Planning for your lifestyle .....

A lot of my friends have been asking my opinion about financial planning. Everybody seems to understand Fixed Deposit (a.k.a. FD) is not the best way to grow ur money but nobody seems to be able to give the best advice in managing your money. This is the reason i named the title "Planning for your lifestyle" rather than "Planning for your finance".

Our financial needs, plans and protection depend a lot on our lifestyle. I would classify our financial distribution into 4 different areas: Expenditure, Savings , Investments, Protection.

I have write a lot about expenditure and income generation, let's not talk about it today. (starting to get bored about it). Therefore, we will discuss about savings, investments and protection. I would start with protection as I think a lot of people got trapped in this area when they enter their working life phase.

During the 90's, buying insurance is "the thing" that everyone should do to protect your family and you kins. Yes, everybody loves their family and hope that in the event of unfortunate happenings, their family is protected and income is assured. Less than many people actually know that a lot of people are over protecting themselves and their family which causes them to channel inpropotionate amount of their income into the Protection quadrant of their financial distribution. When you first started work, how much you actually have is probably less than RM 30K during the first two years of your working life. Insurance agents always like to persuade their client to invest in insurance as a form of Investment. This eventually confused a lot of insurance holders actually found out that buying insurance is a liablity rather than investment. If an insurance agent tells you that you only need to pay X amount of years to get yourself covered up to 70 years old, they are only telling you the half truth. Always read the fine lines before you sign anything. Most of the time, you are required to extend your payment period or they will deduct the amount from your promised bonus given based on your insurance premium. Therefore , I always suggest step protection - increase your premium as your assets and family grow. Besides that i always emphasize insurance as a protection; so , protect yourself with medical insurance rather than life insurance especially when you are single. Money is more important when life needs to be prolonged. So , never over commit for protection. My suggestion is to just commit less than 5 % of your income for insurance protection. Anything more than that will surely be a burden for young working adults.

Investment is always interesting to talk about. I am sure you always envy your friends who tells you how much they make from stock market. I will have an idiots guide to Malaysia share market later. However, I suggest that a young working adult should not invest more than 20 % of their income in shares. I will talk about the risk and share market analysis later. Trust funds is also good for investments. But, never over invest trust funds with your savings. I will also provide a study on trust funds which i have experience for more than 10 years. Generally, there are 3 types of investments.

High Risk: Forex & Commodity (very high risk), Equity (share market)
Medium Risk: Trust Fund, Properties
Low Risk: Bonds, Government-Linked Trusts Funds(eg. Amanah Saham Wawasan)

Savings? How much you should save ? Of course, saving as much as possible is the best! However, it is recommended that you save at least 6 months worth of your salary for rainy days. Never treat savings as investments, vice versa. Savings comes with very very minimum risk, you can say that it has no risk at all. (I think you never heard of any Malaysia bank went bankrupt for the past 10 years).

The last question you might want to ask me. What all these 4 things have to do with my lifestyle ? The lifestyle you wanted will determined where you should put your money in. If you choose to be single, you might be able to risk more. Therefore, you can invest more and put less money for protection. If you plan to have kids, probably you need to save more , and buy some protection for your kids. If you are still single and plan to get a girlfriend(for guys), probably you might want to put more money on expenditure(spend on clothes and perfumes) and investments(for marriage) while less on protection.

My next major entry will talk more about investment particularly on stock market. Watch out.

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A few weeks ago, my friend referred me to an MV in Youtube. It's called Muar's Chinese, (mind you , a bit vulgar).



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