I’ve gotten so many questions from all of you seeking financial guidance that I’ve decided to once and for all 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 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 on one column and your liabilities on 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 Excel file is below.
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.
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 them up in one-month FDs.
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 what not 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 huge ass property managers manage your property instead. No worries. Hakuna Matata.
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 on-going. It is for life. And it is for generations to come.
You’ll need to monitor your budget monthly, 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.
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.