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.

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.

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?

That’s why it’s very important for us to start planning our finances, and one of the most important things we need to do to kick-off this is to look at our spending habit. And remove the bad ones which are badly affecting our finances.

Here are some of the examples of bad spending habits.

1) Impulsive spending

Feeling down? Want to get something to cheer yourselves up? Oh look! That shop is having a sales and the thing you love to have is selling for such an affordable price! And without hesitating much, you go to the shop and purchase it – forgetting the fact that you just had your pay cut.

2) Credit card swiping-go-lucky

Credit cards are there for your convenience but that does not mean you should use them happily without thinking much. Because currently, there is no proper (and easily accessible) way to check how much you have signed for a particular credit card. And I have a feeling you will not have this feature anytime soon. After all, the more you swipe, the better it is for the bank. Thus, it is your role to be aware of all your pending credit card payments and control yourselves from overusing the credit cards.

3) Debts? No problem, I can pay them slowly

Some people think that they can repay the loans and debts slowly while enjoying the luxuries of life NOW. Thus, they do not hesitate long when they apply for housing loan, car loan, personal loan, etc. The problem is, you DO have to pay them and if you missed one payment, the interest charges might actually kill you. Always know your limit and don’t take on more debts or loans than you can possibly handle. Always reserve some “space” or “buffer” because you might need a lot of cash when it comes to emergencies. Taking too much debts or loans will limit the amount of cash you have.

4) Spend now and think later

This is quite similar to all the above points. People tend to say money can be earned back easily, but the things on promotion now might not be there forever. So you should get it as soon as possible, and think about the payment later. Well, I don’t deny that people need to cheer themselves up every now and then by buying the things they love. But it’s also important to know your limit NOW, and not LATER. I doubt you can really enjoy the thing you bought if you realized later that you can’t really afford it.

5) Bill payments can be postponed

If you are thinking about this, STOP IT NOW. Bill payments SHOULD NEVER be postponed because the banks will not be so nice to allow you to do that. They will incur interest charges and penalties if you do pay your bills late. If you’re talking about utility bills, then most of them do not have interest charges (some have penalties) but do prepared to get a very shocking number. If you can’t pay RM 100 this month, what makes you think RM 200 next month will be better?

6) Buy cheap stuff! Surely they are of some use later

Okay, this is the most serious problem of them all. People tend to love buying discounted stuff, even the unnecessary ones. There were few occasions when my colleages bought all sorts of things from ISETAN sales and I actually asked them whether they need those things or not. They told me the things were very cheap and so they bought it. They also said that they were very sure they would use those things after buying them. Until now, I can still see few of those items in our office…unused…untouched. To me, that’s a total waste of money. Only buy the stuff you need, even if you have to pay slightly more than the discounted price. Something more expensive but useful is better than something cheaper but useless.

7) It’s warehouse sales!

Items sold in warehouse sales are normally pretty cheap but I personally don’t feel they are worth it. Why? Because people tend to look at the price rather than the usefulness. Also, warehouse sales are normally meant for the businesses to clear old stocks. These items might not be that lasting. What’s the point of buying something cheap but something which will break down in a few months? I have some friends who bought a lot of stuff in warehouse sales for the last few months, but they don’t use those things. They are preparing for their new homes which are scheduled to be completed at the end of the year or in 2010. If I were in their shoes, I will use that amount of money to put inside a FD or somewhere where I can earn interest $$. Why? 2 reasons. Firstly, the value and condition of the items bought will depreciate with time. Secondly, there will always be warehouse sales throughout the year especially during recession period. So think before you buy. Do you really need it now? Will the thing last long? Or should you pay a little extra for something more lasting?

These are some of the bad spending habits which I’ve observed. I used to be (1), (2), (3) and (4) but have since changed a lot. Because I feel that I need to control my finances in a better, more systematic and efficient way. Having such bad spending habits does not help at all. I seriously do not want to spend my entire life worrying about money and about paying credit card bills or loans. That’s why I’ve decided to take action and change. If you have any of the above spending habits, maybe you should start changing too.

But how much should you have? Some experts said 3 to 6 months of monthly expenses, while some even said 9 months to 1 year of expenses. In the end, it depends on you and your living lifestyle. Calculate the amount of debts or fixed expenses you have to pay in each month. They can be mortgages, study loans, food, rental, etc. The total amount will be your fixed expenses for 1 month. Now,  take that amount and make it 3 months to 6 months. For example, if your fixed expenses for 1 month is RM 1k, your emergency fund should be at least RM 3k. This is to ensure you can last for 3 months without any pay.

I know it’s not easy to have that amount of money all of a sudden. That is why you should start small. Get another savings account and pump the money in regularly. Only pump the extra money you have, after paying off your monthly fixed expenses. It could be 5% of your monthly pay, or 10% of your pay, whatever is comfortable for you. Start doing this every month and build up that emergency fund of yours. Preferably, that emergency fund should be inside an account which you don’t touch. You’ll defeat the purpose if you put your “emergency fund” somewhere but end up using it to buy something you WANT. Discipline is the key word here.

Once the amount has reached your so-called “target”, then you can look for other goals such as investment. Try to avoid touching your emergency fund at all cost and keep it as liquid as possible. Because in case there’s an emergency, you will want to take the money out as soon as possible, with the least damage or penalty incurred. In other words, you want it to be there when you need it. That’s why putting it into savings account is better than Fixed Deposit, stocks or bonds.

If you are very confident that there will not be any emergency in the near future, then you can take some of the emergency fund and pump it into low risk investment types such as Fixed Deposit. Make your money grow, without taking too much risk because if you don’t make it grow, it might become worthless few years down the road due to inflation.

That’s it! Simple right? It’s easier said than done actually. Remember that the key word here is DISCIPLINE. If you don’t have that, no amount of emergency fund will be able to save you when there’s really an emergency.

To summarize, here are the things you need to remember:

• Set up a target. How much do you need to survive without pay for 3 – 6 months? Take into account all your fixed expenses such as food, rentals, mortgages, loans.
• Start small. Deposit a little bit of your extra money into the emergency fund every month. The amount should not be significant as not to change your lifestyle.
• Put the money somewhere safe, somewhere isolated and somewhere you will definitely not touch. However, make it as liquid as possible so that you can take the money out without incurring any penalty or losses.
• Discipline. Your emergency fund should only be used for emergencies and not for you to buy that cool gadget.

That’s all from me. Hope it helps. Here are some articles which might be helpful for you.

• Why you need an emergency fund?
• Emergency cash – how to prepare with an emergency cash?
• How and why to start an emergency fund?