rich know about money.

Here are seven things that the world’s richest people know about money.

1. Money equals freedom.

Kevin O'Leary, the successful Canadian businessman and investor on Shark Tank, once said that "Money equals freedom.”  That’s something that the rich realize. While money can’t buy freedom, having enough money to not only meet your basic needs, like food or shelter, it gives you the freedom to choose what you want to do, when you want to do it.

Tired of your boss or job? You'll have the freedom to quit, if you want, which makes any job more palatable. Want to plan a vacation to Hawaii? No problem, you are personally choosing your hours and how early or late you will work. Want to launch a new business venture? You have the means and networking contacts to pursue this dream. What happens when you get sick? You can afford the best doctors and medical care.

2. Look for investments every day.

The rich are always thinking about the future, which is why they are constantly on the lookout for new investment opportunities in everyday life. Whether it’s their teenager informing them about the latest social media platform or finding a new food item in the grocery store, the rich how to spot ways to increase their wealth, no matter where they are. They always listen, even if they don’t like what they are hearing about an investment.

3. Stay away from complex investments.

The rich know to stay away from complex investments like hedge funds and mortgage-backed securities. Why? Because these types of investments present a number of problems that include not having any control about the risks involved. The rich stay aware of getting hit with expensive fees, and these type of investments are usually sold to investors who don’t understand them. If the rich don't understand the investment, they don't buy it.

4. Not spending is the same as making money.

This doesn’t mean that you always have to cut back or become a penny pincher. It means that if you make sacrifices in one area, you can use that money for an investment. For example, if you’re flying from New York to Chicago and a first class plane ticket costs more than $3,000, do you think that you could take a seat in business class because it’s $1,000 less? In a way, you may have just earned $1,000, which could be used for acquiring assets that bring in additional funds. Money working by itself is money you don't have to earn again.

5. Invest in appreciating assets.

The rich keep their wealth by not wasting all of their funds on items like clothing and vehicles. Instead, they wisely invest in appreciating assets. Tatiana Morales defines appreciating assets on CBS as “Assets that have the potential to increase in value and/or produce income.” This include liquid assets like cash, investments like stocks and bonds, and property.

6. Don’t put all your eggs in one basket.

The wealthy never put all of their money into one or two stocks. As Investopedia clearly states, “it is foolish to invest all your money in one investment.” That’s why it’s important to have a diversified portfolio that includes a variety of investments, stocks, bonds and mutual funds. Your portfolio could also include business investments, real estate and collectibles.

Remember, diversification isn’t just investing in different companies. It’s investing in different types of companies. For example, you wouldn’t invest your money in four different fast food companies. You would invest in one fast food company and the rest in companies in the oil, retail or tech industries. If something fails, you are still protected with your other investments.

7. Net worth isn’t self-worth.

The rich are well aware that money can’t buy you love, respect, friends or happiness. They realize that their self-worth can’t be measured by their financial success. As author Ken Solin points out in the Huffington Post, who do you think has more self-worth? The isolated man with a billion dollars in his bank account or the man who listens to his wife, spends quality time with his children, has authentic friendships and is a volunteer?

Source : John Rampton, Entrepreneur and Connector