YOUR MONEY - 10 factors to financial freedom

MOST people think that the Return on Investment (ROI) is the most important, if not only, factor for them to manage in order to achieve their financial freedom.

To them, they have a higher chance of achieving financial freedom if they can get good ROI for their investment. A good and high ROI will help to increase their investment fast to achieve whatever financial goals they have.

If they do not get a good ROI, then they think that they will have little chance of achieving their financial freedom.

As a result people focus too much on ROI in their financial freedom plan and neglect other equally important factors.

In my opinion, the importance of ROI in achieving one's financial freedom has been over-rated. ROI is not the only important factor. There are another nine factors that you can manage to achieve financial freedom.

The nine factors

The other unknown or under-rated factors in achieving financial freedom are:

- The time you start taking action

The earlier in life you start to take action to achieve your financial freedom, the better position you will be in achieving your financial freedom.

Someone who starts planning and acting on his financial freedom plan at age 30, put himself in better position than someone who starts at age 50. The earlier you start investing, the lower ROI you will need to achieve the same wealth accumulation goal.

However, many people just ignore this and do not use it to their best advantage in achieving financial freedom.

- The amount you save

The more you save from your income, the more money you will have to fund your financial goals. As a result, you can achieve your financial freedom easier.

In addition, the more you save, the less ROI is needed to generate to achieve the same accumulation goal.

- Your family income

The more income you have, the more money you can save. As a result, you will have more money to fund your financial goals. When we talk about your family income, it includes your spouse's income. Having extra sources of income is definitely better than having only one source of income.

- Children's education expenses

The more you spend on your children's education, the less money you will have for your other financial goals. So, someone who spends less on children's education or has fewer children is in a better position than someone who spends more on children's education or has many children.

- Your dream home

If you want to have an expensive dream home, you will have less money for your other financial goals. Someone who wants to have a RM2 million bungalow will definitely put himself in a more challenging position to achieve financial freedom than someone whose dream home only cost RM500,000.

- Your vacation expenses

The more you spend on your vacation, the less money you will have for your other financial goals. Someone who spends RM20,000 a year on vacation is in a better position to achieve financial freedom than someone who spends RM50,000 a year on vacation.

- Your retirement age

When you retire, you stop having active income. So, the later you retire, the more income you generate to fund your financial freedom. Someone who chooses to retire at age 65 will need a lower ROI to maintain his retirement life style than if he were to retire at age 55.

- Your living expenses during retirement

The more you intend to spend on your retirement living expenses, the more money you will need to fund your retirement. Therefore, you will need to achieve a higher ROI. On the other hand, if you intend to spend less on your retirement living expenses, you will need a lower ROI for your investment.

- Your medical fund provision

The more you need to provide for your medical fund, the less money you have to fund other financial goals. You can reduce your medical fund provision by transferring your risk to insurance company. You can also choose to use public healthcare service rather than private healthcare.

After going through the nine factors, you may think that they are nothing new. However, in the journey to achieve your financial freedom, what you know is not important. What matters more is what you do with what you know.

When you are able to manage your financial freedom plan using all the 10 factors, you will be able to place the importance of ROI in the right context and let other factors play their roles.

As a result, you will be able to exploit the compounding and synergistic power of the 10 factors to attain financial freedom.

Without considering nine factors, your financial freedom car is only powered by one horsepower engine rather than 10 horsepower engines. And that's a great waste.

In fact, there's another angle to consider when using the other nine factors: your ability to control a particular factor. The more control you have on one factor, the easier it is to manage that factor to achieve financial freedom.

Out of the 10 factors, ROI is the one that you have the least control.

You will never be able to guarantee your ROI no matter how much effort and knowledge you put into it. The truth is that no one in this world has an absolute control on ROI. Not even a great investor like Warren Buffett. Therefore, it is an illusion if you believe you can control ROI by putting in great effort.

However, you will find that you can have better control on the other nine factors. You can control when you want to start taking action, the amount you want to save, what your dream home should be, how much to spend on your vacation, when you want to retire, how much to spend on your children's tertiary education and how much money to set aside for your medical expenses.

You can also control on how much to spend on living expenses during your retirement and your much income to generate if you really want to.

I must agree that you can't completely control all these factors. However, you definitely have better control on these factors than the ROI factor.

Therefore, the wiser way to achieve financial freedom is to understand that ROI is only one of the 10 factors to achieve your financial freedom and the least controllable one.

If you are serious about achieving your financial freedom, start exploring the other nine financial freedom factors and put them to good and full use.

To do that effectively and efficiently, a tool that comes in handy is the Roadmap to Financial Freedom.

In fact, the roadmap has been designed in such a way that you can manage all the 10 financial freedom factors easily.

source: NST online

Survey: Most Malaysians ill prepared for retirement

Another timely (maybe a little late for some!) article I found published in the papers regarding retirement preparation or rather the lack of it, among Malaysians.

By HARIATI AZIZAN

KUALA LUMPUR: The majority of Malaysians are not only ill prepared for retirement, but are also unconcerned about financial security in their twilight years, according to an independent survey commissioned by Prudential Assurance Malaysia Bhd.

The Prudential Retire-Meter 2007 survey revealed that as much as over 80% of its 1,038 respondents were indifferent about having an ample coffer to lead a reasonably comfortable life after retirement.

Only 34% were saving regularly for retirement,” said Prudential chief executive officer Tan Kar Hor.

“The survey shows that Malaysians clearly know what they want to do when they retire, but the majority are not actively planning for their retirement.

“When Malaysians stop working, they want to travel, spend time with the family and be more involved with the community. Financial security is crucial to fulfil these dreams.

“However, it is startling to learn from our survey that only 34% of Malaysians are putting money aside regularly for their retirement funds,” Tan told reporters after launching the survey’s findings on Wednesday.

He added that an alarming 60% of the people interviewed were found to be ignorant of how much they would need to save for their retirement.

“They believe that they just save as much as they can now and hope that they would have enough to cover their retirement needs,” he said.

Tan noted that only 42% of the retirees surveyed said they were confident that they had enough to cover all their retirement needs, while 37% planned to return to the workforce.

source: The Star,Wednesday August 8, 2007

Vital To Start Planning For Your Retirement Early

Since this blog talks much about retirement planning and saving for the future, I thought it would be good if I could also put in articles published in the papers. This article was published sometime last year. And I have to agree with the writer, Malaysians as a whole are not prepared for their retirement.
Can you imagine that the money saved for more than 30 years gone in 3 years?
Many young people feel that 'there is still long way to go', or 'let me enjoy my money first'. What they don't realise is that this attitude of theirs is going to cost them dearly in their future, especially when they don't have the earning capacity any more.


COMMENT BY V.K.CHIN

RETIREMENT is meant to be a rewarding experience when those who have toiled for decades to raise families and contribute towards nation-building can relax and take it easy.

Retirees are supposed to spend whatever time they have left to do the things they have always wanted to but did not have the time as they had to earn a living.

But the opposite is true in many cases as the majority of retirees are in fact facing a nightmare in just trying to support themselves with the basic things in life.

Their main torment is finance or lack of it. It is estimated that at least 70% of retirees and pensioners were just not prepared to stop work because they could not afford to.

Most of those in the private sector depend on their Employees Provident Fund (EPF) contributions for their retirement. This is almost the only money they have to look after themselves. Unfortunately, it has been proven by none other than the EPF that most of the money would be gone in three years after its withdrawal. This is indeed a very sad state of affairs and the workers have only themselves to blame for their plight.

Very few people have proper planning for retirement. They do not save enough for this purpose until too late. Though everyone starting work should be saving for this purpose as early as possible, they only realise the seriousness of their situation in their 40s or 50s.

Without their compulsory EPF contributions, many of them would have been even worse off with almost nothing to their name. Many have their own homes and if they are lucky, they would have settled their mortgage by then.

Life insurance is still frowned upon by some as not being urgent and in any case not many earn enough to put money into shares, bonds or other saving instruments.

Saving outside of the EPF is not a culture as people may have difficulty in coping with their monthly family and personal commitments financially. EPF contributions are also being drawn to meet the demand for funds for housing and health. This will further limit the money meant for retirement.

Too many are expecting their children to look after them when they retire.They are prepared to use whatever assets they have for their children’s education. Many of them would have been left penniless by the time their children complete their studies.They would then be completely at the mercy of their children. If the kids are filial, then the parents would have a comfortable retirement. If not, then the last few remaining years would be extremely difficult for the retiree.

Some children can be extremely selfish and may insist on going to study overseas though their parents may not be able to afford it. Parents may have to mortgage their house or borrow a sizeable loan for this purpose. They may end up bankrupt if their children refuse to repay the loan.

There are countless such sad stories and these are serious social issues where not much can be done to help. It is impossible to tell those nearing retirement that they should keep some money for themselves instead of using it all to educate their children.

Parents should be practical and realistic. If their children are not academically good enough for university, they should opt for vocational education where they would be able to obtain a skill to earn a decent living.

It is worth repeating this message so that hopefully the message will sink in and those approaching retirement would take measures to protect themselves financially.

source

Which option to take, 11% or 8%?

The most heated argument taking place among working Malaysians today is 'shall we agree to the option given by the government to reduce our contribution to the EPF from 11% of our salary to 8% for two years starting Jan 1, 2009 or not'.

EPF (Employee Provident Fund) is a fund created by the government as a retirement fund once the employees retire. It is made compulsory as for some people, it may be the only source of retirement fund. It is currently fixed at a minimum 11% reduction from the employee's salary and a minimum 12% contribution from the employer.

Lowering the rate of employees’ contribution to the Employees Provident Fund (EPF) temporarily is part of the Government’s bag of tricks to stimulate the economy. The idea is to boost private consumption by putting more money in workers’ pockets.According to Government's estimates, RM4.8bil a year will be freed up for spending in the economy if all EPF contributors opt for the rate cut.

It is indeed a good strategy for the short term and good for the country's economy as a whole. More employees who fall under the lower income bracket welcome this move as they are struggling to make ends meet due to the current hike in essential goods after the petrol price shot up lately to its all time peak suddenly.A little more cash at their disposal would definitely ease their burden.

However, the rest of the group or the 'financially savvy' ones are crying foul over this move.Their reason is that it definitely means lesser retirement funds. Bad move in the long run.

For the past few years EPF has managed to give out dividends at around 5%. If you can really discipline yourself, even if you claim yourself to be in the financially savvy group, this move can be seen as an opportunity. How?

If you are earning RM4000, the reduction of 3% in EPF contribution will amount to RM120. That means an extra RM120 in your pocket. Don't spend it. Instead look for ways where you can save and invest this money so that it can give you a higher dividend than the one given by EPF. I believe an excellent investment instrument for this small amount in monthly basis would be the mutual funds/unit trust where you can do a Dollar Cost Averaging for 2 years with this extra cash. Or you can also pay off any outstanding credit card debts as the interest charged is usually very high.


So, now you have 3 options in front of you:
1. Reduce the deductions and spend the money.
2. Stick to the 11% deductions and leave the money to grow with EPF.
3. Opt for the 8% deductions and invest in places where higher dividends are being paid.

Make the right choice and have a comfortable retirement later!

How To Retire As A Millionnaire By Investing in Real Estate?

Okay,now let's get down to business.Do you really want to retire as a millionaire and that too by investing in properties? You can, if you really want to. It's not really that difficult. You only need to be disciplined in your savings. The faster you start saving and the more you start saving, the better it is.

All you need to do is from the age of 30 to 60, try your very best to purchase 6 properties worth 100,000 each, with potential of market appreciation. Since our plan is to start at the age of 30, we should have accumulated, over the years of working, at least 25,000. This amount would then be used as the down payment for the property purchased.The remainder can be paid of by taking a 20 years loan.Every 5 years, you have to repeat the same action: Buy a property worth 100,000.The 1st, 2nd and 3rd property would have been paid off by the time you reach 60 years old.So, the rental income that you can get from the properties that has been paid off can be used to pay off the rest of the properties. In fact this enables you to pay off the later properties at a faster pace and not as the initially planned 20 years any more.

When all this is done, you will have a passive income and can retire comfortably. Not to mention that your properties also have potential of having appreciated over the years.

Assumptions made:
- retirement age: 60
- you've got at least 30 years to retirement
- you save around 500 dollars every month: 500x12x5 = 30,000 every 5 years
- rental income is minimum 500 dollars a month
- each property purchased is 100,000 dollars

Warning: You must also be prepared to cover the monthly instalments from your own pocket in case your tenant defaults his payment or when the property is without a tenant. Any cost incurred for repairs must also be born by you.