Pay attention to the amount you can reduce for medical checkup, parents’ medical, sports equipment, books, computers, travel allowance, etc. Those are some of the things that we normally use but forget to declare when submitting our tax form. You can save quite a lot from there.

Well, to be honest with you, saving is not really that difficult. Even if you can only save 5% of your monthly salary, it is still good enough. The ideal case is of course to have 10% or more, but any saving is better than no saving.

So to get you started, here are some simple ways you can do to come out with that 10%.

• Cut down on your WANTs. This is important. The things that you want can be very expensive – fashion goods, gadgets, cars, etc. These things can take away a large sum of your money. Try to cut them down as much as possible. It’s okay to have 1 or 2 WANTs…. but a warning to you, don’t ever fall into the trap of having too many WANTs.
• If you always have no money left due to debts, then clear or reduce them as much as possible. Credit card debts should be the first to clear. Also, try to refinance your loans and see if you can get a better deal. Once your debts are cleared, you should have sufficient amount of money to save up – provided you don’t go get another debt!
• Start to cook at home. Eating out is expensive – the food, the parking and the fuel. Furthermore, it’s healthier too.
• Minimize expensive activities such as movies, clubbing, meals in posh restaurants, etc. For example, if you are a regular Starbucks customer, cutting down 1 cup of coffee per week can save you around RM 50 per month. That is already 1% of RM 5000 (average salary for Malaysians).
• Get some side income such as earning money online, get some part time jobs, freelance, etc. You need to sacrifice some time to earn, but I feel it’s worth it in the long run. But only do this if you are sure you won’t neglect your day job.
• Remove your credit cards. They can be helpful if you know how to use them but if you are the type of people who can get tempted easily, then stop bringing them out. Credit card debts are the type of debts which bring a lot of people down.
• Travel by public transport or car pool. You can really save a lot there, even though you need more time to commute.

Some may argue that the amount of money saved using the above methods will not be much….well, I think it really depends on your lifestyle. Also, I can’t stress enough that any saving, even 1% of your monthly salary, is better than no saving.

Just always remember to control your own WANTs. Know your limits, and your financial condition. Don’t wear a hat that is bigger than your head.

So what do we do when we don’t understand such things? We leave it to the experts!

Unfortunately, experts are being called experts because of few things and one of them is that they don’t come cheaply. So we end up paying some of our $$ in order to have these experts manage the complicated stuff for us.

To be honest, I feel that all these new types of investment only benefit none other than the financial institutions and the people working for them. For an investor, the return has been lowered due to the number of layers which appeared out of nowhere, in between the investor and the money they invest in (the experts are in some of the layers). The more complicated an investment type, the more layers there will be, and the more money they will charge you.

So most investors end up in a dilemma, we are paying people to reduce our return of investment. And then we start to complain about the low rate of return. Yet, most cautious investors do not dare (some are lazy) to venture outside and control their investments themselves.

What’s next then? Well, my advice to you is simple. If the financial system comes out with very complicated things, and if you cannot understand, then don’t go into it. Don’t ever pay someone to manage for you because the return of investment will be so low that, well, it’s better to just pump into Fixed Deposits. If you want better return, then manage those investments yourselves unless you are so rich that you wouldn’t mind those additional charges. But that’s another issue altogether.

Conclusion, manage your own investments if you want better return (higher risk though so you must know what you are doing) but if you prefer to let the experts handle things for you, then be prepared for very minimal returns.

For me, a financial adviser should never be blamed. He is, after all, just an adviser. And by saying financial adviser, I do mean anyone who is able to help you with your financial planning. The person does not have to be a qualified person or a CFA holder. He can be your stock broker, your family members, or even your friends. But no matter who the person is, it is not easy to find someone who can be your financial adviser….the right financial adviser.

So how do you determine whether someone’s financial advice is useful to you or not? Here are some of the characteristics that I can think of.

• Know and understand you well - the person needs to be someone who is close to you. It could be your stock broker for 10 years, or your dad, or your good friend. The main thing here is that the person MUST know you and understand you well. Are you a passive or aggressive person? Are you thrifty in your spending or you prefer to buy your WANTs? This point is particularly important because the last thing you want is to have a financial adviser who tells you to invest in risky petty stocks but you yourselves are not a big risk taker. Remember, a good adviser never ask his king to fight a naval war when his king cannot even swim.
• Not overly ambitious – a good financial adviser should be someone who goes for slightly above average return. There’s really no point getting those celebrity financial experts who can earn millions in a few hours. They’re not suitable for you. Also, higher the return, higher the risk. Your celebrity financial expert can earn you couple of millions in 1 hour and he can also make you lose the same amount within an hour. That’s why I feel a good financial adviser will advise you to go for a diversified portfolio – the safest and it also gives a decent return.
• Hardworking and knowledgable - what I mean here is that your financial adviser must be someone who loves to read, particularly business and finance related articles. One can actually learn a lot of stuff on a certain business by reading news about the business. If the person is very lazy to read or to do research, what makes you think his advice can be useful? Also, it certainly helps if the person knows as many type of investment as possible. It helps in creating a diversified portfolio.
• Unbiased - there are some friends of mine who are actually biased against certain businesses for no solid reason. There are also people who are strongly against certain type of investment like mutual funds or real estate investing. So for someone to become a good financial adviser, the person must be an open-minded person who can judge based on his research and knowledge, and not based on whether he likes or hates the business/investment. Because some of the best investment returns might come from areas which the person does not even care to explore.
• Cautious - I’ve mentioned in my previous post that an adviser should always go for the safest route or in other words, cautious. There’s really no point asking the client to jump into an investment which he or she is not sure about. For example, there are rumors that company A is going to acquire company B with a higher price than the current stock price…but this piece of news is unproven. A good financial adviser will always stay away from such rumors. Why? Because preventing the client from losing $1000 is always better than preventing the client from earning $1000. At least, the former allows the client to invest again.

From the look of things, it’s pretty difficult to find the right financial adviser nowadays. That’s why most people are their own financial adviser, myself included. I do occasionally get some opinions from my dad though. But other than that, most of the time it’s all up to me. Because the thing is, nobody can understand me better than myself, and maybe my family. Perhaps there are some very good financial advisers out there, but they don’t know me well and they don’t come cheap.

So my advice to you is, if you can get one, go and find the right one but if you can’t, then try to find among your family members or friends. And if you still can’t, you will have to be your own financial adviser. That’s the cheapest option after all.

Oh, and don’t ever blame your financial adviser for any mishaps/mistakes. In the world of investing, there’s no certainty. Anything can happen. So don’t start blaming people if things don’t go your way  – this includes don’t blame yourselves.

My question to them – after becoming debt free, what’s next?

And I believe that is a very important question one should ask oneself. Why are you working so hard to be debt free? What are you going to do once you have the extra cash after finish paying the housing loan or car loan?

You know what? Some of the people I’ve asked, they told me that the reason they are working so hard to finish their current loan, is so that they can take up another loan for a bigger car or a nicer house.

Hmm…so they want to end the current loan…so that they can re-enter the very same vicious cycle they are trying to get out from? What’s the difference then? The cycle will never end if you plan to do it that way.

That’s why in my humble opinion, being in debt is OK and it’s not that bad provided you can still live comfortably in this world. Why? Because living in this world, it is very hard for someone to be completely 100% debt free. Therefore, depending on what is your end goal, debt free can be good or it can mean nothing at all.

Last but not least, stop cursing your loans and banks and keep praying that you can be debt free….if all you want after that is to get on another debt.

p/s…. i also notice that the older you are, the bigger your debt will be. So the debt you have while you are in your 20s could be significantly lower than the debt you acquire in your 40s (inflation, more commitments, etc). So, getting rid of your lower debt (the one from the 20s) and getting on a larger debt (the one in the 40s) is not an entirely smart move.

We all know that most mutual funds/unit trusts are based on DCA concept since they encourage you to pump in money every month. So if the market goes down, you will use the money to buy the units at a lower price and when it goes up, you can sell them for profit. Remember the standard “buy low, sell high” concept and DCA is based on it.

The important thing is to be able to hold it for long. Otherwise, DCA will not work.

What about stock investing? Can DCA work? The answer: it depends on 2 questions:

• How long are you willing to hold? DCA does not work most of the time for contra-based or short-term investors.
• Are you sure you are buying into something worthwhile? DCA can bring you down if you are using it on something useless.

By answering these 2 questions, you will be able to know if DCA can work for you or not. Always remember that in investing…be it stocks or mutual funds, it pays to be patient. If you are sure the company you are investing has good prospects and healthy cashflow, and if you are willing to hold for 3-5 years, then you really have nothing to fear even if the current stock market plunges (*touch wood*).

But is this even achievable in this 21st century?

For me, I do believe financial freedom is achievable but financial security is not. Why do I said so?

Financial freedom, to me, is when you can still pay off your commitments and live comfortably without working. You can live by just using your retirement fund, your dividends, FD interest rates, etc. You no longer need a steady income from the daily 9-5 job anymore. You can just do whatever you want but this depends on how much you spend on your NEEDs and WANTs. If you lead a simple life without all those luxury stuff, I am sure financial freedom can be achieved easily. On the other hand, if you only want to drive imported cars and only want to stay in multi-million condominium, then financial freedom might not be that simple.

What about financial security?

To be honest, I don’t believe in such a thing. No matter how safe you think your finance is, it is not 100% protected. If you put it in fixed deposit, the bank might collapse (our government does give protection on this but how fast you get the money back is another issue). If you are a millionaire, a terminal illness might rob you off your fortune due to the cost of the medical treatments. If you own a multi-million business, a wrong decision might cause you to lose your business altogether.

Let’s just face it. In this age of uncertainties, there is just no such thing as financial security anymore. Whether you like it or not, there will surely be some risks that your money will be gone. The only thing we can do is to minimize that risk…. maybe by buying insurance… but well, AIG nearly died. No?

So if you’re thinking that financial security is something achievable, I can tell you it’s something very subjective and something quite impossible to achieve. Minimize the risk = yes.

If I were you, I would rather concentrate my attention on achieving my own version of financial freedom. But bear in mind that even if I do achieve financial freedom, it might not be 100% secure.

I know this might not sound appealing to some people who have worked very hard to achieve whatever they have today, but I guess it’s time to face the reality and I believe the recent economy crisis has really shown us that financial security is not really applicable nowadays.

The Secrets of Financial Freedom: An Interview with the Millionaire Next Door

Once you’ve finished the article, you’ll notice that there’s no magic formula when it comes to becoming rich. The 2 points that I can get from this article are:

• Spend less than you earn
• Invest your money

For the first point, it’s quite straightforward. You don’t buy things which you cannot afford. Spotted that nice and cool car? Can you afford it? Or that nice condo in Mont Kiara? Can you afford it? When I said “afford”, it doesn’t mean taking up a loan which will tie you down for another 40 or even 50 years. It means you have the means to own that something without committing too much. If you can be 100% sure you will live comfortably with the new 30 years long housing loan, then by all means, go ahead. The thing I notice in most people is that, they want all the nice and trendy stuff in the world but they cannot really afford these things. So they take up loans after loans…and delaying all the credit card payments (transferring the outstanding balance here and there just to minimize the interest charges). If only people can start thinking properly and ask themselves this simple question – can I really afford it?

Also, stop going for things like Starbucks and those expensive dining places. I work in KLCC, and I only went to Starbucks for farewell (or free treats). Mmm…I think I only went there not more than 5 times during the 3 years working in KLCC area.

Anyway, for the second point, it’s again a no-brainer. Invest your money. If you don’t invest, it’s likely you are going to spend it away or you will put it in a place where…the value will just depreciate with time. Take note of the inflation rate in your country and try to find an investment type which can give you return HIGHER than the inflation rate. Surely, you don’t want your hard-earned money to become worthless after 10 years or so.

So, there you are, 2 very simple points to remember for anyone who wants to live a comfortable life or to become rich. As you can see, you can still buy your NEEDs and WANTs as long as you don’t spend more than you earn. That’s all. You don’t really need to lock yourselves up in a room so that you can cut away the spending and become rich. Just control your spending and only get things you can really afford.

Hope it helps.

Therefore, I personally feel that everyone of us should start saving money as much as possible. Here are some simple ways that I can think of.

• Car pool - fuel price is not high now, but the toll rate is. It does save up a lot of traveling cost if you car pool with other people in your area (home/office).
• Eat at home – eating outside is way more expensive than eating at home. It’s less healthier too.
• Spend on needs, not wants – there’s no way you can avoid buying stuff like food and necessities. But for those WANTs, you can always avoid them. Furthermore, most of these WANTs are not cheap.
• Find reasons NOT to buy things – if you want to buy something, try to find few reasons why you shouldn’t buy it. Is it too expensive now? Maybe you can’t afford it? Maybe you can just borrow from one of your friends who has it?
• Find free alternatives - there are a lot of free alternatives around. For example, one can easily use the internet to browse for any news, rather than spending RM 1.20 a day on newspapers.
• Look for sales/promotions – there will be a lot this year, and most of them will be very crowded. It’s okay if you have the time and it’s even better if you can find few people to car pool with you to go there. I’m pretty sure you can get some items for a very cheap price.
• Sell your old stuff – you can do it in lelong.com, ebay.com, or those second hand shop. Things like old computer, old books, used newspapers, etc might not fetch you a lot of money, but it’s better than pilling them up in your home.
• Do part-time or side business – you can opt for freelance, doing part-time, or start your own side business. Online business is pretty popular these days and not much cost to set up.
• Find extra income – introduce your friends into your company and earn the bounty fees, or helps your company to sell a product and earn the commission. These things are always right in front of you. Maybe it’s time for you to fully utilize these opportunities?

Those are some of the things that I can think of. What about you? Are you doing your part to save as much money as possible? What are the things that you are doing to achieve that?

Each of the 10 millionaires are unknown or normal people. It’s just like you and me…normal people spending time doing things for their normal life, and staying in normal house, working in a normal job. There is no big deal about who they are or what they are doing. But they’re rich……far richer than the normal folks….and far richer than most people thought they are.

The reason behind this is their lifestyle. All of them practice frugal living and only buy things which they really really need. They seldom (some of them never) buy anything which they want but don’t need. And even if they need something, they will make sure they don’t have anything which can be reused (or modified). If they do have such things, they will just modify and reuse.

I know to some of you, this kind of lifestyle is pathetic and sad. But this is the path they’ve chosen. They never aimed to be millionaire though….they just love to live a simple life and only use things they need to use.

So now, think about it. Do you still want to be a millionaire? Do you think you can do it? If yes, how will you do it and what will you do in order to be a millionaire? Live frugally or be the next Bill Gates? Well, to be honest, it’s easier to do the former than the latter.

Last but not least……let me throw you a question. Take a wild guess, what are their occupations?

From what I can remember, there’s a school teacher (a normal one, not those who teaches in tuition centers), a bank officer (not the type who cons the bank’s money), an insurance agent, etc. As you see, these are really normal folks.

So if they can do it, why not you?