Monday, 29 December 2014

2014:- Annus horribilis For Malaysia

The year 2014 is turning out to be our annus horribilis. The phrase, meaning horrible year, was made popular by Queen Elizabeth II. The British monarch was alluding to a number of negative events that happened in 1992, the 40th anniversary of her reign.

With apologies to Her Majesty, I would think that we Malaysians have had it far worse. Three airline disasters, repeated Sabah incursions and kidnappings and, lest we forget, a water rationing exercise that hit the Klang Valley. 

In fact, it’s getting increasingly difficult to find good news these days. The nation’s mood, already gloomy because of the MH17 tragedy, has worsened because of the haze that has enveloped many parts of the country. 

The latest third missing plane and the flooding all around the country especially on the east coast peninsular hit us more. 

But looking at different perspective, I am happy to see pictures many of us donating a lot of money, food, clothes etc to the victims. 

It might be tempting for some of us to look back on the headlines of the past year and question the notion of giving thanks today. But we know if any of us gives it just a tiny bit of thought, we will find much for which to be thankful. 

Let all Malaysians come together as one to put the "annus horribilis" of 2014 behind us, not by suffering the worst denial syndrome in Malaysian history by denying its existence, but by courageously owning up to the disaster of the past 12 months in nation-building and making a collective new year resolution for 2015

As the year draws to a close, may 2015 be a better year for the country and us. InsyaAllah

Thursday, 18 December 2014

The Golden Age

A friend of mine asked me how much should he start investing in order for him to retire comfortable at the age of 60?

For those of you who frequent my blog would know that I am not a trained personal finance planner. Whatever I write are just my opinions only. As usual, I write with a little bit of common sense, some dry cold hard number analysis and a little bit of personal experience/observations.

Many people dream of having contented and enjoyable retirement years without of financial worries. However, with the escalating cost of living, it will be a challenge for many to save sufficiently and live comfortably during their retirement years. In fact, many may need to work past their retirement age to fund their living. Then there is the issue of healthcare, another area of utmost concern for the retirees.

While the question of whether one has saved enough money for retirement may seem a simple question, the fact that retirement is often many years away makes it more difficult.

Trying to answer it generates a number of other questions: Shell we have met the EPF Minimum Sum and will that be enough to meet my needs?

How will healthcare and living expenses change by the time we retire and how will they continue to rise after retirement?

Malaysians need to be more aware of their retirement needs and realise that Employees Provident Fund (EPF) contributions may not be sufficient to maintain their same living standards after retirement.

Some studies conducted in Malaysia have shown that most retirees spend all their EPF money within three years of their retirement. Given that the average lifespan for a Malaysian is 75 years, if we retire at 60 and spend all our EPF money within 5 years, a lot of us will be wondering how to survive from to 75.

The most worrying question that most of us will be asking is how to survive retirement when we lose our steady stream of monthly income to cover our daily expenses.
The impact of inflation on future living costs also needs to be considered. Even if inflation remains stable at 5% per annum, goods would cost more than 60% more in 20 years than they do now – a factor that too many people fail to take into account.

As Malaysian are living longer and are having children later in life, it is very possible that people may reach retirement age with both younger and older generations dependent on them. This needs to be taken into account in planning.

In reality, a lot of us have been spending most of our savings, including part of our EPF savings on our children’s education and clearing debts on house and car purchases, which leave us with not much savings for our retirement.

With this general concern in mind, let’s look into how much of our EPF money we can afford to spend to have enough for our retirement based on the our local conditions and some assumptions.

Generally, an average Malaysian starts working at 25 and reaches retirement at 55 (after 30 years of working), thereafter living the remaining 20 years (until 75) relying on the EPF savings.

We will assume a starting pay of RM1,500, growing at the rate of 8% per annum; an average bonus of two months per annum, average EPF returns of 5%, total EPF contribution of 23% (employer: 12%, employee: 11%) and inflation rate of 3%.

Our main objective is to test how much EPF money we can spend until we use it all up.

Our analysis shows that if we are able to live with just one-third (or 33%) of our last drawn salary, the EPF money should be able to support us for 20 years until we pass away at 75.

From the example below, if a person’s last drawn salary is RM13,976 at 55, he can only afford to spend one-third or RM4,612 per month after retirement (1/3 x RM13,976).

However, if his spending exceeds the one-third level, such as 50% or the full amount of his last drawn salary, his EPF money can only last 12 or five years respectively.

Even though our computations are based on a lot of assumptions and hypothetical scenarios, our objective is to bring to your attention that we need to be careful in spending our EPF money and control our expenses once we retire.

We will need to adjust our lifestyle after our retirement, especially for those of us that are used to spending most of our take-home pay when we are still working.

Once we lose the regular income source and are relying just on the savings, we will need to plan carefully in order not to out-live our savings. In this example, we can only afford to spend 33% of our last salary after retirement!

Everyone has different financial situations. However, we need to plan for our retirement. If possible, we need to build our own investment portfolio apart from the EPF savings. We may need to seek some part-time jobs after retirement if our financial resources do not permit us to stop working. Besides, we need to clear all our outstanding debts before retirement.

Tuesday, 2 December 2014

Confessions Of A Malaysian

Here’s a brief introduction to my life. I went to university at the age of 18, right after my SPM. My family scraped some cash to put me through Diploma. I started my ACCA course at the age of 21. I then took MARA loan and completed my ACCA. I got a job, moved up the ladder a couple of times, and here I am 10 years later.

Here I am, in debt.

Malaysia's household debt has risen to 86.8 percent of the country’s gross domestic product (GDP) at-end of 2013. We now hold the record of having one of the highest household-debt-to-GDP level in Asia. Meanwhile, the average Malaysia household debt servicing ratio is 43.5 percent and 60 percent for government servants. 

What it means is, on average, more than half of a Malaysian's salary goes to paying debts (housing, vehicle and credit card loans.) 

Which probably also explains why majority of Malaysians have zero savings. The Malaysia Human Development Report 2013 this week revealed that nearly 90 percent rural and 86 percent urban households, had no savings. Meanwhile, 53 percent of households have no financial assets.

What it means that roughly one in every two Malaysians are vulnerable in the event of loss of income. It also means that if a breadwinner falls sick and loses his/her job, the family will find it very difficult to make ends meet. Loans will be at high risk of being defaulted. 

So, it will probably come as no surprise that bankruptcy cases in Malaysia are on the rise too.And this leads me to what most Malaysians want (or need) but are finding it increasingly difficult to afford – property. The average residential property prices in Kuala Lumpur, Penang and Johor had jumped more than 30 percent last year. 

Meanwhile, salaries have not kept up with the soaring property prices. Salary increases remains in single digits. Also, inflation is set to increase next year too with rising living costs triggered by the implementation of GST and the roll back subsidies on fuel, electricity and sugar.

How many of us are free from debt? Forget about credit card debts or personal loans that people take to fulfill superficial materialistic wishes. I am talking about the basic needs in society: education, housing, healthcare and transport.

Is our nation so broken until a youth in his 20s has to be burdened by thought of how is he going to carefully plan his finances for the next 30 years? I agree that financial planning is an integral part of modern life, but to push it to this level where you are burdened by the simple idea of surviving in your homeland is absolute madness.

Life is meant to be lived. How many of us can claim that we work because we want to, not because we have to? Where is the quality in your life – if you have to spend ungodly hours at work, then braving the traffic jams, only to come home to work on your “side gig” to earn that little bit more to pay for the domestic help service that cleans your home while you and your partner are at work?

How many hours are we able to sit down and chat with loved ones without being distracted on matters that are supposed to be trivial?

The fact is, most of us are caught in this cycle. We sit down to think about this yet we seem so helpless. Scrap that. We are more prone to arguing about who gets to call god what and who gets to enter houses of worship. We prefer to picket about artistes’ “inappropriate dressing”. Our debates are on racial rights and how the press misquoted our words.

Naysayers will accuse me of not doing enough research and coming out with statistics and jargon. They will say that I should work hard to break free and attain my own freedom. God knows I do try as hard as I possibly can. And I don’t want to research on loan statistics and banking regulations as I speak from my heart. So too, do many Malaysians. For most of us, there is simply no time to look for answers because that time is needed to keep moving to stay afloat in life.

Monday, 18 August 2014

Life Isn’t Linear

Most of us have a plan for success but as you probably know by now, sometimes life doesn't go according to plan. In fact success in any endeavour is usually not a linear path. It involves some ups and downs and the willingness to veer off the beaten path and take the scenic route. The traditional view of how people become successful looks something like; 
  • Go to a good school 
  • Get a good job 
  • Do well 
  • Get promoted 
  • Get a better job 
  • Get promoted until you’re at the top
Sounds like a nice and simple plan doesn't it? It rarely goes that way for anybody who has done something of significance. But somehow we’re convinced that forcing square pegs into round holes is how we succeed. Unfortunately there are going to be circumstances that are simply out of your control that will force you to alter your plans. There’s no question that to make progress in life you’re going to have to be flexible. You can’t exactly walk in a straight line when it might require one turn in a different direction in order to get to your destination. However, there are multiple paths to any destination and making too many plans is what limits possibility during our journey. Flexibility isn't about compromising your core values or giving into somebody else’s demands. It’s about the willingness to try something different when what you’re doing is not working. 

How the Dots Connect In his famous Stanford commencement speech Steve Jobs said “you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever.” The events that have transpired over the last couple of years, months and weeks, even though a perpetual roller coaster ride have finally seemed to connect. 

Life is not linear, if we were to list down all the major things that happened in our life, that most of it happened out of our control. We realised that we cannot control 60% of the things in our lives. But with the 40% that we have, we can try our best. It does not matter if we fail. We need to recognise that we are vulnerable. That gives us the peace of mind. That is accepting Qada & Qadar.