You don't really need a financial planner when common sense applies.

Higher downpayment and shorter loan tenure = less interest paid is true.

We take as much loan as we needed to - not more, not less, just adequate; just as we buy something we truly need, we buy enough and not frivolously more than necessary.

First, think what you need to bridge the gap between owning the house and what you have in hand. This gap is the amount you need to borrow from the bank.

Then think how much you can comfortably afford to pay every month back to the bank.

(One may do a bit of projection into the next few years like salary increment or job promotion, and have slightly more added into the installment amount, and this means a tighter monthly budget till the increment or promotion.)

You then approach the bank with the loan amount you need to borrow, and the installment you could afford and like to pay every month. With these 2 figures, the bank can work out the loan tenure; and you won't be distracted by any offers for a bigger loan or longer tenure or what special promotion they have.

=================

If we could only afford to buy with the most minimal downpayment and the longest tenure available, maybe we should think again whether we can really afford the house and whether we should wait till there are more savings and continue looking for the right house at the right price.

So what is the right house at the right price? According to some financial rule of thumb, it is about 2.5 times the annual salary; monthly installment of not more than 36% of your gross monthly income, and at least 20% as downpayment.

http://money.cnn.com/pf/money-essentials-home-buying/

Can these rules of thumb apply to Malaysia? Maybe, maybe not, or maybe they should be adjusted a bit like 3 to 3.5 times the annual salary, monthly installment about 30-40% of net salary, and 15-25% as downpayment. The adjustments should not be too far off the rules of thumb.

Good luck, and happy house hunting.

It is called income distribution; there is an option to either have it reinvested or cash it out. If you do the lattter, then it is a source of income.

If you are retired and you depends on this income, it is very likely that your UT portfolio would consists mainly of income funds - that is bond and money-market funds, as well as conservative equity funds that have annual (or regular and fixed) distribution policy.

Guide you what? Morally or financially?

Since this is a personal financial thread, and contrary to what some would think, it is not about personal loans. It is about budgeting one's salary to live within the salary.

And it is also not about how to do investments, as 'investment' has a wide interpretation and open to all sorts of ideas and opportunities which usually are discussed under its own individual threads, like setting up a bird nest house, selling at pasar malam stall, taking a franchise, opening a budget hotel, etc etc.

So, personal finance is about managing one's living expences and the leftover of the salary - which is the month savings; and how best to manage the savings.

So, first things first, S$10k in about 20 months is about S$500/month, would only looks good when converted to ringgit. Is this S$500 your monthly savings every month without fail?

Can it be more? What amount do you need to set aside for some festive annual expences? What amount can you set aside for long term, ie retirement when you are no longer working and depending on it as a source of income, to supplement the money in CPF or EPF? What amount of money do you had in mind for the next several years, like for marriage, funding the deposit for a house or a holiday?

And most of all, how much money do you need to put aside - money that will not be touched, in case you lost your job and this money will tie you over for at least 3-6 months (depending on how fast you think you can get another job) while being jobless?

Think about these 'savings' first... then ask again on how to manage* the savings.

(* I'm using the word 'manage', as oppose to 'invest'. Pointless to point out all the investment opportunities in the world if they are not open and accessible to you.)

I find it strange that there is no CPF contributions under Work Permit... maybe there is more than one type of WP. Anyway, you are at a lost without CPF as the employer is not paying you more than your take home pay.

When comparing to your peers and how they are doing, and how they are spending their incomes, then be aware that they have EPF/CPF... can't simply follow the Joneses...

Do you have access to ASB unit trust? Do some research on it... it is a good place to put your savings.

This post has been edited by j.passing.by: Jul 29 2016, 12:27 PM

There is no free lunch... meaning to 'make your money work harder' = getting higher returns on your money => taking higher risk => putting money into riskier financial tools such as unit trusts.

You can't expect much from fixed deposit. Rates in FD are dependent on the country's currency which is linked to its inflation and its political/economy environment.

Take a look into this list of rates from across the world... http://www.deposits.org/world-deposit-rates.html (Check the fd rate for Singapore... )

People opens accounts in Singapore for various reasons, it does not mean they are "well planned". Some put there as emergency funds and safety reasons - not for gains, as in the recent news of Indonesia exhorting its high networth citizens to repatriate their money back to Indonesia.

Financial management has no one size fits all formula. There is no formula such as putting x% in gold, y% in foreign accounts that will fit everyone. Having 500k is different from having 50 million.

This post has been edited by j.passing.by: Aug 4 2016, 12:33 PM

Higher risk => higher returns... and there is no such as 'guarantee profit'.

If you want to know more about unit trust funds, read more and do some research on your own... there are a couple of UT threads within this forum...

(BTW you can consider taking one step at a time.... FD, then bond funds, then equity funds... but before this, clear any credit card outstanding balance and personal loans - as their interest costs is higher than the possible returns from UT.)

Yup, F1 - Formula One for all.

Spend and live within your salary.

... the harder part is making sure your wife does the same too.

( will I be getting flames for that last sentence? Well, maybe not - they are out shopping, not reading financial forums... )

None...

First, you need to separate the essentials from the discretionaries in your monthly expenses. For example, the 1st 5 items in your list of expenses would be your basic essentials that must be catered for every month.

These items totaled to $1250. So there is a monthly balance of $800 from your net income of $2050.

1. I would try to pay back the loan from the friend as soon as possible; if cannot in 1 payment, then pay back in 2 payments.

2. As for credit card(s), I would try not to pay the minimal, as it will incur more interest and a longer time to fully clear. I would add some extra amount, as much as I could do so.

3. If possible, I would also try to slowly built up some savings for both unexpected and foreseeable expenses in the near future. So that there won't be any more (embarrassing) borrowings from friends to meet my expenses.

Old news updated...

94,400 Declared Bankrupt Since 2013

MORE than 90,000 Malaysians have been declared bankrupt since 2013, with almost 97% of them failing to repay instalments to financial institutions.

From 2013 till August this year, the Malay­sia Department of Insolvency recorded a total of 94,408 people who were declared bankrupt.

“About 91,180 were declared bankrupt as they failed to repay instalments for financial products, including vehicle hire purchase loans, personal financing, housing loans, business loans, credit cards, social guarantors and corporate guarantors.

“People failing to repay hire purchase loans ranked the highest at 27.57% or 25,137 people,” said Minister in the Prime Minister’s Department Datuk Seri Azalina Othman Said in a written reply to Datuk Che Mohamad Zulkifly Jusoh (BN-Setiu).

Che Mohamad had asked for the statistics on Malaysians being declared bankrupt.

Azalina said the lowest category of people being declared bankrupt were those who stood as corporate guarantors, which is 3.24% or 2,954 people.

https://www.thestar.com.my/news/nation/2017...upt-since-2013/

========

Old story... take this loan, take more loans, looking for ways and contacts to get more loans... ends up not able to pay the monthly installments.

Question: Why take the loans?

Answer: Must take lah.... otherwise how to survive!



This post has been edited by j.passing.by: Nov 2 2017, 04:01 PM

"Q: Will she be economically better off settling the car loan?"

She will still be the same, with same net asset and liability. Neither poorer nor richer.

Yes, simple math can shows which loan is more costlier. (First, convert the flat rate interest in the HP to reducing balance rate as in the house loan - for apple to apple comparison.)

But one should do all these maths before getting the loans.

After getting the loans, then it is a whole set of different calculations because the loans are agreements or contracts. There are penalties and extra fees to pay in breaking them.

While a housing loan will show the outstanding amount if it is pay in a lump sum, a car loan do not. In paying off a car loan in a lump sum, the rule of 78 applies. Or we can also use an online calculator as you indicated in above post.

A better question to ask is: "Is she willing to use the lump sum to settle the car loan or keep it at her disposal for any urgent needs?"

Having the lump sum at her disposal could matters more than the chump change saved in settling the car loan.

===================

Actually, quite a few of the queries in this forum is similar in nature.

All wanting to know how much would be saved if converting one type of loan to another, or how much would the gains be if money is taken out of flexi house loan to invest.

IMHO, this is like putting the cart before the horse.

It seems like people are taking the loans first, then think about it. When talking to the bank loan officer or agent, it seems that the objective is to get as much as possible, and the longest tenure as possible.

Common sense already told us that loans comes together with interest. The highest loan amount at the longest tenure possible will incur the highest cost of interest. And this interest will be paid back in every monthly installments.

If we view loans as a necessary expenditure as like other things we have to spend, then we should be careful in not having too much loans. Just like we don't buy things more than we need, since it is wasteful.

So, how much to borrow without being too much?

The simple answer: how much can you afford to pay back every month without fail and yet it is the highest amount you can bear to do so?

Ask yourself this: The highest amount you can bear to pay back every month in the monthly installments.

It means that you are doing all you can within your best abilities to pay back the loan soonest possible.

Which in turns mean the correct balance between the loan amount and the loan tenure that you should have. Which in turns mean the lowest possible cost of interest.

If you are already having a loan with the lowest possible cost of interest, then you are already spending and using your money in the most possible efficiency manner you can possible do.

At the end of the day, out of your salary, you will be using part of the money on food, sundries, housing loan, car loan, etc etc. And every ringgit is used as efficiently as possible.

If there is any balance or savings left, then you are free to think about how to use it wisely. You don't have to re-think whether it is better or not to settle this loan or that loan first, or whether or not, it would be better to invest it or use it to settle any loan.

Always keep it simple, and think of loans as a necessary expenditure. Think of it as part of a financial plan too, so that you can stick to the agreement/contract with the bank.

Lastly, don't break the agreement... even if you think you can get another better offer from another bank. Don't.

Don't overestimate yourself that you can outsmart the bank with hundreds of well-paid financial professionals under its employment.

Maths is putting numbers into logic and rationality. If you can reason out the problem, then it is already partially solved on its own.

You already got the answer on your own. Either using the online calculator or the excel worksheet shown in above post, it is about $51,000 to settle the car loan. And the savings in interest cost is about $5700 or $5954 from either calculations.

This $51k is taken from the flexi loan, which if it were to remain there, it would earn interest of 4.15%.
If it remains there for the other 46 months, it will get a return of 51,000 x 4.15% x 46 / 12 = 8113.25

So, you save $5700 (or $5954), but lose $8113.

Why you would lose more than you saved? Because the cost of interest in using the loan facility is not in proportion to its usage. You are paying much more interest at the beginning.

(It is like travelling on a toll highway that charges you a very high fee per mile for the first several miles and gradually reduces the fee as you travel further.)

Actually the math don't end here. You can continue on further with the numbers. Since the car loan is fully settled, and no longer need to pay the car installment every month, $1235 is freed and can be placed into the flexi account to earn interest.

If this is the case, then the interest earned would work out to be about $4865.

So, the final figure: 5700 - 8113 + 4865 = 2452.

You gained $2452, over a period of nearly 4 years.

Chump change when compare to the total salary earned in 4 years.

This post has been edited by j.passing.by: Nov 7 2017, 01:02 PM

The important thing to keep in mind is the difference between a flat rate loan (like a car loan) and a balance reducing loan (as in a housing loan). The other matters in the posts in the previous page are surplus what-if scenarios.

The what-if scenarios as like case studies in business classes are, sometimes, not grounded in practicality. Often, the info is not complete. Hence, there is no singular right answer.

How did the 51k comes about? Was it easily saved, or did id take a number of years? Is 51k a lot of money in respective to the annual salary?

Why is there 51k in the house loan? Was the flexi loan purposely lengthen to have a lower monthly installment amount so that the borrower can now deceived himself/herself that he/she has extra 'savings'?

(Which would inadvertently increases the cost of interest, if there is no extra 'savings'.)

If the tenure is purposely lengthen to have a lower monthly installment with an objective of having extra cash to seize any investment opportunity if and when it arises, why is there a sum of money slowly building up? No opportunities or the right investment to invest into? Just wishful thoughts, at the expense of incurring more cost of interest?

All these questions, only we our ownselves can answer. No right or wrong answer. This is personal cash-money financial management forum. Not a maths class!

To each his own. Or as we said it locally, 'your money, your funeral'.

I see that you have left out the RM700 investment plan, so you have savings of 50% out of your salary. Good...

Maybe review the investment plan, and group it together with the other RM500 as monthly savings for consideration.

Ideally, one should have some long term objectives as well as short term objectives. Then split the savings accordingly to the objectives.

Not every ringgit we earn need to be in "investments" to gain returns.


Having a personal debt means that you are living beyond your means/income; that whatever income you are having is just adequate for the monthly expenses, and you might have to resort to loans to tie you over if there is any extraordinary unforeseeable expenditure.

I’m saying this because what you wrote was contradictory: “monthly savings RM 1,500 – RM 1,600” and “currently don’t have savings…”

Maybe you meant to say that there is some balance from the monthly income every month… but by year end, these monthly balances are used up for some other expenses.

Health/medical insurance: you need to be clear whether you really need to have any insurance. There is no formula or average statistic on how much one must be insured, so don’t follow blindly or believe that “personal finances” must involve medical insurance just because you have read it somewhere or maybe it was popular opinion that one must set aside some budget for insurance.

Buying a house: this is a big ticket item, if not the biggest purchase in our lives; and we cannot be too hasty in making it happen. Make a monthly budget, and see how much you can save for a number of years first.

If the intended housing loan is about 1,800, I would target at least 2 times the amount to save every month for at least 3 years to be sure I can service the loan easily… that I am not living beyond my means every year.

One should have some savings just in case of retrenchment, so that the monthly loan payments can still be paid promptly.

-----------

If the nearly 11k debt is on credit card, don’t pay the minimal but the max that you can afford to. Paying more every month will reduce the interest charges.

If it is a personal loan with a fixed monthly repayment, carry on… not much one can save by changing the loan.

This post has been edited by j.passing.by: Mar 1 2018, 03:02 PM

Passive income refers to dividends or interests or profits earn from passive investments such as stocks, unit trusts, EPF or fixed deposits.

It is quite impossible, in the short term, to get an adequate and sizeable amount of dividend from these passive investments since it takes many, many years of savings to build up a big enough principal or capital to generate the dividend.

Say if you need 1k of passive income every month, and the dividend is about 10%, the capital will have to be 120k to get the income of 12k in a year.

And this dividend of 10% is an assumption. Statistically, the best possible return from equities and unit trust funds is about 8%... and this is the best. To be on the cautious side, it is wiser to use 6% and the capital is set at 200k to generate the passive income of 12k per annum.

To get higher returns with limited capital, it will be either riskier investments with active trading (trading forex, bitcoin or in stocks) or small businesses with active participation (pasar malam stall, burger stand, etc).

Or get a better job with higher pay… which requires no capital, and needless to say, don’t have to build up any capital from any savings.

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To Curious,

To help your sister, it would be easier to give her a few hundred or half of the monthly leftover of RM500. Keep the other half as savings for a rainy day or any short term needs that you wish to have.

Get a better job that commensurate with your qualifications… as it is currently, you are at welfare level and qualify for BR1M.


==========

To Leon,

Well, you need to rethink your expenses and lifestyle. Earning more do not means we need to spend more. My first job’s pay was lower than Curious, and when I reached your level of income, I managed to keep the expenditure in check and was saving not less than 50% every month.

The first thing you should do is pay the credit card in full every month.

Then take one step at a time on other things…

Paying rm900 rent is not comparable to a housing loan of an equivalent amount as you would then be a house owner with other yearly expenses and maintenance cost.

Make a monthly budget and see how much you can save in the next 2-3 years… review and adjust every several months or so.

Make the savings… make it happen… else the plan is just a pipe dream.

Passive income can be short term of several years too.

But as said the percentage of interest or return is low… and together with your low capital, the return in ringgit may not be significant enough to make any difference to you.

Say, you put rm500 into FD (of 4%) every month from this month until Dec, the total savings is rm5,000. The total interest earn would be around rm92.

The total interest earn of rm92 may not be significant enough to make any difference to the total savings… after taking the trouble to putting rm500 every month into the FD.

You could also add another rm10 to the monthly savings, and the total savings at the end of the year would be the same; and you would also have saved the trouble of going to the bank, or if eFD, using the internet to go online.

Similarly, if you go into a unit trust fund for a higher return, is the higher return worth the trouble?

It has risk with no guarantee on the return; while with FD, the return is guarantee as stated on the FD certificate.

You could add another rm20 to the rm500 (by easily cutting down on some food or drinks), and the total amount at the end of year would be more or less the same as if you have invested into the UT fund every month.

And more important, you have arrived at the same amount without facing any risk at all, and the trouble of doing any reading/research on which fund to buy and how to purchase it!

On the other hand, if the financial goal is long term (of several decades), then putting the monthly savings into a financial vehicle that gives returns – no matter how low the returns are – can make a significant difference to the final total amount. Because ‘compounding interest’ takes a long time to work its magic.

==========

So, back to your situation and question “… point me in d direction of investing the RM500 to get returns in maybe a few years time?”

Put it into fixed deposit. No risk, no worries, no fees.

==========

- PRS scheme: there is upfront service charges, and exit penalty if withdraw too early. Not for short term.

- EPF: no upfront fee or charges, but can only withdraw at age 55/60. Good for long term.

- UT funds: Upfront service charges, no guarantees – in a few years time, the total amount can be more and can also be less than what you can get from FD.

If you want to know more about unit trust funds, see the Fundsupermart and Public Mutual threads.

Not easy to voice any reasonable opinion when the numbers don't add up. 35yrs old and only 10k in savings even though salary at 6.5k?

If you are just starting to have a budget listed down and are trying to maintain it every month, then let's talk about it 6 months from now. There are usually 2 things the budget will not go as planned. 1. The discipline to maintain it. 2. There could be extraodinary and annual expenses that were not taken into account.

"- make full settlement for PL by taking another PL so i can save more"
You can't be serious. Taking another PL will only extend the loan tenure and add more interest. There will be no savings at all.

"- maintain regular saving... (to) pay full settlement for my 2nd PL"
Your thoughts are going around in circles... and going nowhere. If one have savings, then there is no need to take any personal loans. A personal loan is to spend first, then pay back in monthly installments. Plus interest.

"- then start saving for house deposit or new car. This is what bother me much coz my tenure will reduced as i get older."
As discussed in one of my previous posts, there are 4 components in a housing loan. Apart from the down-payment and tenure, there are the monthly installment and the value of the house. You will have to look into this with more details to determine the type of dream house you can afford to have.

You will have to set up the numbers first so that there is a goal to target. Make them reasonable and practical so that it is not an impossible goal to score.

(World cup is still on my mind... rooting for Croatia tonight.)

This post has been edited by j.passing.by: Jul 15 2018, 03:49 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.

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.

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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.

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“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?”

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.

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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.