2 Cents

Savings for Retirement

2010-12-17T12:21:00.000+08:00

Do you feel broke most of the time? Many people do.

In a recent study, 69% of respondents think that they have not prepared enough for their retirement, nor started to prepare for it.

If you are 40 years old, and you plan to retire when you turn 60. Assuming the average human lifespan is 85 years, you will only have 20 years of time to save money for 25 years of post-retirement life.

For example, if you have $50,000 of savings now, and you would like to have $1,000 of spending money per month after you retire, how much money do you need to save?

Assuming a 5% annual return on your current savings, and a 3% of inflation rate; you will need to save $724 per month, and accumulate a total fund of $434,319 when you turn 60 years old.

But if you start saving when you are 30 years old, $439 per month (39% lesser compared to $724) is all you need to hit the figure.

Therefore, the key is to start saving money early.

People may think that their current income is low, and would start to save when they have extra income. In fact, the crucial point about saving is not the amount of money you put into the bank account, but how soon you can start saving.

You may start by saving $1 every single day. Most people lack of persistency to save money every month because they have set their saving targets way too high. Reducing the amount you plan to save every month and lengthen the duration will not only reduce your burden, but also make savings goals easier to achieve.

By making saving an easy habit, you may gradually increase the savings amount overtime.

Besides picking up the habit to save, you need to learn how to make more money out of your savings. Most of the money savers have established good saving habits but unclear about appreciation. You can easily estimate an investment’s doubling time by using a simple calculation technique called the “Rule of 72”.

For instance, if you were to invest $10,000 with compounding interest at a rate of 1% per annum, the rule of 72 gives 72/1 = 72 years required for the investment to be worth $20,000.

Similarly, with compounding interest at 10% per annum, it will take slightly more than 7 years (72/10 = 7.2) to double the initial investment.

Another factor to pay attention to is the inflation rate, where general level of prices of goods and services increase over a period of time. From 2008 to 2009, the average inflation rate in Malaysia was 3.04 percent. With the current Fixed Deposit (year 2010) interest rate per annum at 2.85 persent, you are in fact losing 3.04-2.85 = 0.19% of your money in terms of purchasing power if you keep your money in the Fixed Deposit.

This is exactly where people start to think that they are rich. The figures in their bank statement shows that they have more money, and therefore willingly to spend more on their daily expenses, move into bigger house, getting a better car, etc. However, in reality, they end up spending more (and end up poor) because the purchasing power of their money reduced!

Therefore, to reach the financial independence state (some called financial freedom), learning to invest and sustain growth in monetary sense is crucial.

No one was born with investment skills – the wealthiest group of people went through the same process before they achieve financial freedom – by learning to invest.

Do you have any tips on savings? Share it with us here!

Save 6 years and get guaranteed interest every year, up to 30 years! Email me at

emailpeterphang@yahoo.com

Money Tips for Young Adults

2010-11-24T10:32:00.000+08:00

We've most probably heard a lot of stories from our parents and elders about how they make money and save for the family when they were young. It is also very common that people tend to look back and ask, “What if?” to the decisions they have made in the past. However, how many of them are fortunate to have no major regrets? How many of them wish to go back and relive their early 20s?

Here is a list for all of you in your 20s, as well as for some parents to consider if you have children graduating from college soon:

1. Don't rack up credit card debt, and pay any debts off quickly.

Seems simple and downright obvious, but taking on debt is easy to do. The transition from college to the working world can be expensive--new clothes, shoes, apartment, furniture, and other business-world expenses can make it easy to quickly pile on debt. Budget for these expenses, and if credit must be used to get going, have a plan in advance for paying it down. Make sure the credit limit is not more that twice of your monthly income to avoid overspending and carry forward your credit balance, which mostly incurring additional charges.

2. Contribute to your Provident Fund. Just do it.

Retirement contributions build up fast, often have an employer matching contribution, and are saved before taxes. Look at it as savings with an instant profit. Maximize the match, and minimize the taxes will do the trick.

3. Start a savings plan early.

The best time to start a savings plan is before you are used to having extra money in the first place. A good rule of thumb: Use 50 percent of your after-tax paycheck (excluding Provident Fund contributions, of course) to pay for the non-negotiable "needs-based" expenses in your life, like rent and food. Use 35 percent for negotiable "wants-based" expenses--entertainment and other costs can scale back quickly if needed. Save 15 percent.

You may alter the proportion according to your expenses; by reducing the "wants-based" expenses and save more.

4. Don't try to keep up with the rich.

There is no need to buy the best brand of everything right out of college. People in their 20s who are driving expensive cars, living in luxury apartments, and buying the most expensive clothes either already have money from something other than their first job or they are piling on debt--which isn't smart.

5. Pay off your highest interest-rate debt first.

Hint: It's not always the debt with the highest balance. The debt with the highest interest rate is probably the credit card you pile up on bar and that Summer trip. Pay that off first. Your student loans, while they carry a big balance and are possibly the scariest in terms of size, probably have a reasonable interest rate relative to any credit card debt.

6. Be patient.

It's easy to "want." Be patient; with hard work and good fiscal discipline, you will accumulate a nice portfolio that allows you to realize all the hopes and dreams you may have for later in life. There are probably a lot more major financial events in your future, and you'll want the flexibility to make proper decisions when the time comes.

Having cash, savings, and an investment portfolio that allow you the flexibility to take advantage of opportunities down the road will really help.

If you remember nothing else, remember this: While it seems like your life is full right now, there is probably a lot coming up--such as a first home, graduate school, and maybe even kids. And always listen to daddy.

Do you have any saving tips, share it with us here!

Looking for a saving plan with guaranteed high interest? Email me at emailpeterphang@yahoo.com

The Credit Crisis That Affect World Mortgage Market

2010-11-16T13:05:00.000+08:00

Here is an interesting and educating video about the mortgage market especially in the US. This short video clip shows you what exactly happened that causes the value of property plunge. Investors and bankers drop mortgage like a hot brick, or even worst, like bombs.

The main problem starts from subprime mortgage, where money are borrowed to property buyers who is not qualified for other loans(e.g. due to poor credit history) at a higher interest rates. In addition, lenders have also offered risky loan options. In 2005, the average down payment for first-time home buyers was 2%, with 43% of those buyers making no down payment whatsoever. By comparison, China has down payment requirements that exceed 20%, with higher amounts for non-primary residences.

It seems like a win-win situation, until housing prices were going through the roof, people weren't making any more money. Borrowers are unable to pay their mortgages, no matter how lax lending standards, no matter how mortgage products were created for people to buy houses they couldn't possibly afford. People do not have protection of losing a job, nor medical emergency, they were underwater before they even started.

Recently Bank Negara Malaysia(BNM) has taken one step further, by announcing new measures in promoting a stable and sustainable property market and debt management of households. Maximum loan-to-value (LTV) ration were fixed at 70%, which will be applicable to the third house financing facility taken out by a borrower. The Malaysian government intent to curb excessive investment and speculation in the urban areas.

On top of that, BNM also introduced the Financial Capability Programme, which will be offered by "Agensi Kaunseling dan Pengurusan Kredit(AKPK, Credit Management and Counseling Agency)" starting from January 2011. The programme is aimed at educating individuals in making responsible financial decisions, by understanding and gain practical skills in money and debt management. With all the initiatives given, I believe fellow Malaysians will benefit in the long run. And hope that we will learn financing cautiously, as every single decision we make will affect not only our life, but the entire national economy.

Are you buying a house? Getting a mortgage? What initiatives have you taken to protect yourself from the crisis? Welcome to discuss here.

What do you reveal on Facebook?

2010-11-11T17:57:00.000+08:00

It is very common that people use Facebook all the time; on our way to work every morning or while waiting for our lunch to be served on the table. The social networking phenomenon has billions of active users sharing their photos, favorite songs and details about their Christmas gatherings on Facebook, Twitter, MySpace and dozens of similar sites. But how much do you should or should not reveal to protect yourself from criminals, your insurance coverage and even your job, too.

As human being, we enjoy networking and sharing information about ourselves to the one we care, but we should aware that sharing some details put us at risk. So what should we avoid showing on our social networking site?

Birth Date and Place

Certainly, we love to get a long page of birthday greetings from our 300 friends in Facebook. We can say what day we were born, but if we show the year and where we were born too, we have given identity thieves a key to steal our financial life. A birth date itself reveal half of our identity card number, not to mention the place we were born – which allows other to predict almost all of the numbers.

Vacation Plans

This is a hard-to-kill habit. While we are posting “1 week trip to Bali starting tomorrow!”, we are also telling the world “1 week time to broke into my house!”. When we expect comments that tell us to enjoy our trip, we might expect criminals in our house.

Home Address

Do I need to explain? How many of your “friends” were people you really know?

Confessions

You can easily found news about employees being sued by their company because they complaining about their boss. Recently some cabin crew from a top airline in Asia got penalized and warning letters for grumbling about their duty rosters, passengers, and their bosses and colleagues on Facebook, which consist of confidential job issues and violating policy.

Password Clues

We may have multiple online accounts, and probably answered a dozen different security questions like “what is your mom’s maiden name?” or “what street did you live on in your first house?” Avoid showing such information on Facebook profile else you are giving hints to crooks to guess your passwords.

Risky Behaviors

I recently saw a post with something like “Drive my car at 140km/h today! Try to break new record by driving 160km/h next time!” Insurers are increasingly turning to the web to find out whether their applicants or customers are putting their lives or property at risk. So far, there is no efficient way to collect these data, therefore cancellations and rate hikes are rare. But the technology is fast evolving that soon in the future, browsing customers’ Facebook profile will be one of underwriters main responsibility.

Do you share all your information on Facebook? What kind of efforts you take to protect youself and your family on social networking site? Share with us.

Gold Investment

2010-11-10T10:46:00.002+08:00

Gold climed to a record on November 9, 2010 as inflation worries and on concern that some European governments may struggle to raise funds, continue to lure investors to precious metals. Gold spot price rose to all-time high of US$1,414.60 an ounce, while spot silver hit a new record of US$28.16 since March 1980.

Weakening euro and debased US dollar contributed to the rise of metals, and Gold is expected to rise towards US$1,430 per ounce as the uptrend is steady.

Of all the precious metals, gold is the most popular as an investment due to the wide demands and applications in the jewelry market and electronics industry. Gold’s low correlation with other commodity prices suggest that gold has the features of being money.

Below are some common methods of investing in gold:

· Gold Bars – available in various sizes or weights (E.g.: 10oz, 1oz, 10g, 100g, 1kg, etc.)

· Gold Coins/Bullion Coins – Come in 1oz, 1/2oz, 1/4oz, 1/10oz and 1/20oz sizes.

· Gold Exchange-Traded Funds – Traded like shares on major stock exchanges.

· Certificates – A certificate of ownership that gold owners hold instead of storing physical gold.

· Accounts – Offered by banks where gold can be instantly bought or sold.

· Derivatives – Gold forwards, futures and options which are trade on various exchanges around the world such as the New York Commodities Exchange (COMEX)

· Mining/Precious Metal Recovery Companies – Not representing gold, but are shares in gold mining or metal recovery companies such as Barrick Gold, Goldcorp, Heraeus, etc.

The broad range of investing in gold and other precious metals has given investors more options to diversify their portfolios. However, investors are encouraged to understand the pros and cons of each investment vehicle, before investing in gold and other precious metals.

If you have any opinions or questions regarding precious metal applications and investments, share it with us here, or email me at emailpeterphang@yahoo.com.