Professional Documents
Culture Documents
by KCLau
http://KCLau.com
You might have come across some of the ideas in this book.
The purpose of making this book is to give you the convenience
to access my writing in a more organized format.
Also for your convenience, I’ve made the size of this book small
enough to fit into your mobile device screen, so that you don’t
have to do excessive horizontal scrolling to read the pages.
That way, you kill two birds with one stone. First, you save on
the interest because mortgage debt usually have the lowest
interest. Second, you delay the car purchase which will be a
long term liability anyway. At a later time, you would most
probably get a better models with the same amount of money.
Let’s say your fix expenses is RM5000 per month. You use your
credit card to pay for all those fix expenses monthly. The due
date to pay back your credit charges is 20 days after the
statement date. Therefore, you can have the RM5000 put into
your own saving account to earn interest for 50 days.
Credit card really helps! (Only if you know how to use it).
For Type B insurance, the total premium we paid will match the
total cash value of the policy at year 14th-18th. That means
after we had paid the insurance premium for 15 years, we can
still get back all the principal money if we surrender the policy.
But only with the proper use of leverage, a person can grow rich
even faster. You must have heard that most wealthy people
actually had gone through some difficult years prior to their
success. Normally, they are able to double their income every
year after those initial struggle. They certainly use some form of
leverage. Example:
But bear in mind that the key here is that you must know what
you are doing. Are you sure you can generate better return than
the financing cost you pay? If yes, go ahead. If no, keep
learning until you do.
4. If you are a slow reader and find that you can’t finish reading
the books you bought using RM1000 in a whole year, you can
consider buying books as gifts. There is always someone’s
birthday, anniversary, job promotion, X’mas celebration. Why
not giving them books as gift?
similar to yours?
Every sen kept and saved will still make you richer by one sen!
1. Accidental Care
This benefits can cover most if not all of your medical expenses
at hospital.
Health card is not a credit card and it does not have money in it!
If it is genuine cases, there will be not much trouble to get the
Letter of Guarantee from the insurer when you are hospitalized.
However, insurance company have the right to investigate
before they pay out the claim, especially when you do a major
claim within the first two years.
5. Natural Death
No matter how you die, they will still pay your family this death
benefit, except committing suicide within the 1st year. Since the
life assured can’t enjoy this benefit, it is up to the individual
commitment to their dependants to calculate how much
coverage they should get.
For instance, a father whose wife is taking care of his 1 year old
son full time, it is advisable to be insured for at least the
expenses of the family for up to 25 years.
Now you have a big picture of what can be insured on your life.
Your next question would be “how much would it cost?”
Here is a very simple benchmark for you:
Don’t spend more than 10% of your take home pay for
insurance premium. If you spend more than that, it is likely that
Special thanks to Ami Sek who pointed out the confusion caused by inherited wealth.
I’ve updated this part after getting Ami’s input.
Example:
CAR – If we buy a car for our personal use, it might be a liability
rather than an asset. Even though we buy it using cash without
any a hire purchase agreement, we still have to pay the
maintenance, road tax, car insurance and petrol. Even worse if
we buy the car with loan.
The car is an asset of the bank but a liability of the car owner. In
contrast, if a taxi company buys a car and rent it to a taxi driver.
In returns, the taxi driver would have to pay a certain leasing
fees to the company. Thus, the car is an asset to the taxi
company, but a liability to the taxi driver.
When Ken hit the lottery of RM1 million in year 2005, he bought
a BMW 7-series car with 20% down payment. He also bought a
house with market value of RM1 million with 20% down
payment. He quited his day job, and upgraded his lifestyle. He
dine at fancy restaurants. He change his girlfriend every two
weeks. Forgetting that the million he got is just a plain of luck,
he finally went broke again three years later . He was unable to
pay the installment for the bungalow mortgage and the BMW
car loan. You might have heard such story many times.
Giving you a lot of money will not make you rich. If Ken have
the proper money management skill, it will be a different story.
1. Ability to earn
Imagine a bank account that does not give you any withdrawal
facility! Just like a piggy bank. You can only deposit money.
After opening such an account, you must deposit money into it
every single day. If you keep doing that for a very long time,
one day you’ll receive a call from the bank officer. He’ll ask you
to clear the account because it is overloaded with cash!
This is the kind of discipline we are talking about. Spend less
and spend later. Save first and save more.
3. Time
When you lose any one of the three basic criteria, you won’t be
able to save more money. Major diseases will destroy your
earning ability. Premature death will take away your time to
save money. If you lack the discipline to save money, it is better
to engage some financial system to help you.
Anyway, don’t bother with those who didn’t write their will. Just
start to get yours written for these benefits:
Save money!
Executor vs Administrator
You can appoint an executor in your will. If none appointed,
many people can apply to be the Administrator of your estate.
Those people eligible include your legal heirs, your creditors,
your not-trustworthy-relative.
Appoint Guardian
Yes! If you have minor children (age below 18), you ought to
write your will now! There is no other way to appoint a legal
guardian except by writing a Will.
No need 2 sureties
2 sureties (someone act as a guarantor to your estate
administration) are needed for application of LA (Letter of
Administration). Imagine if your best friend passed away without
leaving a will. His son asks you to be one of the sureties
required by court. You will have to disclose all your asset to
Saving
This is how much you are able to keep the hard earned money
to yourselves. Can you save RM300/month, or RM2/day, or
RM50,000/year? Pay yourself first!
Time
You must give enough time for your money to work for us. The
younger you are to start saving, the better it is.
Return
Rate of return is normally associated with the amount of risk we
are willing to take. If you know an investment instrument well,
you will eventually bear lower risk as long as you know what
It is fair to have a balanced portfolio – : 1/3 for each and you will
have a balance financial statement.
Writing a simple will is certainly not the perfect solution for the
above situation. When we are taking care of our children, we
make sure they are provided with the best education. We also
try our best to make them study hard. We wish that someday
they will get a degree, master degree, etc, and earn a good
living. How do you ensure all that if you are no longer around
anymore? Leaving a lump sum education fund for them can’t
really ensure that they will study hard.
One weekend evening, Jim and Susan met with a terrible road
accident. Jim died on the spot and Susan also passed away
after two days in the hospital intensive care unit. This is known
as double tragedy at the newspaper headline.
Write a WILL
Tim and Susan shall have their own WILL written. The WILL is
the only way to appoint a guardian for our children. Before you
appoint any person as a guardian, talk to them to get their
2. Switching
Switching will lock in the gain you made in your unit trust
investment. Switching fees are low and definitely lower than the
upfront service charge. When you are making profit from an
equity fund, you can switch it to some lower risk fund to lock the
gain instead of selling it for cash. When the market turn low,
you can switch it back to equity fund.
3. Portfolio Re-balancing
Portfolio re-balancing is the process of bringing the different
asset classes back into proper relationship following a
significant change in one or more. In simple words, it is
returning your portfolio to the proper mix of stocks, bonds, cash
and other asset classes when they no longer conform to your
plan.
Example:
You start investing 50% in equity and 50% in fixed income fund.
1 year later, the equity rises and now your portfolio consist of
80% equity and 20% fixed income fund.
No money
● My income is not stable.
● I have to pay car installment and house mortgage. Too
much commitment lar...
● There is no money left every month. I’ve got no saving
at all.
● RM150/month premium? I can’t afford that!
● I still have a few thousand credit card debt
No Need
● I am single. I don’t see any necessity to get insured
● Aiyahhh, just enjoy first. Don’t worry, be happy!
● My family can take care of me.
No Trust
● Insurance company always find loophole not to pay
claims
● My insurance agent ran away with my money last time
● I will lose money if I never make a claim
Despite all these reasons not to buy a life insurance plan, I was
shocked by a prospect’s decision quite a long time ago. I don’t
even know her name before she approached me for advice.
She worked in a restaurant that I frequently bring clients to dine
and discuss about personal finance matter. So she knew what I
was dealing with.
There was one time that let me uncover this fact. I was stopped
by a police officer for an offense. Did I get a traffic summon?
If you can’t get the time to read it, make sure you asked the
following questions before you sign the documents. Get the
mortgage officer to show you these details in the offer letter.
6. Pay all your insurance policy with credit card. This will
make sure you pay the premium-expenses which is actually
your saving. Especially those policy which had reach the critical
years. It is better to keep paying those policy because 100% of
your money will be debited into your insurance account.
You renovate your house gate, only the gate! Your neighbour
saw it when they are passing by. They thought that you must
have been promoted or granted a big bonus. This make you
appear richer.
I just hope that you realize that the money spent is no longer
yours. However, those actions really do make you “look”
wealthier. Money or beauty?
When you are financially free, you can choose not to retire. It is
all up to you. Financial freedom just means that you don’t have
to “work for money” anymore. You can work for fun. You can
work for your own passion. You can fulfill your dream without
ever worry about money. You don’t have to trade your time in
exchange for cash. You can go to live at the place you like. You
can even have your flat nose fixed with plastic surgery. You can
practically do what you dream to do provided that you plan for it
as part of your dream after you achieve financial freedom.
1. Refinancing
3. Paying extra
Extra payment means you pay more than the required
installment. There are actually two kinds of extra payment
acceptable if you are servicing home loan. Please note that the
financial jargon used might be different among banks.
Bear in mind that you can actually opt for advance payment
instead for the extra RM2000.
Notice that if I settle the loan within five years from the first
disbursement date, I will have to pay 3% from the original loan
amount or RM5000 whichever is higher.
For example, if my original loan amount is RM200,000, when I
choose to settle the loan or refinance it to other banking
institution, the amount I need to pay for penalty is:
RM200,000 x 3% = RM6,000
Before you sign the offer letter, there are two particular issues
that you need to understand:
If the banker calculates the lock-in period from the 1st draw
down date, you won’t be penalized if you refinance your home
loan on April 2010. If the period commences from the full
drawdown date, you would have to wait until 2012 Jan to fully
settle your loan penalty-free. That means you are actually
locked-in more than 5 years total.
Conclusion: Demand the lock in period commencement on
the first drawdown date, instead of the full disbursement
date.
Example:
Original loan amount = RM200,000
Outstanding loan amount at the time of settlement =
RM180,000
You can always try to negotiate a better deal for your home
loan. No harm trying right?
Before we get there, I would say that luxury is simply the life
experience that we cannot afford at this moment. When you
already achieve that, it is no longer a luxury, but simply
something that you can afford.
You can have a head start when you have good education and
a good degree. But that’s just a head start. Financial success is
a long term endeavour.
Financial Situation:
● at first, there is some
tiny saving left at the end of the
month
● but they use the little
surplus to acquire more debt –
buying stuff they can’t afford
● liability is greater than
the amount of asset, resulted in
negative net worth
● excessive amount of
liabilities put more load to the
overall expenses because they
need to pay interest charges –
Negative cash flow
● when they finally got a
career promotion with higher
income, they use the tiny surplus to acquire more
liability — switch to a bigger house, a bigger car etc
● frugal is a word that doesn’t exist in their dictionary
Financial Situation:
● they are definitely the
Millionaire Next Door
● normally they work hard
to increase their income
● they earn better than the
mediocre but still spend like the
mediocre.
● they save a lot from every
paycheck which is normally
invested, in the area they are
familiar of, probably in their own
businesses.
● some ultra rich know how
to use the leverage of good debt.
They might get into deeper debt,
but at the same time the debt is
being used to acquire justifiably
greater assets. Assets
contributes more earning and
improve their cash flow chart.
● financially, they are
independent.
● They are the prodigious
Accumulator of Wealth
How do your cash flow and net
worth charts look like?
Unemployment
Illness or Disability
2. Study and analyze the past history of your cash flow chart.
Create a proper budget that you can live with. Find out the
unforeseen event that had impacted your financial situation
before. Learn from your own experience.
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regards,
KCLau