Dividend Magic

Saving and Investing towards Financial Independence in Malaysia

Financial Planning

Free Basic Financial Plan for Malaysians

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Filed Under: Dividends, FI/RE, Financial Independence, Financial Planning, Fixed Deposits, Savings Accounts etc, Investment 23

I’ve gotten so many questions from all of you seeking financial guidance that I’ve decided to once and for all to come up with a simple financial plan (a guide if you will) for all to use.  

We’ll begin with the basics first, getting yourself out of debt, saving up, and then investing that money for passive income.

The Goal

The final goal of this plan here is for everyone to have an investment portfolio that generates sufficient passive income to sustain your lifestyle.

What is your Networth

Use a paper or Microsoft Excel and draw up your Balance Sheet. You’ll have your assets listed in one column and your liabilities in the other.

I’ve got a simple template set up for everyone to use here. Add or remove necessary items. The download link for the Financial Plan excel sheet is below.

Personal-Balance-SheetDownload

1. Budgeting and Saving

First and foremost, you’ll need to have capital. For that regular, periodic investing. And also, for the opportunities that appear once (or twice) in your lifetime. This is why a financial plan is important.

Acquiring capital would mean you need a surplus in your monthly budget. Now, there are tons of budgeting templates out there on the interwebs so I’m not going to walk you through this.

I will, however, tell you that the most important aspect of budgeting is to make it into a healthy habit. Keep at it for a time and you’ll thank yourself 50 years down the road.

Savings – I want you to have at least a 20% savings rate. The higher the better, in fact, try for 50% of your take-home salary. You’ll invest more during your early years and let the magic of compounding take over sooner.

2. Your Emergency Fund

After you’re done consolidating and paying off your debts, you’ll have a nice surplus in your budget and savings every month.

The next step would be to start building up what we call your Emergency Fund. This is the fund where if and when you ever need money for an emergency, you’ll never need to take out that personal loan or worse, from loan sharks.

An example – medical bills, or if your phone got stolen etc.

How much should you have you ask? Some sites will tell you 3 months of your expenses. I say at least 6 months, go 12 months if you’re the risk-averse kind.

I typically keep my emergency funds in Fixed Deposits (‘FDs’). Now, you may need to liquidate this cash immediately, so put it up in one-month FDs. You can learn more about emergency funds and how to get an “FD Ladder” going here.

An emergency fund is a crucial part of your overall financial plan.

3.1 Investing

You’ve got a kick-ass budget going on, your behind is covered by your emergency fund, now let’s talk investing.

As you all know, I invest heavily in stocks. My portfolio can be found hERE.
Here’s what I do – I continue saving and accumulating my wealth. I then wait for and seize any opportunities that present itself. I try to always have cash on hand.

Of course, you may not want to invest in stocks. And that’s perfectly fine, you should invest in securities you KNOW and you’re comfortable with. Just as long as you INVEST. Don’t leave your money lying around in FDs and whatnot because inflation is gonna take a bite out of it every single day.

The 7 investment options in Malaysia can be found hERE.

Investing your money is essentially making your money work for you. The first few years of your investing will determine the outcome of your financial well-being so invest with care and diligence.

3.2 Building Your Passive Income

For me and hopefully, for you, the goal is to have enough passive income to not have to worry about work. I’ve calculated that to about RM3,000 per month or RM36,000 per year. This is the essence of FI/RE – Financial Independence and Retire Early.

To learn more about FI/RE – click hERE.

There are lots of people and information out there that touts and scream passive income in your face. But when I say passive, I mean the true passive. You receive regular income with little to no effort on your part.

For example, a rental property where you manage it yourself and you’re getting complaints from the tenant every other month is not passive.

Whereas if you let your agent handle every single thing regarding the said property and check-in maybe every quarter with him/her, I’d classify that as passive.

Or you know, just buy Real Estate Investment Trusts (‘REITS’).
Let professional property managers manage your property instead. No worries. Hakuna Matata.

4. Protection

Now I’m including protection into your financial plan because many either overlook this or overprotect and overinsure themselves.

This step should be done simultaneously with Step 3.

Let’s talk insurance. I know I’ll be getting flak from insurance agents for saying this but – You don’t need life insurance. This is my opinion.

What you should focus on right now, is medical insurance. To cover your medical expenses, should you be hospitalized or some critical illness should befall you. That’s all I have and that’s all I need. I can pass on my whole portfolio to my next of kin and dependants upon my demise.

While we’re on the topic, fuck investment-linked insurance. Get a standard, simple one. Don’t let the premiums in your 80s scare you. You’ll invest the money yourself, without paying a fee to the insurance company.

5. Review and Monitor

You finally have everything in order. The final step is a step that is continuous and ongoing. It is for life. And it is for generations to come.

You’ll need to monitor your budget monthly, and make sure your savings increase in tandem with your salary and income.

Your emergency fund will increase as your monthly expenditure goes up.

Your investments and assets AND passive income should always go up, up and UP.

And, your insurance should always be updated to include the latest offerings and cover all illnesses.

I myself go over my finances every month. Part of the reason I started Dividend Magic is to keep track of my investment portfolio as well as to hold myself accountable.

End.

It is my hope that this here Financial Plan would be of help to every single Malaysian. It is a very basic plan, I’ve left out some more advanced features of financial plans but the essentials are all there.

You and you yourself are responsible for your finances.

Remember – Save, Invest and FI/RE.
I’ll leave you one of my favourite quotes by William Shakespeare.

”There is a tide in the affairs of men, Which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.”

Now go out there and don’t let them opportunities pass you by.

You’re done with the FI/RE and Savings Series! You can check out article 001 – A Guide to Stock Investment in Malaysia of the Investing Series.

As always, follow my Facebook and Instagram to keep up to date!

Where to park your money in Malaysia? CIMB Unfixed deposit

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Filed Under: Fixed Deposits, Savings Accounts etc, Financial Planning 7

CIMB Unfixed Deposit

CIMB Unfixed Deposit
CIMB Unfixed Deposit

Seeing as how my last post on Maybank GIA-i was so useful for everyone, here is another avenue for Malaysians to park their hard-earned money for better returns. A few of our readers sent me info regarding CIMB Unfixed Deposit but I didn’t want to have an article up on it because it was ending soon and it’s a promotion and thus not recurring like Maybank’s GIA-i.

However, seeing as CIMB has renewed the promotion up to 30 June, I feel it is my duty to have this up asap.

I’ll be making some indirect comparisons between CIMB Unfixed Deposit and Maybank GIA-i so you’ll be able to make a more informed decision.

PIDM Protection

So first thing’s first, CIMB Unfixed Deposit is covered under PIDM. One of the main put-offs of Maybank’s GIA-i for many of you was that it wasn’t protected by PIDM. So if that was your main concern, you can now opt for CIMB’s promotion worry-free.

If you’re still unfamiliar with PIDM, basically it is an insurance on your deposit placed with banks covered by the government. For individuals, you’re covered up to RM250K. So if you deposit more than that amount, the remainder will be lost should the bank go bust.

The Terms

The current promotion gives you 3.9% per annum for a 6-month placement and 4.1% per annum for a 12-month placement.

There’s a minimum placement of RM10,000 required for both the 6 and 12-month unfixed deposit. Which is very reasonable in my opinion. However, you’ll be slightly inconvenienced because CIMB requires you to head to their branch to make a placement for their unfixed deposit.

Early withdrawal of CIMB Unfixed Deposit before the FD’s 3-month tenure will see any interests earned nullified. From the 4th month on, you will be entitled to 50% of the interest earned. That’s the gist of it. This right here is the deal breaker for me.

The rates given are applicable for one cycle only and interest earned will be credited to your CIMB Current / Savings account. So if you’re not a CIMB customer, you’d be required to open an account with them. Not a bad way for CIMB to bring in new customers.

The complete T&C sheet can be found hERE.

My Take

I personally won’t be taking up CIMB’s offer this time around. If this promotion was offered by Maybank, I’d hop on it immediately. The 4.1% p.a. is really attractive but I still prefer Maybank’s GIA-i. Here’s why: CIMB is actually telling you, yes you can withdraw/uplift your Un-FD early but if you do that, you’ll either get ZERO interest or half interest.

And what’s 50% of 4.1% per annum? 2.05 f*cking percent per annum. Pardon my french but I’d be better off placing that in Maybank’s GIA-i account or M2U savers and earn more. 

However! If you’re sure you won’t be using your money for a year, take up this promotion and place your money there. The 4.1% is pretty high and in the unlikely event where you need to make an early withdrawal, you can do so and still retain 50% of your interest (assuming you’ve passed the 3-month mark). This is a way better deal compared to conventional FDs.

Seriously, if you have a lot of FDs lying around, consider moving your money to CIMB Unfixed Deposit before the promo ends. The interest is high and you’ve got your behind covered in case you need to withdraw early.

I’d like to know how many of you have already made your placements for CIMB Unfixed Deposit. Are there better FDs out there with higher interest rates in comparison? 

The 7 Stages of Financial Independence

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Filed Under: Financial Independence, FI/RE, Financial Planning, Investment 8

Financial Independence (F.I.) in Malaysia

There are a lot of misconceptions about financial independence and early retirement (FI/RE) here in Malaysia. People think you have a high income if you’re able to retire early. No doubt, having a high income helps, but the crucial part of the whole F.I. equation, in my opinion, is our ability to save and invest.

As with all things in life, financial independence can be broken down and achieved in stages, even after you’ve retired, you still have to work at it to keep your money flowing in. It’s a lifelong process.

The Road to Financial Independence

Stage 1 – Dependence / Reliance 

We all begin here at this first stage. We start off being reliant on financial support from our families. They provide us with our daily necessities for the initial years of our lives. We then slowly being to chip away at this dependence when we earn our first salary.

Some of us may get a head start by having part-time jobs while still in school. Some may have gotten lucrative scholarships which gives an allowance. All of these help us break free from our reliance and dependence on financial support eventually.

Stage 2 –  Dependence (Continued)

After we are finally financially independent from our parents, guess what? We are still at the Dependence / Reliance stage. Moving out and living on your own doesn’t automatically make you independent. You are now in fact, heavily dependent and indebted to our various financial institutions.

The majority of us after ‘gaining independence’ from our families would have taken out a huge loan to buy their first home. You’re still in this stage if you spend more than you earn (if you’re digging deeper into debt). Basically, if you’re not earning a “profit”, you are dependent on somebody else. You are not financially independent.

After you start having a surplus — and again, this means you’re earning more than you’re spending — you FINALLY make your way down the path to financial freedom. One sure-fire way to do is to live frugally, which is how I was able to build my portfolio slowly.

Stage 3 – Solvency 

Stages of Financial Independence Solvency

Solvency is the ability to meet your financial commitments.

You reach this stage when you no longer rely on anyone for financial support. When you have surplus savings at the end of every month, you’re at this stage. This is where you’re no longer accumulating debt. You might still have loads of loan payments, but you’re not accumulating additional debt.

As a Certified Financial Planner, I’ve found that to get a person to go from the Dependence stage to Solvency is one of the toughest. It is not only taxing physically but also mentally exhaustive for someone to overcome Stages 1 and 2. But once a person finally finds themselves with a surplus at the end of the month, they will have the confidence to sail through the next 4 stages.

Remember, it varies from person to person how long it takes for us to reach stage 3. Some people reach this stage in their teens. Some never reach it. But even when it seems impossible, if you start taking charge of your finances,, I guarantee you’ll see the light at the end of the tunnel.

Stage 4 – Stability / Resilience

Stages of Financial Independence DEBT

You achieve stability after you’ve repaid your bad debts (ie. credit cards), established some emergency savings, and continue to increase your savings. 

You’ll feel an immense weight lift off your shoulders the moment you make the final payment to your debts. Trust me, it is a great feeling.

It is important to have your emergency fund built up to prevent yourself from falling back to stage 3 due to unforeseen circumstances. The usual recommendation is to save up to 6 months of your salary as your buffer. But if you’re feeling more risk-averse, there is no harm in going up to 1 -2 years.

Now you’ve built a buffer of savings to protect you from unfortunate events, you’re ready to put the extra funds to work by investing.

Stage 5 – Security

You reach the Security stage when your investment income can cover your BASIC needs. At this stage of financial independence, you have the ability to live and work as you choose. You have enough saved that you could quit your job at a moment’s notice without hesitation. I am still striving to reach this stage of financial independence. I estimate my basic needs as a young adult in Malaysia to be about RM1,500 per month. With the dividends from my portfolio – the Freedom Fund, I’m almost there.

Update Nov’2020.
Fortunately, I’m now at Stage 5. I’m able to cover my basic needs through my passive income from dividends. Stage 6 here I come!

Based on how much you have saved and invested, you could live a meager existence for the rest of your life without worrying about money. Even if you never worked again, you could afford shelter, basic food, daily essentials, and medical care.

Stages of Financial Independence Time > Money

Starting from Stage 5 on the road to financial freedom, your concerns are no longer just about survival. Money is no longer a safety net. It is now a tool to help you thrive and build the life you want. People who reach this stage will truly understand that money is just a tool. You will learn the value of your time. Instead of spending 8 hours a day for your monthly salary, you start to think about using money to free up your time for yourself and your family. Knowing what gives you meaning and purpose is a vital part of financial freedom and I believe it should be the starting point on this journey.

Stage 6 – Independence

Financial Independence

This is the Financial Independence we should all aim and strive for where your INVESTMENT income can support your current standard of living. At stage 5, you are merely able to cover your basic needs. At this stage, you can finally declare true financial independence. The money you have saved and invested would allow you to live like you do today until the day you die… and then some more.

It is the ultimate goal and dream of mine to reach this stage as I’m sure it is for many of you. All the savings and investments I’m doing has been to eventually be able to reach this stage. Financial independence varies from each person. For some of you, FI is achieved at RM12,000 per annum. Some will only be satisfied with RM24,000 per annum. For me, the sweet spot is RM36,000 per annum. Decide on your number now and start working your ass off towards it.

Stage 7 – Abundance

Financial Independence

In the final stage of financial freedom, you have more than enough. Your passive income will not only fund your lifestyle forever, you can even turn it up a notch or two. Now is the time to indulge in the luxuries in life and enjoy the fruits of your long tedious labour.

Here’s the bottom line: The more money you save, the more freedom you have, and the more risks you can take. As your financial independence increases, you chip away at the wall of worry. You’re able to make financial decisions proactively rather than reactively.

End.

There are tonnes of resources out there on Financial Independence each with their different stages. I’ve sifted through them all throughout the years and tried my best to compile them to best fit Malaysians.

The regular readers here are likely to be professionals (or at least semi-pros) of the personal finance world. We should take the time out to help others out of the financial binds they find themselves in. I think it’s in our best interest — in the best interest of everyone, really — to get more people into the ‘game’ of Financial Independence.

The more Malaysians we can get on the road to financial freedom, the better off we all will be. I hope I’m able to start cultivating the Financial Independence mindset here at Dividend Magic.

For the next article of the FI/RE and Savings Series, check out article 006 – Basic Financial Plan for Malaysians.

As always, follow my Facebook and Instagram to keep up to date!

Financial Planning for a Friend

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Filed Under: Financial Planning, FI/RE 26

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.

I’ve got a FREE basic financial plan for Malaysians for you to get started on. It’s a simple plan but all the essentials are included.

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