Financial Planning for a Friend

Hey guys, I’ve always been an advocate of savings and sound financial planning. Whether you’re crumbling under substantial amounts of debt or you’re swimming in endless wealth, financial planning can and will have a significant impact. As I’ve mentioned several times before, I’m a certified financial planner (under the Financial Planning Association of Malaysia).

Financial Planning

Today, hopefully with a real life example of my friend, I’ll be able to shed some light on how solid and sound financial planning can help everyone.

Financial Planning for a Friend

At the beginning of February this year, one of my close friend, let’s call him Mr.S approached me for some financial advice, mainly on fixed deposits. You’d be surprised how many Malaysians don’t even know what an FD is. He was expecting a simple answer for a simple question: ‘How do I place an FD?’. As a concerned (and curious) friend, I pried a little about his current financial status and offered to help with his financials (at no charge of course). He basically had RM600 in his savings account, a RM50K car loan and no other assets to his name.

A little more digging and I came up with the following details:

  1. Net Income: RM1,800
  2. Monthly (necessary) expenses: RM900 
  3. Loan repayment: RM640
  4. Savings: RM600
  5. Remaining Car Loan: RM15,000

These are real life details which I won’t be substantiating with any picture of documents or anything like that for his privacy, you guys will just have to trust me on this.

Action Plan

First thing I set about getting him to do was:

  1. Open a M2U savers account which earns him around 2-2.5% if the amount was over RM2K; and
  2. Every time he receives his salary, RM500 MUST first be transferred to his M2U savers account without fail. This amount is not to be touched under any circumstances. (This is part of a pay yourself first plan where he saves first for himself and then forces himself to live on the remainder.)

I basically taught him the magic of compounding interests. Yes I know, 2% on RM2,000 is only RM40 a year, but with regular savings coupled with the compounding, one can build immense wealth in the long term. The RM2K requirement will serve as a short term and very achievable goal for him which at the time would serve to start him on the habit of saving. So for the less financially savvy readers, here’s what I basically showed my friend:

Firstly I asked him if he continued saving RM500 a month for 10 years, how much would he have saved? A simply multiplication of RM500 x 12 months x 10 years would give us RM60,000. Not too shabby right? Now add 2% interest per annum, compounded monthly, that gives us RM67,092. That’s an additional RM7K in interests earned. Next, I’ll put these figures in a table for better comparison. All will be based on RM500 saved monthly, compounded monthly an initial amount of RM600, and for a period of 120 months.

Interest Rate (per annum)Amount at the end of 10 years
0%RM60,000
2% (savings account)RM67,092
3.5% (fixed deposits)RM72,567
5% (conservative stock picks ie. REITs)RM78,629
10% (sound investing)RM104.046

Enough said. As you can see from the table above – the magic of compounding. Of course, a few caveats, the main one being – don’t expect your investments to compound monthly regularly, I did the calculations on that basis for more uniform comparison.

How he’s doing now

8 months later today, Mr.S has amassed RM6K in his savings account and he owes less than RM10K on his car loan. What I am always happy to see in certain individuals like him are that once they start saving and realize they can do it, they eventually take it upon themselves to increase the amount saved. He got a commission bonus for a sale he made recently and what did he do with the money? He saved almost all of it. As a financial planner and his friend, I can’t even begin to tell you how proud I am of him.

So what’s next you may ask? I’ll be getting him to place his RM5K into a one month auto renewal FD which should see him earn around 3%. Rinse and repeat until he saves up around RM10K, then we will see to his investing in the stock market. We will be taking it slow and at his own pace of course.

Conclusion

As a final word, again I stress the power of investing and the power of compounding. If you are complaining that you cannot afford to save RM500 a month, fine, start with RM300, if you still say you can’t do it, I call bullshit. Do what I did with Mr.S, save your RM300 and put it aside first, and find ways to deal with your other expenditures. A good starting point would be to start at 15% of your take home income. Increase that number if you want to be financially free quicker.

Having money saved up in your bank account, you will be able to feel a sense of freedom and security like never before. For the younger generation, time is on your side, start investing now, take care of your investments and reap the awesome rewards in the future. For the older generation, if your finances are not already in order you may need to consult a financial planner.

With all that said, if any of you have questions regarding your financials please do not hesitate to contact me through our FB page or you can leave your questions in the comments section. Don’t worry I will not be charging any of you for such questions.

If however any of you are interested in a comprehensive plan and a long term financial planner, do contact me as well.

As always, thank you for reading! Have a good weekend.

24 thoughts on “Financial Planning for a Friend

  1. Hi Divvy Leigh, I am 36 and just about to start investing (I know it’s a bit too late).
    Would like to get some advice from you: I have a housing loan with interest rate of 4.3% and monthly instalment of about 1k (I am currently paying 2k per month though). Remaining home loan about 230k. I can save up 3k per month from my salary. Would it be wiser to use this extra cash (3k per month) for investment or to park at the home loan account in order to reduce the interest? I have already got separate emergency funds and insurance coverage.

    • Hey CC,

      Thanks for writing in my friend. Firstly, it’s never too late to invest!

      To answer your question, you need to first give a reasonable estimate of your expected returns from your investments. Right now, FD placements can net you 4.1-4.2% per annum. So I’d say your investments should be able to grant you much more than that.

      It’s all relative, if you can generate returns more than 4.3%. do it! But ultimately, only you yourself can make that decision.

  2. Hi Divvy. Thanks for sharing. Wondering how your friend saved 750 per month (6k after 8 months as you mentioned in your post) with net income 1800? Minus his basic expenses 900 and loan 640, the balance only 260 Savings per month.

    • Hey Elle,

      Thanks for writing in!

      I just glanced thru the article and I think its RM500 a month. The savings is after I planned for him. His basic expenses were pre-planning. I got him to save RM500 first, the remaining sum will be used for his expenses.
      Basically forcing him to save first, and make do with the balance.

  3. Hi, Divvy! I am interested in a comprehensive plan and a long term financial planner. Can you please send me the details? Thank you!

  4. Hi there, i m interested in a comprehensive plan and a long term financial planner too. Can you kindly drop me an email on the details please? thank you! 🙂

  5. In your friend’s case, I think it’s better if he finds better-paying job or supplement it with other income. RM1.8k per month is quite low. Medical emergencies can quickly wipe out savings. Just 2 cents

    • Hey Suraya,

      Yea I agree it is a little on the low side but it already takes up a lot of his time, its his passion and I think doing something he likes will take him further than just getting a better job. Hope it works out for him.

      Thanks for dropping by! Hope to see more of you.

    • Hey Lynn!

      Hmm from my experience – with Hong Leong, I got only about 2%. Definitely less than 3.
      Maybe other brokers do give better rates. Which one are you using?

  6. Hi Divvy, after reading ur posts, i m interested in a comprehensive plan and a long term financial planner, can u pls assist n contact me

  7. I didn’t know that there is a M2u Savers account at Maybank, Eventho I have been using the bank for well over 15 years. Thanks for sharing. Been meaning to get another accounts just for savings. This would seem like a decent place to start or do you have another that would provide better interest?

    • Yup! I’ve since been told by readers of Maybank’s General Investment Account (GIA) which you can open online yourself. It currently gives 3.6% per annum and early withdrawals won’t void your earned interests. You need to note that the GIA account is not protected under PIDM though.

      Hope this helps!

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