Financial management in the current environment

 

Learn new ways to budget, save and invest

“Avoid free/paid courses given by ‘investment guru’ who are not professionally qualified. The public must be aware and know how to differentiate them.’’- Kimberly Law

LOSING money is the hardest misfortune if you have just enough income for survival.

Many people have fallen victims to scams and have lost money in a bad investment.

Some have lent money to others but the loan was not repaid.

There are many reasons why people lose money and in the current times, every ringgit counts.

The costs of buying groceries, clothes, medical supplies and even essential body care items have risen so much that at the end of the month your salary may not be enough.

It is no surprise that a survey by Capital Market Research Malaysia (ICMR) showed that 64% of Malaysians respondents, feel that they are either financially unstable or are living from salary to salary.

Even Deloitte’s recent survey has indicated that 65% and 70% of the local Gen Z and millennials are living from hand to mouth. The global numbers are 51% and 52 respectively.

The majority of those within these categories report suffering from mental stress with regard to their finances.

It said there are still gaps between awareness and application when it comes to good savings behaviour.

There are gaps in financial literacy in the country and the rising rate of people falling to scams is also a concern.

Financial literacy is about how you budget, save, build credit, borrow, repay debt and invest to grow money.

If you want shortcuts by hoping your money will double or triple in the shortest amount of time then you ought to ask yourself if that is really possible or if it is part of a scam.

Everyone knows how to manage money, but the question is how effectively is it managed and whether you are making your money work for you.

There are many management and personal finance courses available to improve your financial literacy skills.

Some are offered free and some charge a fee. It is not wrong to learn and improve one’s skills even though you may be an expert in money management.

Several websites offer personal finance, money management courses available. Some are free, others charge less than RM100.

Some of the sites that offer courses include Udemy, Coursera, LinkedIn.

Often in a few hours of online learning, you will be able to create a format and update your budget or even create a plan using the tools they provide to help you reach your financial goals, according to a report.

However, Uno Advisers Sdn Bhd licensed financial planner Kimberly Law said she would avoid the free courses offered by people who are not from the industry.

“Avoid free/paid courses given by ‘investment guru’ who are not professionally qualified. The public must be aware and know how to differentiate them.’’ she said.

She recommends those interested to attend reliable courses from institutions such as the Financial Planning Association of Malaysia (FPAM) and the Malaysian Financial Planning Council (MFPC)

She says they offer some paid programmes while others are offered free to the public for financial literacy enhancement.

For her, the best way to get free financial education is to attend/listen to events/programmes organised by FPAM/MFPC and that are offered together or with the blessings of the industry regulators such as the Securities Commission and Bank Negara.

These organisations will get professionals to volunteer to offer/teach the programmes.

Some people felt that basic money management courses should be offered in schools to help children prepare for their future. This will surely benefit the larger school going population.

Even if it is not part of the syllabus, it can be a supplementary programme offered for a limited period of time every year at schools.

Law believes the syllabus for the young should include basic money management skills such as basic training or exercise on budgeting, managing expenses and planning that will be useful in their management of money and investments.

This will certainly raise the financial literacy rates over time in the country.

Even if you are doing well in your money management skills, it doesn’t hurt to enhance and learn new ways to budget, save and invest.

But don’t fall for courses that will make you invest even before you can learn something from it.

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THE FIGHT AGAINST CYBERCRIME IN FINANCIAL SERVICES

Generating sustainable retirement income

 

Many Malaysian are EPF contributors and have FDs as well. "You will never understand how bad the feeling is when you have to break your fixed deposit to cover your living expenses."

ONE of the top financial concerns of retirees is running out of money.

Whether you were an executive earning a reasonable income, or if you are making top dollars as a businessman, the fear is still valid.

For example, Tommy, who left the working world soon after selling his factory to a European multinational corporation. Tommy shared during one of our meetings that he was golfing every week and globe trotting almost every other month.

However, there was a problem that greatly bothered him. He found that he was dipping into his fixed deposit every now and then just to maintain his interesting lifestyle.

“Yap, you will never understand how bad the feeling is when you have to break your fixed deposit to cover your living expenses, ” he said.Combing through all of his finances, we discovered that Tommy’s lackadaisical attitude was to be blamed. He has not been paying enough attention to invest and generate income from the RM12mil nest egg that he had painstakingly accumulated. His investment portfolio was a mess.

Over the years, he invested in a few properties but never really bothered to oversee them. When tenants left, he didn’t make an effort to secure new tenants. In fact, some properties were even sitting vacant and idle. His excuse? He was too busy running the business.

Yap Ming HuiYap Ming Hui

Tommy has also invested in some shares and unit trusts but he seldom monitors and reviews their performances. Imagine his surprise when he went looking for some extra cash but discovered that most of the investments were not making money. Prior to meeting me, he couldn’t decide whether to sell or to keep those underperforming investments.

Consequently, the bulk of Tommy’s wealth is in fixed deposit. The trouble is the interest income from fixed deposit barely covers the impact of inflation. As such, if Tommy continues to spend on his interest income, he will risk having the principal depleted.

Asset rich, income poor

Tommy’s problem is a typical case of “Asset Rich, Income Poor.” His situation is definitely not unique. In fact, I find most self-made millionaires or business owners, typically strong at creating wealth from their business or professional career, but poor at generating income and gain from the created wealth.

For one, all the time spent ensuring their businesses succeed also takes them away from making sure that the wealth created is optimised.Let’s examine Tommy’s assets and see how it measures up (see chart).

The RM6mil in fixed deposit generate approximately 2% interest income. However, notice that the 2% of interest is not sufficient to offset the 4% inflation provision. As a result, there is negative net income coming from Tommy’s fixed deposit asset.

Tommy’s properties are worth RM3mil and only generates RM50,000 in rental income per annum. Nevertheless, this can be considered a net income because inflation will be hedged by capital appreciation (at least 4% per annum) of the properties.

The RM1mil in shares gives a total return of 5%. Factoring 4% inflation, the actual income received from share investment is RM10,000.

Unfortunately, the RM2mil unit trust investments didn’t offer any returns. After inflation provision, his unit trust investment has a net income of RM80,000.

The reality is if nothing is done now, Tommy’s wealth will continue to shrink by RM140,000 a year once inflation is factored to the equation. How does this play out for Tommy? The fact that he needs RM360,000 a year to maintain his current lifestyle will not augur well for him.

So, how can you prevent from ending up in Tommy’s situation?

The optimisation measures

> Remember to review the performance of each of your investment asset classes. In order to generate more income and gains, be proactive in getting rid of poor quality and poor performing investments. Look at each investment and ask yourself, should you keep it or should you sell?

> Consider moving fixed deposit into higher return investment.

Any gains from your fixed deposit would probably be eroded by inflation, especially given the current low interest, which will probably persist for quite some time. After calculating and providing for your emergency fund cash reserves, the balance of your fixed deposit should be invested into other investments that can generate higher return and income to hedge against inflation.

> Diversify the source of retirement income

Even if one investment asset can give you a good income and hedge against inflation, it does not mean that you must bet all or the majority of your wealth in it. For example, property investing. Some investors have found success in it. They were able to generate good capital appreciation and rental income.

As a result, they put a majority, if not all, of their wealth into properties. It may sound logical at first but rental income is not sustainable in the long run. It is subjected to changes, some of which cannot be controlled. Therefore, the best practice is still to diversify your retirement income across different asset classes, like share dividends and capital gains, unit trust gains, bond investment gains, retirement income products and others, so that it is not badly affected by any one impact.

The ability to grow your wealth during retirement years is important. Just because you have stopped working, it does not mean your money should stop working too. The idea behind wealth optimisation is to ensure that you can upkeep your retirement lifestyle and protect your wealth from inflation.

Ideally, one should get a plan done a few years prior to retirement to see how your retirement income would play out. After all, you wouldn’t want to have any unpleasant surprise, like in Tommy’s case. When you have time on your side, you can improve your investing skills and adjust your retirement plan accordingly while still in your active income earning years.

Yap Ming Hui is a licensed financial planner. The views expressed here are the author’s. Any reliance you place on the information https://www.thestar.com.my/business/business-news/2021/01/09/generating-sustainable-retirement-incomeshared is therefore strictly at your own risk.

 

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The rich are becoming richer

They are becoming richer at a faster rate too

DON’T the rich always grow richer, while the poor well, remain poor.

If you’re already disheartened, it gets worst. The rich are getting richer, and at a faster rate too.

A 36-page report released by the Boston Consulting Group (BCG) last month showed that global personal financial wealth grew by 12% in 2017 to US$201.9 trillion.

This total, roughly 2.5 times as large as the world’s gross domestic product (GDP) for the year (US$81 trillion), more than doubled the previous year’s rate, when global wealth rose by 4%.

It also represented the strongest annual growth rate in the past five years in dollar terms.

“The main drivers were the bull market environment in all major economies, with wealth in equities and investment funds showing by far the strongest growth and the significant strengthening of most major currencies against the dollar,” said BCG in the report.

The increasing millionaires and billionaires now hold almost half of global personal wealth, up from slightly less than 45% in 2012, says BCG. In North America, which had US$86.1 trillion of total wealth, 42% of investable capital is held by people with more than US$5mil in assets. Investable assets include equities, investment funds, cash and bonds

In terms of asset classes, US$121.6 trillion (60%) of global wealth took the form of investable assets – mainly equities, investment funds, currency and deposits, and bonds, with the remaining US$80.3 trillion (40%) held in non-investable or low-liquidity assets such as life insurance, pensions funds, and equity in unquoted companies.

Residents of North America held over 40% of global personal wealth, followed by residents of Western Europe, with 22%. The strongest region of growth was Asia, which posted a 19% increase. All wealth segments grew robustly, but high growth rates were especially prevalent in the uppermost wealth segments.

The market sizing review encompasses 97 countries that collectively account for 98% of the world’s gross domestic product.

The personal wealth bands are generally measured as such:

1. Retail: below US$250,000

2. Affluent: between US$250,000 to US$1mil

3. Lower High Net Worth (HNW): between US$1mil and US$20mil

4. Upper HNW: between US$20mil and US$100mil

5. Ultra HNW: above US$100mil

Everybody is getting richer

The US is home to the largest number of people with more than US$20mil. Globally, the classes of the ultra-rich are expected to reach 671,000 by 2022.

Meanwhile, the Middle East is the region with the greatest share of wealth held in investable assets US$3.1 trillion of a total US$3.8 trillion. Western European residents held 56% in currency and deposits, while in North America the attention was on equities and investment funds, with 62% of US$47 trillion of investable wealth parked in those assets.

Should personal wealth creation continues at the rate of the past few years, BCG forecasts a compounded annual growth rate of about 7% from 2017 to 2022, in US dollar.

Events like stock market corrections and geopolitical uncertainties could knock that down to 4%.

In a worse-case scenario, such as a major economic crisis, global wealth might produce a compound growth rate of only 1% over five years, the study found.

BCG says opportunities abound for wealth managers seeking to increase their focus on different client segments.

For example, despite being far apart on the wealth spectrum, both the above US$20mil segment (upper HNW and ultra HNW) and the affluent segment are attractive because they represent very large wealth pools with high growth rates.

In 2017, the upper HNW and ultra HNW segments held more than US$26 trillion in investable wealth.

US residents held over 30% of this wealth, making the US easily the largest country of origin.

Other economic areas with large pools of ultra HNW investable assets include developing markets such as China (in second place), Hong Kong, India, Russia and Brazil, and developed markets such as Germany (in third place), France and Italy.

The share of wealth held by upper HNW and ultra HNW individuals varies widely aong the top 15 countries, ranging from 47% in Hong Kong to 8% in Japan.

Over the next five years, the upper HNW and ultra HNW segments wealth is likely to post the highest growth across all regions.

“Financial institutions looking to acquire and serve these segments will need to bring a broad international skill set to the table,” said BCG.

Affluent individuals

Afluent individuals is a segment whose population is burgeoning, hold a large and increasing amount of the world’s personal wealth at US$17.3 trillion or 14% of investable assets in 2017. (see chart)

This group of about 72 million people represents the growing middle class and many of its members will become the millionaires of tomorrow.

“We expect the wealth of this segment to post a compound annual growth rate (CAGR) of around 7% over the next five years, increasing its pool of wealth to nearly US$25 trillion. To successfully tap into this segment, wealth managers must have at their disposal an efficient service model and significant skill in and innovative digital technologies,” said BCG.

Entrepreneurs

The entrepreneur segment represents another attractive opportunity for wealth managers to tap into money in motion and provide needed services.

“We expect these individuals, who have equity in their own companies – recorded as unquoted equities (non-investable wealth) – to significantly increase their pool of investable assets, by liquidating some or all of their equity through sales and by earning new wealth through their entrepreneurial activities. The largest pools of entrepreneurial wealth are in the US, France, Italy and Japan.  

Asia

Personal wealth in Asia grew by 19% to US$36.5 trillion, with residents of China holding nearly 57% of that amount, and the region registered per capita wealth of US$13,000. Although the asset allocation share of equities ad investment funds has grown over the past five years (from 22% in 2012 to 31% in 2017), Asia remains a cash-and-deposit-heavy region, with 44% of personal wealth held in this asset class. We project regional wealth to grow over the next five years at a CAGR of 12%.

Meanwhile Switzerland remains the largest offshore centre, domiciling US$2.3 trillion in personal wealth in the country. The next largest booking centres are Hong Kong (US$1.1 trillion) and Singapore (US$0.9 trillion) which have grown at yearly rates of 11% and 10% respectively – more than three times the rate (3%) of Switzerland over the past five years.

Over the next five years, BCG feels off

By Tee Lin Say, Starbiz

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EPF investment income rises 5.13% in Q3 to RM12.95 bil, has benefited from overseas equities

The Employees Provident Fund (EPF) reports an increase in quarterly investment income to RM12.95 billion for the third quarter ended Sept 30, 2017 (Q3 2017), despite recorded net impairment of RM791.55mil in the third quarter, more than double the impairment made a year earlier. The EPF posted a 74% surge in investment income to RM11.8bil in the first quarter and a 36.6% growth to RM11.51bil in the second quarter.

KUALA LUMPUR: The Employees Provident Fund (EPF) today reported an increase in quarterly investment income to RM12.95 billion for the third quarter ended Sept 30, 2017 (Q3 2017), up 5.13 per cent, from RM12.32 billion recorded during the same period last year.

“The EPF’s overall portfolio performance has benefited from the rally in overseas equities markets in the third quarter of 2017,” Investment Performance, Deputy Chief Executive Officer (Investment) Datuk Mohamad Nasir Ab Latif said today.

He said the pension fund did not see similar returns from the domestic equities market as the FBM KLCI performance was flat compared with other markets, which recorded between two and five per cent growth.

The EPF recorded a net impairment of RM791.55 million, in the quarter under review, in accordance with the Malaysian Financial Reporting Standards (MFRS 139), and this was higher compared with RM349.59 million recorded in the same quarter last year, he said in a statement today.

This is due to the higher provision recorded for domestic equities in the telecommunications and oil and gas sectors.

In the third quarter of 2017, equities, which made up 41.86 per cent of EPF’s total investment assets, contributed RM7.91 billion of income or 61.09 per cent of the total investment income.

The income recorded was 12.75 per cent higher than RM7.02 billion recorded in the corresponding quarter in 2016, he said.

As at September 2017, a total of 50.45 per cent of EPF’s investment assets were in fixed income instruments which recorded an income of RM4.49 billion, equivalent to 34.63 per cent of the total quarterly investment income, said Mohamad Nasir.

Out of the RM4.49 billion, Malaysian Government Securities & Equivalent recorded RM2.17 billion in the third quarter of 2017, an increase of 10.96 per cent or RM213.98 million, from RM1.95 billion recorded in the same quarter in 2016, in line with the growth of the portfolio.

Loans and bonds, however, generated lower investment income of RM2.32 billion compared with RM2.56 billion in the same quarter last year, he said.

Investments in Money Market Instruments and Real Estate and Infrastructure each represented 3.53 per cent and 4.16 per cent of total investment assets, and contributed an investment income of RM274.27 million and RM263.83 million, respectively, in the third quarter of 2017.

“Our current investment in money market instruments is above the targeted three per cent under the Strategic Asset Allocation due to the ongoing regulatory restrictions in new overseas investments.

Over the long-run, the EPF must continue to expand our foreign assets portfolio as it is key to our diversification and allows us to meet our return targets,” said Mohamad Nasir.

As at Sept 30, 2017, the EPF’s overseas investments, which accounted for 30 per cent of its total investment asset, contributed 48 per cent to the total investment income during the quarter.

Diversification into different asset classes in various countries and currencies had helped the EPF to record higher income for the quarter, despite a significant difference in market performance, globally.

Out of the total RM12.95 billion investment income for the third quarter of 2017, a total of RM860.83 million was allocated for Simpanan Shariah, which derived its income solely from its portion in Shariah assets, while RM12.09 billion income was allocated for Simpanan Konvensional, which is generated by its share of both Shariah and non-Shariah assets, he said.

The value of EPF investment assets reached RM771.20 billion, a 5.48 per cent or RM40.09 billion increase from RM731.11 billion, as at Dec 31, 2016.

Out of the total investment assets, RM370.10 billion or 48 per cent, were in Shariah-compliant investments and the balance in non-Shariah assets.

“We still have one more quarter before the year-end and we are confident that our diversification into various asset classes will enable us to meet our real dividend target of at least two per cent above inflation over a three-year rolling period, for both Simpanan Shariah and Simpanan Konvensional,” he added.

The EPF posted a 74% surge in investment income to RM11.8bil in the first quarter and a 36.6% growth to RM11.51bil in the second quarter.

Source: BERNAMA

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1 Malaysian Ringgit equalsvv0.24 US Dollar

Malaysian Ringgit Forecast - Trading Economics

https://tradingeconomics.com/malaysia/currency/forecast

The Malaysian Ringgit is expected to trade at 4.20 by the end of this quarter, according to Trading Economics global macro models and analysts expectations.

Education: alleviating poverty or causing it, funding children with retirement fund?

It is not prudent to fund children’s education with your retirement fund

EDUCATION is the social game changer. In poor countries, it alleviates poverty. In developing nations like Malaysia, a more educated population can catapult us to developed status.

Scores of parents are striving hard to send their children to international schools to gain the holistic education, have better choices of tertiary institutions and have access to better paying jobs.

Borrowing future funds

Sending children to international schools is deemed the ticket out of mediocrity in Malaysia and to have a fighting chance in the global job market. But to what end?

Whether it is using EPF savings or selling off property to fund children’s private or international school education, this can be costly to many middle-class parents. While it may be acceptable to borrow funds to ensure our children get better secondary or tertiary education as they can always pay off the loans when they become employed, it is harder to replace “lost” retirement funds.

Therefore, it is not a prudent move to use funds meant for retirement as the fund is most needed when the “parents” are not at income-generating age any more.

Prioritising funds

With today’s Gen X-ers who are becoming parents at later age, we not only have to nurture our children but also care for our ageing parents whilst saving for our retirement. Prioritising investments is key.

1. Be realistic. Parents want the best for our children. If education savings are started early to take advantage of compounding effect, that’s great. If funds only permit an overseas tertiary education, then find the best local education option as our children can still experience holistic learning during university years abroad.

2. Gen Y-er parent, start investing now into a diversified portfolio. It is already too late if you have not started, as the cost of education will only increase.

3. Education is not just about getting the paper qualification. It is about learning. Parents can show kids new ways to learn without busting purses. Take advantage of free online courses like TedTalk or Khan Academy and “experiences” offered by museums, art galleries, nature trips and even playtime in the park.

By CHEONG WAI KUAN, VICE-PRESIDENT OF SUCCESS CINCEPTS LIFE PARTNERS

The writer can be contacted at info@successconcepts.biz / http://www.successconcepts.biz/ The Star/Asia News Network

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More Malaysians are being declared bankrupt!

JOHOR BARU: Young Malaysians are being declared bankrupt because they spend more than they earn, says Minister in the Prime Minister’s Department Nancy Shukri (pic).

This trend was worrying because most of them had just started working but already had debt problems, she added.

“This younger generation are supposed to be the next leaders. Instead, we have those who are already facing financial difficulties at a very young age,’’ she told a press conference after opening an information programme for young people at the Home Ministry complex at Setia Tropika here yesterday.

Quoting figures from the Insolvency Department, she said there was an increase in the number of young Malaysians being declared bankrupts in the past five years.

She said there were nearly 22,000 cases last year, an increase from about 13,200 in 2007.

Within the first six months of this year, more than 12,300 young Malaysians had been declared bankrupt. They include 3,680 women.

“On the average, 70.22% of the cases are men,” said Nancy, adding that most of them have outstanding debts of RM30,000 or more and could not afford to settle their dues.

She said the high bankruptcy rate among Malaysians at a young age mainly resulted from defaulting on instalment payments on car, housing and personal loans.

Nancy said there had been celebrities who were also declared bankrupt but most of them declined to seek assistance from the Insolvency Department.

She added that aside from the department, those who have problems managing their finances could seek advice from the Credit Counselling and Debt Management Agency.

The Star/Asia News Network

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Modern-day living poses threat to finance, four steps to avoid

Four steps to avoid becoming a burden to your children 

WHEN we were young, people were very careful with their money. Frugality was the order of the day as all available resources was channelled towards just surviving.

Today, our First World problems sound like this: “Should I get the iPhone 5s or wait for the iPhone 6? Such a dilemma!”

I do think that our modern-day living poses a serious threat to our finances. If we do not do something, we may be heading for a personal financial crisis.

Here are four reasons why:

1. LIVING IN EXCESS

Perhaps it is a rejection of our parents’ frugality that we have the need for many things. We are likely to have more than one holiday a year, many expired goods in our pantry, 10 pairs of shoes and a fancier car than our parents.  

2. NO FEAR FOR THE FUTURE

We grew up in a time of plenty with no real threat of war. So there is no need to have "storage" for future calamity. This abundance mentality has allowed people to throw caution to the wind and be totally comfortable spending every sen they have or even what they don’t have.

 3. A RELIANCE ON OTHER'S RESOURCES

There is the safety net of FAMA (father, mother) who will rescue their distressed adult children. How long can FAMA sustain us before their lack of funds become our problem? Also, while EPF is a good retirement vehicle, perhaps it may not be enough to fund your cost of living over the long haul.

4. PRESENT WANTS OVER FUTURE NEEDS

In the 1950s, the lifespan was only a few months after retiring at 55. Now, people are living two decades longer but have not realised the implication of this. They are "enjoying" themselves too much rather than thinking about the future.

If we don ’t correct these four grave financial mistakes, the persons we are today will grow old to become poor tomorrow, dependent and a burden to our children and society. It won’t be anyone’s fault but ours.

Let us plan for the future, so that we will not be woefully unprepared for it.

Contributed by by Amelia Hong

The writer can be contacted at info@successconcepts.biz

How to save when you’re broke?

Saving money is not impossible when you're in financial dire straits

SAVING money can be a tall order for a lot of people but it becomes near impossible when you're broke or financially challenged. Still, it's not a position you can't come out of.

Here are some simple steps to follow to help you save despite being broke.

Set up a budget plan

If you're broke and trying to save money, than it's best to come up with a budget plan, says Standard Financial Planner Sdn Bhd's Jeremy Tan.

“If you're broke, then you need to evaluate what you're doing wrong.

“Have a budget plan. Look at what assets you have? “Perhaps you could try liquidating some.

“But even before you're broke, you should have contingency or emergency funds,” he tells StarBizWeek.

Keep working

MyFP Services Sdn Bhd managing director Robert Foo believes that if a person is broke, it's imperative for one to continue working or seek a new form of employment - as soon as possible.

“If you have a job, then you should continue working.The experience that you already have would be invaluable.

And what happens if you've lost your job or unemployed? All is not lost, says Foo.

“Don't feel hopeless. You've got skills and should be able to have contacts that can help you find a new job.

“If you have a job and you feel it's unstable or that you might lose it, then you should ensure that your resume is with headhunters, to ensure your income position remains as stable as possible.”

Tan also points out that age can be a factor. “Of course if you're young, you'll be able to take on multi-tasking jobs. If you're old, then you might need to go easy on the job load,” he says.

Compare prices

Self-confessed shopaholic PS Tan says that when she's “a little bit behind on her credit card payments” and needs to cut down on her spending, she decides to be a little bit more “choosy” with her shopping.

“When I know I need to cut down on my spending, I go several hypermarts or supermarkets and compare prices first before eventually purchasing.

“Also, if I have been using items that were expensive, I just choose to buy ones that are cheaper.
Be open to new brands and products,” she says.

Eliminate costs

While trying to save, also try to rid yourself of whatever debts you have.

“If you're broke, ask yourself if you have debts or not? Find out how you can restructure them,” says Tan.

Tan meanwhile says now would also be a good time to evaluate and consider eliminating the unnecessary financial obligations that one can do without.

“If you have a gym membership for a gym that you've not been going to for a long time, or perhaps a year's subscription for a book or magazine you've been hardly reading, just cut it off.”

Live within your means

If you're broke, than you're going to need to need to change your lifestyle - immediately!

“If you're broke, then you're not going to be able to sustain the lifestyle you've been living.

“The fastest way to solve this is to cut down on your expenses,” says Foo.

He reiterates that one could find a part time job or even a second one to curb debts quickly.

Eric Lee (not his real name), a marketing executive who was laid off for six months, says he was forced to cut down on his lavish lifestyle when he had difficulty finding a job.

“I had to do a lot of things differently.

“My car got repossessed and I had to move out from where I was staying because I couldn't afford the rent.

“I moved in with my parents and also had to rely on public transport to go where ever I needed to, especially for job interviews.

“If I was lucky, sometimes I could drive my parents' cars.

“When I did get a job, I initially still had to live within my means as I was still unable to stand on my own feet. This meant taking home-cooked meals to work.

“Initially, I also had to use t-shirts from friends as I couldn't afford new ones.”

By EUGENE MAHALINGAM
eugenicz@thestar.com.

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Leaving a financial and parenting legacy

BEING a parent is a challenging job. It's a job that requires lifelong commitment, and you cannot resign from it even if you feel you can't cope. And what's more, parenting requires skills that are not obtainable from school, college or university. Parenting and managing money are the two most important skills that we learn from our parents or adults with whom we grew up, be they our grandparents, nannies or guardians.

As you go through the process of considering how to communicate with your parents and siblings about managing family wealth, you will realise the need to teach your children about money so that you are able to leave your own legacy behind for your children to communicate and manage money harmoniously as a family.

There is really not one proven or standard method of parenting and teaching children about money because of different personalities, behaviours and attitudes. We teach children about money based on how we were taught about money by our own parents or guardians, and from the environment in which we were brought up. Recall your childhood days, and how your parents taught you about money. Were you taught to save your pocket money or to spend it wisely?

Think about the environment you grew up in. Were there times when your parents had money problems and you often heard them argue about it? Or did your parents hide the fact that money was hard to come by in the family? Or were you pampered by your parents with toys, clothes and going out for fun activities and holidays?

Some parents have told me that because of the poverty they experienced during their own childhood, they now try their best to give their children a better life by lavishing them with the material goods and experiences that they themselves never had. By indulging their children, they are not allowing their children to experience financial responsibility.

Different parenting styles

While most parents learn parenting skills from their own parents or by observing others, they will accept some practices and discard others. Effective parenting requires interpersonal skills that can create some emotional demands. Experts in early childhood development say an important dimension of parenting is the style parents adopt when they interact with their children. According to Maccoby and Martin's parenting style typologies, there are four different parenting styles. Depending on the child's character, different parenting styles lead to different results:

1) Authoritarian parenting is a restrictive, punitive style in which parents exhort the child to follow their directions. The authoritative parent places firm limits and controls on the child, and allows little verbal exchange. These parents tend to be very strict and may control the children by limiting their wants and desired wants. In this case, the children may either grow up to rebel' by spending beyond their financial means to fulfil their childhood desires, or they may become very good at managing their money.

2) Nurturing parenting is a style that encourages the child to be independent but still places limits and controls on the child's actions. Extensive verbal give-and-take is allowed, and parents are warm and nurturing towards children. These parents often communicate and teach their children to spend their money wisely by explaining to them the importance of money.

3) Neglectful parenting is a style in which parents are uninvolved in the child's life. Children whose parents are neglectful often develop a sense that other aspects of their parents' lives are more important than they are. Children who grow up in this environment are often deprived of parental love and a sense of belonging in the family. As a result, they may grow up spending lots of money to fulfil their need for love from friends, and from their life partner. Or they may spend money to boost their self-esteem because of the lack of parental love.

4) Indulgent parenting is a style in which parents place few demands or controls on the children. These indulgent parents will let their children do what they want. Children with indulgent parents may often be spoilt by a variety of material things or an impressive lifestyle. The spending behaviour of indulgent parents may condition the children to spend more than they need or more than they can afford when they grow up.

Imagine a situation where the father is indulgent towards a child and provides gifts, toys, fun and pleasure, while the mother, on the other hand, is a disciplinarian with strict rules about gifts, toys, fun and pleasure. Who will the child prefer to be with, and who will the child learn more from? You and your spouse should decide on a best way to handle your children's money expectations. It is important to be consistent and fair to lessen potential family strife.

Communication

According to experts of child psychology, even from a tender age of 2 or 3 years old, a child learns by observation, and from conversations and experiences they have with adults. Hence, effective parenting warrants a tremendous amount of proper learning methods and communication skills. Understandably, today's parents are faced with more issues compared with their parents; the fact that today's younger generation is growing up in an era of media influence, technology advancement and the Internet makes parenting an even more challenging job.

It can be painful for parents to discipline and teach children about saving money, particularly when their children are easily influenced by their friends even as pre-schoolers. This is further compounded by the barrage of advertisements on television and online media that tempts your children with attractive toys, pretty clothes and accessories.

It does not really matter how much money you have or how much joy you derive from showering your children with material things. As parents, you have got to show some restraint and boundary. You don't have to feel guilty about scaling back on spending for your children. Your children may already have more than they need more clothes and shoes than they can wear, toys and games than they have time to play with.

Be mindful that while you are conscious of good money habits for your children, you need to ensure that your children's grandparents, godparents, aunties, uncles, or other adults around them do not indulge them too much with gifts. This may send your children the message that if they cannot get what they want from you, they can get it from them.

Family values 

In some situations, a couple may bring different views and values about money and parenting to the marriage. Because of personality, character, family and life experience differences, couples do face conflicting personal and family issues where money is concerned. Therefore, teaching a child about money really begins with teaching your child about the importance and meaning of life values as a family.

Honesty, integrity, teamwork, helpfulness, trust, love, family support, accountability, unity, filial piety, commitment, communication, sharing, spending time with parents and siblings are some of the most important family values that your children ought to know, even if they may be younger than six years old.

Constant messages to your children about how good family values are important in life, and that money cannot buy such values, are more important than parental love expressed in the form of material things for your children.

Teaching them important life values and let them know that money is a means to an end, and not for self-gratification.

Other than sending them to school to gain knowledge and social skills, the money skills that you teach your children from an early age are the most important life education you can provide them with and it actually starts at home. It is as simple as how you and your spouse manage money and communicate about money at home. Your good money skills will rub off on your children.

May this be your new resolutions for teaching your children good money sense!

MONEY & YOU By CAROL YIP

Carol Yip, founder of Abacus For Money, believes that if people understand their money mindset, behaviours and money psychology, they can be financially happy and successful. She actively promotes financial literacy and intelligence within families and for women, youths and retirees.

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Give but be gracious in receiving as well

IT'S a common enough scene at restaurants, diners fighting to pay the bill. Some say it's a Malaysian thing.

We also know that some people give the impression of wanting to pay and are able to cleverly ensure that the wallet would conveniently stay in the pocket when the bill arrives.

I was having lunch with my wife at a restaurant recently and two gentlemen at an adjoining table, after finishing their meal, did just that. It was quite a scene, though in a good-humoured way, with the waiter caught in the middle.

I was quite tempted to tell them that if they were both so keen about paying, how about settling my bill as well.

I am not sure who paid in the end but it got me thinking about the joy of giving and receiving.
You cannot have one without the other.

And while we may say that it is better to give than to receive, without the act of receiving, you cannot let the other person experience the joy of giving.

Let me be clear here that I am not talking about bribery where it is absolutely wrong to be either the giver or the receiver, even if the corrupt think there is much joy in the process.

It is part of our human nature to give, be it of our time or our money. We feel good when we help someone who is going through a bad patch, donate to a charity or volunteer to teach at an orphanage.

And it is even better when we do all this without drawing attention to ourselves.

A wise saying puts it this way: “When you give to someone in need, don't let your left hand know what your right hand is doing.”

But what about receiving?

People who are very generous in their giving are sometimes highly uncomfortable when it comes to receiving.

Perhaps they think there is an ulterior motive involved.

So, instead of simply saying thanks, they give us the impression that the reason for our giving is suspect.

And then there are those who, even if they receive your gift, will take the next opportunity to give you something back, often of equivalent value.

So, the true spirit of giving and receiving is totally lost here.

A general rule of thumb when we are blessed by someone is to pass on the blessing, not to reciprocate or pay for it.

Because of my stints as a full-time househusband and also working for a charity organisation, it is quite normal for my friends to pay whenever we have a meal together.

Perhaps, out of habit, they still do so and I have to remind them that I can now afford to pay the bill.

Normally, to avoid a scene, I would leave my credit card or money with the waiter ahead of the meal.

Last Sunday, I was having breakfast with two dear friends when an elderly man at the next table recognised me although we had never met before. He was reading The Sunday Star and we had a nice chat.

He said goodbye and then the waiter came up to us and said our bill had been settled. Thank you Mr Wong, I certainly receive this breakfast treat from you with a grateful heart.

So, friends, today as you go out for a meal, remember this. Though it is better to give than to receive, be gracious in receiving as well. You could make someone really happy. There really is no need to fight over the bill.

> Deputy executive editor Soo Ewe Jin appreciates being on the receiving end of kind words, sincere fellowship and heart-to-heart conversations, underscoring the fact that the best things in life are not only free, but priceless.

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Living life by finding fulfilment without landing in debt

ARE you driven by a desire for instant gratification? Today, it has become a norm to splash the cash on ourselves, and it seems to be getting harder to keep in check the urge to spend and spend.

Unfortunately, current gain may mean future pain unless we are in control of our expenses. The good news is that it is possible to stay in charge if we know how to change our behaviour and what tools we need to do the job.



Falling prey

When the latest gadget or fad is in town, our lives seem to turn unbearably dull until we go out and get a piece of the action for ourselves.

We see others enjoying their iPads or Galaxy Note, and feel so left behind because we don't have one ourselves. A few months ago, we had barely spared a thought on it, but for some strange reason, it suddenly feels like we just cannot function without having one. So, before we can check ourselves, we've gone and bought one too, although we may not really know what we want to use it for, except endlessly checking our Facebook accounts.

That is just one among the many temptations around us that are competing for our hard-earned money. Media messages of dream getaways fuel our desire to go to enchanting overseas locations, and we can't wait to blow a small fortune on a holiday it has to be next month or we could almost burst.

Advertisements sell us the idea that we deserve to live a privileged existence, no matter what our station in life. We indulge in fine dining at the drop of a hat. When the stress of our jobs gets to us, shopping comes to the rescue in the name of retail therapy.

No wonder we find that there's a big hole in our pockets. For those of us who have become used to living life large, it may seem strange that not long ago, that was far from the norm. Just one generation earlier, it was quite usual for people to save patiently towards their financial goals, i.e. to delay gratification until they had the money to spend.

Before and now

If they wanted to buy a car, our folks would not simply look for the latest model, but consider what was on the second-hand market. They would save towards a bigger downpayment, to reduce the interest they have to pay on the hire-purchase loan.

The first step was to save, not seek enjoyment. They kept money aside for education and important financial goals. The habit of accumulating savings was strongly ingrained in them. Sadly, that is virtually non-existent now. If you found yourself in a deep level of debt, this is a habit you have to re-learn in order to regain control of your finances.

For sound money management, delayed gratification is a key behaviour to adopt, while instant gratification can set us on the road to serious financial problems. Worse yet is “advance gratification”, when we spend money before we have earned it. Seeking instant enjoyment is not as bad. It just means that we cannot keep cash and spend it as soon as we have it in our hands.

Today, with the massive use of credit cards to pay for high lifestyles, we are in danger of being buried under consumer debt. This is a growing problem which is being seen particularly among the young.

In the past, a person who had no savings was seen as someone with poor money management skills. Now, it is quite common for people in their 20s and 30s to already be in debt to the tune of RM30,000 to RM50,000. Addressing this problem requires a change in mindsets.

Not so long ago, a person entering the job market would use the bus or get a second-hand motorcycle for about RM2,000 to RM3,000. Purchasing a car would be delayed until after about five years of work. Even then, it would probably be a used car costing between RM10,000 and RM12,000.

Today, many young people expect to drive a car before they work, usually looking to their parents for financing. For better money management, this expectation should be replaced by the habit of delayed gratification. If the young learn to save towards the car they want to drive, they can avoid building up a heavy burden of debt. Taking the LRT or commuter train can be among the options.

Growing materialism

The easy availability of consumer credit can contribute to debt accumulation becoming a larger problem for the economy, as is seen in debt-driven societies like the United States and some European countries. The Malaysian authorities can avoid the mistakes of those countries by taking further action to tighten lending rules.

Personal debt management problems are closely related to another trend in society today growing materialism. The idea that happiness depends on the number of material possessions we have appears to be stronger as time goes by.

More than ever, we now need to rediscover the value of non-material interests such as watching the sunset, jungle trekking or volunteering our time in order to find happiness and fulfilment in our lives. We need to find a balance between material wealth and life-enriching experiences that are not measured in monetary terms but build our self-esteem.

For most of us, the amount of money available is limited. In fact, there is never enough for anyone. If we change the way we look at ourselves, many of the problems associated with excessive spending will be resolved.

Instead of dining out at a fancy restaurant, we can have a fulfilling meal at home with our families and enjoy the warmth of their happiness. Instead of spending on more clothes, we can save the money for a good end. Instead of splurging on an expensive holiday, we can find joy and accomplishment in playing a musical instrument.

These are values that adults can inculcate in the young that will pay dividends all their lives. Perhaps the current debt crisis is a reminder to pay attention to the lifestyle choices we unwittingly teach the young.

MONEY & YOU By YAP MING HUI -Yap Ming Hui (yapmh@whitman.com.my) is an independent financial advisor. He is the managing director of Whitman Independent Advisors

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