Very informative posts by almost everyone here, offering advice to the needy.

I am also in need of advice in financial management, but I prefer to have it done in private. I see many good financial advisors here.

Reason why I do what I do now is that there's a shift in my life (for the better) and I think, before I commit irreversible mistakes, maybe I should get my sh1t together. (I screwed up a lot last time)

If you would think you can be a great help in mentoring a green fish here, I'd be really glad to share. I'd even reward you, with money or by other means haha. I mean, I'm allowed to let my savings to be partially monetised as a mean to thank you right?

Cheers!

read some where else too.. and not 1st time this questioned been asked.. but i am still not knowledgeable to catch the point.
Perhaps some one can enlighten me with an example / simple excel comparison?
Eg: housing loan 4.2% vs ASx 6% lyn forumer told me by putting in ASx i can even earn 1.8% interest (6%-4.2%). just simple calculation.
Always saw ppl mentioned about simple interest rate, effective interest rate, complicated formula, etc. i am not in finance field, i got confused.

from this statement...
"ASB loans are basic term loans, and interest charged on (ASB loans is calculated using the reducing balance method similar to those used by Housing Loans and Fixed Deposits)"
https://loanstreet.com.my/learning-centre/a...loans-explained

thus if the type of loan is that same.....thus the maths is clear?

Hey all,
Seek your views on my plan to consolidate my loans.
I am planning to do a top up loan on my housing loan next year when I get VP.
Existing home loan is 355k, and hoping to get 450k, 95k top up. (subject to valuation)
Currently serving the interest, and post-VP, I will be paying RM1626.00 @ 4.5% interest

I got a RM60k PL (was 100k, then I refinance at 16th month and paid some amount, down to RM60k). Outstanding of RM57k
I've been paying this for 9 months already, and got another 111 months to go. RM690.48/m @ 3.81% interest

HP with outstanding balance RM46k (Probably 42k if want to settle now) and currently on 19th month. 65 months to go. RM711/m @ 2.77% interest

So total loan id be serving upon VP is 711+690.48+1626= RM3027.48/m

I plan to do the top up loan so that I can pay up the PL and HP.
This would reduce my monthly commitment to RM2300/m (for the 450k home loan)
Difference of RM727.00.

Worth it to do the top up?

I plan to further my studies and work abroad, and my side business/passive income can cover that no problem. Wanted to focus on one account instead of 3 (and few others) for better management.
Also got cash to pay either one full (HP/PL), but prefer to keep for my study budget.

This post has been edited by Musikl: Jul 16 2018, 03:54 PM

- Balance transfer, if not mistaken, refers to transferring the outstanding balance of one credit card to another.

"most of you advise to settle the PL asap"
No, any loan is an agreement... there could be penalties in terminating it immediately. See below on how much it would cost to fully settle it at once.

What is recommended is knowing what you are getting into when taking a personal loan. Think of it as necessity which you need to have... just borrow what you need to have, and not too much but just enough... and pay it back every month at the highest amount you could possibly do.

This will ensure that you borrow the lowest possible amount you need to borrow, and pay back the whole loan at the shortest possible time... and ultimately paying lesser cost of interest.

(Any "good" bank officer will offer you the highest possible loan he is allowed to, and the longest tenure possible... disregarding what you really need, and how much you can pay every month. Don't be tempted... )

- The major thing to know about a loan is whether its interest is calculated on a reducing balance or on a flat rate. (Google them for more details.) The interest on housing loan is calculated on a monthly basis on its outstanding balance.

The interest on a car (hire purchase) is calculated upfront based on the loan amount, number of years, and the interest rate, by mutliplying these 3 components.

- To settle the house loan immediately in a lump sum payment, you just pay the outstanding balance as stated in the monthly or annual statement issued by the bank.


- To settle a flat rate loan such as personal loan or car loan, you need to check with the bank as the outstanding amount to settle is not as clear cut as a reducing balance loan. (Google rule of 78 for more info.)

Do you mean which loan is less costly? To compare which has the lower rate of interest, Google an online calculator to convert the flat rate interest to a reducing balance rate of interest.

The above comparison is only good when you have yet to make the loans. To fully settle one loan and consolidate it to another loan, you will need to figure out what is the actual lump sum amount you needed to clear the 1st loan. The actual savings made might be just a small amount and not too significant.

What is more significant is the total installment amount that you can pay back every month.

What is the best/good finance sofware you guys are using?

Prefer: Online type / Web based with app too

Great explanation. What's your opinion on leverage to get highest tenure for a lower payment monthly so that the leftover money can be use to invest instead?

Generally I would said top up HL and settle PL. Generally, effective interest rate for PL is higher than HL. However, if you are planning to study and work abroad, you have to consider whether you want to reduce your fixed commitment or have extra cash. You have to consider how soon you can get a work abroad, what is the income whether it can sustain your cost of living and etc.

If you are only paying interest on your HL, have you consider what is the future P&I payment would be?

1. Leverage is the use of borrowed money to make an investment.

2. It is common and not unusual to take a loan and use leverage to expand a business; such as taking a hire purchase loan to buy a new machine to increase production.

3. As this thread is on personal money matters, the type of investment usually referred to would be buying shares or mutual funds or some other investment schemes.

4. “Leftover money” is spare money or in other words, savings.


“Get the longest tenure for a lower monthly payment… so that there is some spare money to invest?”

In other words, you are asking whether you have the spare money or savings from your monthly salary to invest into shares, mutual funds or some other investment schemes.

As mentioned in the previous post, loans can be viewed as a necessity. Borrow what you need and make the monthly instalment the highest amount you could afford to pay. The loan amount and the instalment amount will determine the tenure.

Simply getting the longest tenure that is available shows that you don’t have a monthly budget on expenses. Yes, setting aside spare money for “investment” can be part of a monthly budget.

So, the monthly expenses and expenditure determines the best instalment you could afford to pay every month, which in turn determines the loan tenure. Not the other way… by taking the longest tenure so that you afford to invest.

The latter would be very close to using borrowed money to invest.

=========

If after careful determination of the loan amount and instalment, and it turn out that the tenure is the longest tenure, it would then be ideal to review the purchase and rethink whether you could afford the purchase – whether it is a house or a car or a holiday vacation - which necessitate the loan.

=========

“Using Borrowed Money to Invest.”

Bear in mind that a true investment never guarantees its returns. If it does guarantees its returns, it is usually a scam. Stay away.

Borrowed money has interest cost. The returns of the investment will have to cover this interest cost. So, what is left after this interest cost is deducted is the net return.

The question to consider and ask to your own self in using borrowed money to invest: “Do the net return commensurate with the risk taken?”

Of course the investment risk is no lesser when using own money.

The difference between using borrowed money and own money is this: own money is your spare money that you had spared for this investment purpose.

If the investment turns bad and loses money, the money is spare money you can afford to lose, and you can forget about it.

Borrowed money is not your money that you can afford to lose. And you cannot forget about it since you need to pay back the borrowed money (plus interest) to the lender.

So another question to ask your own self is this: “Am I confident and sure of the investment such than I am willing to borrow money to invest in it?”

Hi Mr J, foremost, thank you for the sharing!

Let say one can afford a house and its within its budget or based on the affordability calculator, isn't it better for the person to leverage by financing 100% of the loan and pay the least so that he can put the money to work(earning more than the interest paid)?

Its unrealistic at first to pay up so much cash upfront for a big loan and if the tenure is shorter means higher commitment every month (less cash flow). This might be for those with cash excess but even the rich are leveraging rather than paying cash (except for supercar probably).

Its still the person money(not borrowed) and he/she has allocated a percentage for this purchase. Just trying to imply on putting the $$$ to work instead of just paying off.

Do you realise that paying off loans is putting your money to work?

The easiest and safest method to put your money to work is by putting it into a fixed deposit. It is working for you since it will generate a return for lending your money to the bank.

This “return” is called “interest”. And the interest will be paid as it was promised to you by the bank when you placed the fixed deposit.

The next level of making money work harder is paying off loans. The interest on the loan is higher than the interest on the fixed deposit; and the interest to be paid is as promised by you to the bank in a written document.

The next level up would be putting your money into shares, mutual funds or some other investment schemes as mentioned in the previous post. These upper level investments do not have any guarantees on the returns. They have investment risks. (Do re-read the previous post.)

So which level of putting-your-money-to-work is up to the individual; as it depends on how much savings he has, how much money is flowing in every month (his salary and income), what are his needs and expenses, does he have a family and other dependants to support financially, his investment acumen and how he handle or able to take on investment risks… etc. etc.

Lastly, it is not “unrealistic” to “pay up so much cash upfront” to lower the amount to borrow if the spare money is sitting in cash in your piggy bank or sitting in a bank in fixed deposit.

If there is any better usage of the money (as in using it to ‘invest’), there would not be any ‘spare money’ as it would have been or about to be invested, wouldn’t it?

It is more prudent financially to have a higher installment (at the highest level you can afford to) than purposely lower the installment to have more excess money - only to have the excess money sitting ideal as cash or placed in a fixed deposit.

More often than not, the idea of having excess money in reserved in case of any investment opportunities is just an idea.

========

P.S. And not to forget that when we purposely lower the installment amount to have excess cash, this excess cash is rolling in every month… and it will be sitting ideal and not ‘working-for-you’ unless there is plan to invest it regularly every month.

So it is a sort of which comes first situation– the chicken or the egg?

As stated previously, if there is investment plan in mind, this investment money is already accounted for and the installment amount is at the level we can comfortably pay and it would not be deemed as purposely lowered to have excess money to invest.

How much to spend on a car?

The rule of thumb usually quoted in websites on how much to pay on a car is the 20/4/10 rule. That is 20% down-payment, 4 years loan, and monthly instalment of 10% of salary.

It is not applicable to Malaysia since we have high excise duties on our cars. Using this rule, we won’t be able to buy anything!

We are paying more on cars. For example, while an American or Australian would be paying 4 to 6 month wages on cars, it is about 10 to 15 months of our gross salaries on cars.

Say, the gross salary is $5,000/month or $60,000/year. (Yes, I can use the dollar symbol. Don’t forget that our currency is in dollars and cents.)

The budget on a car for an American is $20,000 to $30,000 (4 to 6 months). For us, it is $50,000 to $75,000 (10 to 15 months).

The rule of thumb on a first car would then be appropriately revised to 20/5-6/15-20. That is 20% down-payment, 5 to 6 years loan, and instalment of 15% to20% of salary.

If the lower range 20/5/15 is used, the budget is $48,000. (Perodua Myvi ??)
Salary = $5,000.
15% of salary = $750.
20% down-payment = $9,600.
Instalment on 3.2% interest, 5 years and $38,400 = $742.

If the upper range 20/6/20 is used, the budget is $75,000. (Honda City ??)
Salary = $5,000.
20% of salary = $1,000.
20% down-payment = $15,000.
Instalment on 3.2% interest, 6 years and $60,000 = $993.

=========

Above is for a first car. I think for a 2nd car with trade-in value on the 1st car, the loan period should be down back to 4 years. If a longer loan period is needed to lower the instalment, then maybe a rethink is needed whether you really need to spend so much of your hard-earned income on a car.

This post has been edited by j.passing.by: Sep 21 2018, 05:35 PM

Can anyone share how you leverage? Ie borrow money to make money. Aside from using it for business, that is. The only other example I know is ASB loan

share margin financing and property mortgages?

The most simple answer. Buying properties. No way regular folks can fork out RM500 to buy a property, so you take loan. That's leverage.

Another example you have RM10k
Without borrowing money, you can only buy say 10K of stock if it's price at RM1/shares.
But you can borrow from your broker say another RM10k.
Now you can buy 20k shares. If the share price increase to RM1.10 and you sell, you pocketed RM2000 (RM1k from your own pocket, another RM1k from the broker. Vice versa can happen to. If it drop to RM0.90, you have made RM2k loss.

Next way is call shorting. You borrow 10k of stocks at RM1/share. You agree to pay back the stock BROKER 10k share. You expect price to fall. You sell the stock at RM1/share. Pocketing RM10k. Price drop to RM0.90/share. You can now buy back the share at RM0.90 and sell back to the broker 10k worth of share as promised.

Other than ASB loan & direct properties investing:

a. 0% $0 cost 6-12 months credit card balance transfers musical chair, when U can pay off. Thus, put cash into FD/Flexi-mortgage/Money Market or if adventurous, 5-10% into REITs with the balance in Flexi-mortgage/Money Market/FD

b. 9 years' car loan with effective rate of 5.3%pa, when U can buy with cash. Use part or all of the cash in SGX listed REITs, spread amongst countries & sectors, with "low enough" gearing & "high enough" net DY% (eg. 7.5%-8%). While waiting for the opportunity to buy, can plonk into Flexi-Mortgage (costing me 0.7%pa) or ASB (if i'm bumiputera)

c. Savings into flexi-mortgage prepayment & re-draw when stocks/REITs/properties are on sale / "worthwhile".

d. US stock options - selling PUTs for stocks i want to buy & at the strike-prices i want to buy at, thus get paid premiums while waiting & leveraging on my cash in the account.

There are others like futures, forex, etc but i don't actively do those, thus dare not share
Note - some folks may not think re-drawing from Flexi-mortgage as leverage but it is to me, it is a debt creation if i take out the $ for investments.

This post has been edited by wongmunkeong: Oct 16 2018, 08:49 PM

excelsheet. with a lot of programmed formulae.

old school.

same here - nothing beat the longevity (apps come & goes, then data how) + flexibility (data analysis after capture) of spreadsheets like Excel.

Yeah,... same here too,... I create my own spreadsheets too, but need to learn Excel skills,...