Retirement money myths

August 27, 2013

           

Retirement funds are important and more often than not, the lack of a savings can be attributed to belief in the following myth

 

By Diana Chai
In early August, the Star Newspaper reported that Malaysians on the whole, were not saving enough for retirement. Whether this is true for the majority of the population or an attempt to sell the new voluntary retirement scheme PRS (Private Retirement Scheme) that is seeing lukewarm response, is anyone’s guess. But beyond statistics, the importance of saving for retirement is non-negotiable.

For many Malaysians, the stress of living for now prevents them from thinking too far ahead. Retirement seems a long way off and a common notion for many is that their Employee Provident Fund (EPF) savings will be enough. Sadly, the same fund is being withdrawn to pay for home deposits and education loans depleting an already stretched retirement pot.

Retirement funds are important and more often than not, the lack of a savings can be attributed to belief in the following myths.

1

1) EPF has me covered
The most common of retirement myths that I myself was guilty of thinking is that EPF is enough to take care of me through retirement. Your EPF will be a nice addition to your savings and investments; provided you have them.

2) I am still young
Many people between the ages of 23-35 assume they are still too young to worry about retirement. However, starting your savings in your 20s is recommended by many money experts. Liz Weston in her book Deal with Debt did the calculations for you. In her example, starting retirement savings at 22 for only ten years versus starting at 32 for 30 years, gave the former two-thirds more money at retirement than the latter.

3) Saving money is enough
Unfortunately, simply saving a percentage of your earnings isn’t enough. Savings and fixed deposit accounts rarely give you enough returns on your saved sum to make it worth your while. On the other hand; risky investments may yield more returns but is just that – risky. Diversifying is the way. Some amount of fixed savings coupled with differing investments such as unit trusts, gold, property or stocks would be ideal. If you are unsure about how to invest your money, opt for a scheme such as PRS or consult an investment expert. PRS is flexible in how much you are required to contribute and how often but be warned that returns are never guaranteed so do ensure you have pots of savings elsewhere.

4) I have children to take care of me
As much as this would be an ideal situation; there are many reasons having children will not save you from a destitute retirement. Even the most filial of offspring may not be able to earn enough to afford to give a decent living (including escalating medical costs) to two aging parents.

5) I have insurance plans for medical and death
Because we typically don’t take the time to read through a 150 page policy; we don’t always notice that there are many things an insurance plan will not cover. Insurance plans usually have caps on amounts disbursed every year or based on illness. Medical costs can eat into your retirement nest egg faster than anything else: Be prepared.

The thought of retirement is undoubtedly daunting – but very much necessary. Although saving from an early age is always recommended; if you haven’t; it is never too late to start.

This article brought to you by Diana Chai of RinggitPlus.com. We believe all Malaysians should have access to free, accurate and independent personal finance information.

Malaysia’s My First Home Scheme guide

August 23, 2013

           

This MFHS or Skim Rumah Pertamaku scheme allows young adults to obtain 100% financing from financial institutions enabling them to own their first house without the need to pay a 10% down payment.

 

By Eugene Chua

Buying a home could be the largest purchase one would make in their lifetime, but with the overall cost of properties steadily increasing most people cannot afford to do so. In an effort to help these people, the government introduced the Malaysia My First Home Scheme, which SaveMoney.my will explain.

The Malaysia My First Home Scheme (MFHS) or Skim Rumah Pertamaku was introduced in early 2011 by the government with the sole purpose of assisting young adults, who have joined the workforce and earn RM3,000 per month or less, to own their first home. After the 2013 Budget announcement, the monthly income eligibility was increased to RM5,000 for individuals or RM10,000 for couples.

This scheme allows young adults to obtain 100% financing from financial institutions (100% LTV / margin as opposed to the usual 90% offered by most banks), enabling them to own their first house without the need to pay a 10% down payment.

The buyer is still required to pay a booking fee and/or deposit to the seller under the terms of the Sale and Purchase Agreement, pending disbursement of the home financing by the bank.

When the financing documentation is complete, the buyer would then be reimbursed from the disbursement of the financing by the bank.

The buyer may try to make an arrangement with the seller for deferment of deposit payment pending disbursement by the bank; such requests are dependent on the seller’s willingness.

Cagamas SRP Berhad will guarantee the banks on financing above a 90% level, i.e. if a borrower obtains 100% financing, Cagamas SRP will guarantee 10% (thus raising 90% to 100%) of the financing.

With this scheme, you can also enjoy a 50% stamp duty exemption on the purchase of your first residential property and this is available till 31st December 2014.

What are the personal criteria needed to be eligible for this scheme?

1. Malaysian citizen.
2. First-time home buyer.
3. Individual up to age of 35 years.
4. Gross income not exceeding RM5,000 per month for single borrowers, or combined gross income of RM10,000 for couples.
5. All outstanding debt repayment obligations from banks and non-banks (including those not covered by CCRIS) must not be more than 60% of monthly income after statutory deductions (i.e. Tax, EPF, SOCSO) or maximum limit of the lending bank, whichever is lower.

Besides fulfilling all the personal criteria, there is also property criteria to qualify for Malaysia’s My First Home Scheme:
1. Minimum property value of RM100,000.
2. Maximum property value of RM400,000.
3. Residential properties only.
4. For lease hold, remaining lease ≥ 60 years.
5. Owner occupied.

Last are the financing requirements for Malaysia’s My First Home Scheme:
1. Repayment options of up to 40 years or until age 65, whichever is earlier.
2. Amortizing facilities only (no re-drawable features).
3. Installments payable via monthly salary deductions or standing instruction.
4. Compulsory Insurance / Takaful.

You may want to know, do you have to pay a higher interest rate or fee in this scheme?

SaveMoney.my is happy to tell you: No, only the normal interest rates of the respective banks shall apply, and you do not have to pay for Cagamas SRP Berhad’s guarantee. Also for your information, the scheme covers both completed properties and those under development.

*Eugene Chua is a Finance sub-editor at SaveMoney.my, an online consumer advice portal which aims to help Malaysians save money through smart (and most of the time painless) savings in their daily banking, technology, and lifestyle spending habits.

Top 5 tips when buying your 1st property-Part 2

August 21, 2013

 

By Shaun Lee

In Part 1, we discussed 2 important tips to consider when buying your first property. In this article, we cover the final 3 tips to watch out for:

Tip 3: Valuation
When you have found the property of your choice, you are usually required to pay a holding deposit of 2 – 3% of the purchase price to take the property off the market. However, making an offer and paying the holding deposit does not necessarily equate to acceptance. Until the Seller signs the Letter of Offer, nothing is confirmed.

As the Buyer, you should always add in a clause to say ‘Offer is subject to the confirmation of the actual square footage of the unit’ in the Offer Letter. Reason being, you don’t want to be caught out in a situation whereby the agent tells you it is 1,200sf when it is actually only 1,000sf, which would mean that you would be paying much more per square feet. Your lawyers will then be able to confirm this for you whilst in the process of drafting the SPA.

Before you pay the holding deposit (also known as Earnest Deposit), make sure you do the following two checks:

(a) Valuation of Property
If the price that you have agreed to pay for the property is RM400,000, and you are looking for a 90% loan from your bank, you need to check with your bank that the valuation is ‘up to mark’.

Reason being, if the banks’ valuers only value your property at RM350,000, the bank will only be willing to lend you 90% of RM350,000 and NOT 90% of RM400,000

One way to mitigate this risk is to ensure there’s a clause written in your Booking Receipt which says that you are entitled to get back your Holding Deposit in the event you are unable to obtain a loan.

This is not a standard clause in the Booking Receipt, but don’t be afraid to insist on this even if it means penning it yourself on the Booking Receipt.

Also, don’t rely on just one valuation. Ask a few Loan Officers to get a more accurate reading of the valuation of the property.

(b) Check up on your Estate Agent
Before paying your Earnest Deposit, be sure to also check up on your Estate Agent to make sure they are legit. Also, only issue cheques to the Realtor’s Company and never to an individual name.

Tip 4: Secondary market – Getting a deal!
This is a little trick that you can use to find undervalued properties. If you have been following the property market i.e the Classifieds be it online or in print, avoid buying from real estate agents who are regularly advertising for a specific area or for a specific development. They are more likely to be working with a lot of owners in that area and are more inclined to want to maintain high selling prices to protect the interests of all these owners.

We recommend finding the ‘one hit wonders’ of the real estate agents / negotiators where they have little to no experience in selling properties in that area or development. Reason being, these types of agents are more likely to want to go for a quick sale and are more likely to be able to convince the owners to sell at a lower price.

Tip 5: Transaction Cost is MATERIAL
When budgeting, be sure to factor in the transaction cost for your purchase (between 3 – 5% of purchase price) as you will need to have cash in hand to pay for these things. Some banks allow you to include your legal fees and the Mortgage Reducing Term Assurance (MRTA) in your loan amount which helps ease the burden as you won’t have to pay these potentially huge amounts upfront in cash.

*Shaun Lee is the Resident Property Expert at SaveMoney.my, Malaysia’s Number 1 Money Saving Community that helps you save RM1,000’s on Banking, Credit Cards, Loans, Phones, Travel, Shopping, Property and Taxes.

Paying to ‘host’ your blog or website?

August 19, 2013

           

One of the most attractive aspects of blogging for income is that the overhead is minimal, if not zero.

By Marcela De Vivo

The main resource that you need to put into a blog is your own time, while the only thing required of your pocket book is a domain name, which is about US$10 a year. Paying a fee is optional as that will remove the “.wordpress” or “.blogger” extension that the two free blogging platforms provide you.

Other costs might include graphic design, templates or other forms of consulting, depending on your needs, but hosting your site doesn’t have to be part of that expense.

It’s optional, and there are pros and cons to both the free and paid options.

Essentially, if you set up your blog with a site like WordPress or Blogger, your blog is hosted for free and you are provided with a predefined set of customization options. When you buy a domain name, you simply forward your blog’s current address to the new domain and that becomes your URL.

The other side of the coin is that you pay a hosting company to host your blog. People who go with this route typically use something like Joomla (to create their blog) and then pay a hosting company, which is a monthly fee.

There’s pros and cons to both, so lets take a look.

Pros and cons of free hosting
The obvious attraction of free hosting is that it’s free and it is often easier to setup and maintain. Since everything is already there for you, you can start blogging quickly and avoid a lot of the work of getting setup with a hosting company and getting things squared away with Joomla.

You’ll also have a lot of templates to choose from, both within the sites themselves and from third party sites who provide thousands of different templates to choose from. These are all quite simple to install.

The downside is that you’re somewhat limited in terms of your features and customization options. Sure, you can customize your template, but you’re still at the mercy of the WordPress or Blogger features.

For some people, this makes them feel like their blog isn’t their own, and in a way, that’s true.

Pros and cons of paid hosting
Paid hosting, on the other hand, gives you complete and thorough control over how your blog is run and even though you do need to pay, hosting costs are usually pretty affordable. This option is typically more attractive to developers and people who want to create their own blog, so they can tune it exactly how they want to.

The downside here is that you do need to have more technical proficiency to go this route and it’s not always a straightforward process. If the cost bothers you, then that too will be a deterrent, but the main headache here is the technical hoops that you will need to jump through in order to get your site live.

Even if it all goes well, it can still be a lengthy process.

Things to consider when choosing
You need to consider the following questions when deciding whether to pay for a hosting service or use one of the free ones that are available:

Am I a casual or serious blogger? — If you’re just blogging for fun, it’s a no-brainer to go with the free option. That’s not to say that serious bloggers can’t use them, but they’re particularly friendly to the blogging newcomer.

Do I intend for my blog to make money? — If you don’t plan to make an income with your blog, paying a monthly fee to host it probably won’t be an attractive option.

Am I technically proficient? — The more technically inclined you are, the more likely you’ll be able to take advantage of the flexibilities afforded by paid hosting. Otherwise, you’d be fine to just go with one of the free options.

Take these all into account when you’re making your decision. You can even start out on a simple hosting site, like Blogger or WordPress, and eventually move them to a different hosting platform. If you blog for awhile and find that it’s not your thing, then you haven’t lost anything.

By the same token, if your blogging career seems to be taking off and you want to kick things up a notch, you can take the plunge and pay for your hosting.

It’s a win-win for everybody.
Marcela De Vivo is a freelance writer and online marketing professional in California. Specializing in search marketing, social networking, web analytics and web hosting, she has helped many companies establish their online presence.

Buying your 1st property: Top 5 tips

August 19, 2013

           

In this two-part series, we want discuss the Top 5 Tips that you absolutely need to be aware of when buying your first property!

 By Shaun Lee

Buying your first property be it for own stay or for investment can be very intimidating yet exciting at the same time. This is not unusual for most of us as buying a house will probably be one of the single largest purchases you would make in your lifetime, and along with the mortgage required for it, getting the whole process right will be one of the biggest ways to Save Money.

Tip 1: Defining objectives
One must be crystal clear of your objectives when buying your property. The two main objectives are:

(a) For own stay
When it comes to buying your first home, it’s very easy to get carried away with finding the perfect home. Sorry to burst your bubble, but perfection does not exist. So be prepared to compromise. You need to be realistic with what you can afford given your budget.

(b) For investment
If you are buying for investment, you then need to be clear if you are investing for Capital Appreciation (rising price of property) or for Rental Returns.

As a general rule of thumb, if you are still young with high future earnings potential, you should focus on properties which are likely to provide the highest Capital Appreciation. But if you are approaching retirement, you should be looking at properties which will preserve its value yet give good Rental Returns to fund your retirement.

If you are buying for Capital Appreciation, one would usually go for off-plan properties (Properties which are sold before they are complete). However, things have changed in the past few years especially in the Klang Valley where there is currently an oversupply situation therefore making it very tricky to ‘flip’ properties (Flipping is a common term used to describe buying a property on a short-term speculative basis) immediately on completion.

An advantage of buying properties off-plan is that developers usually have very attractive Developer Interest Bearing Schemes (DIBS), making it very affordable for buyers. Under the DIBS, the buyer only has to pay the 10% downpayment on signing of the Sale & Purchase Agreement (or 30% if you already have 2 outstanding loans), and nothing else until you get the keys to your unit. So you don’t have to make any progressive payments during the construction period (Progressive payments are payments made to finance a housing loan during the course of construction. Typically, you only pay the interest element of your loan during the construction period).

The public should be aware that although this scheme seems to be very attractive, never forget that the developer would have factored in their finance cost during the construction period into the pricing of the property. Other advantages of buying off-plan is that developers will usually give a lot of ‘freebies’ such as free legal costs for your Sale & Purchase Agreement and sometimes even for your Loan Agreements too. This will help reduce your initial capital outlay.

Tip 2: Loan application
Most people will look for property first, then seek financing. This is a major NO NO! One should always find out how much you are able to borrow from the bank FIRST before going out to look for property. If you don’t know what you can afford, you are more likely to screw up.

You can do this simply by walking in to most banks (we recommend you walk in to a few to build the relationship with several Loan Officers as they will come in handy when you need to check the valuation of your property. Also, spread the risk (in case one bank rejects your application), applying to many banks will help you get a more competitive rate.

Don’t be afraid to let your Loan Officers know what rates the other banks are offering you, because this keeps them competitive too. Some banks are known to undercut others but this has to be done before the formal Offer Letter is being issued.

Stay tuned next week for the rest of our top tips!

Shaun Lee is the Resident Property Expert at SaveMoney.my, Malaysia’s Number 1 Money Saving Community that helps you save RM1,000’s on Banking, Credit Cards, Loans, Phones, Travel, Shopping, Property and Taxes.

Retirement makes mum a happier person

Retirement makes mum a happier person

 

Tuesday, Aug 13, 2013

 

The Sunday Times

By Rachel Chang

 

SINGAPORE - In a premature twist of fate, I've become the only gainfully employed member of my family in Singapore.

 

A year ago, my father scaled back on his work as a freelance tour guide to study for a law diploma.

 

Last month, my mother lost the job she has had for the past 15 years.She saw it coming: The management had changed and were bringing in a slate of new, young, staffers.It was also a fairly painless parting since her own discomfort had been growing for months as her colleagues departed one by one. She was the last one standing and considered resigning, but my sister and I insisted that she wait to be fired.

 

What came as a surprise to us was her announcement, post-retrenchment, that she had no intention of getting another job.

 

Conditioned perhaps by capitalism and self-reliance, I had always thought of retirement as the moment dementia starts to set in.

 

At 58, she is sprightly. It would be one thing if she intended to turn her focus from work to another, deeply personal endeavour, like my father had done.

 

But it seemed like what my mother wanted was only to live a more indolent version of her current life of line dancing, housework and chit-chat.

 

Various unloving predictions sprung to my young-ish adult mind.

 

I would have to give her a lot more money every month.

 

 Her brain would turn to mush on Korean drama serials.

 

 She would always be around, fussing the way mothers fuss, but now at turbo level for a sheer lack of other things to do.I might be jinxing it by calling it early, but none of these things - save the first, pity my bank account - has come true.

 

Instead, my mother has made retirement look a lot better than I ever thought it could.I think what a lot of people my age don't realise is just how much our parents have on their plates, and how exhausting it becomes, as energies wane and bones start to ache, to hold it all together.

 

Now that my mother has time for her full life and sufficient sleep, she has become a much happier person - and a much nicer one.This reverberated in several spheres.

 

The nastiness of a mother's fussing, I believe, is directly proportionate to how harried they feel.

 

So, if they barely have time for a conversation with their children, those five minutes can get sucked into a black hole of nagging and criticism.

 

I think of it as anxiety infecting every aspect of their lives.

 

And so it has been that with every new day now blooming before her, unencumbered, my mother's fussing has become exponentially more pleasant.

 

She's always bringing me drinks. She reads the newspapers and talks to me about articles. She asks about my friends and is inordinately interested in the twisting, tortured tales of their relationships.

 

She is indeed always around, but it's actually improved our relationship.

 

Conversation is a habit with momentum of its own. When we barely saw each other, communication was often terse and transactional.

 

Now, I chat with my mother all the time, so much so that when something ridiculous happens to me or a development occurs in something I've told her about, I feel a tug of impatience to get home to update her on it.

 

She seems to enjoy her life so much more now, too.

 

Once, after sending me to work (another child-of-retiree perk), she ambled over to Toa Payoh market and texted me gleefully about encountering all the food stalls she remembered from youth.

 

She's built a mountain of baby goods to await my niece's return from East Africa in a few months.

 

It's early days yet, and perhaps boredom, or financial vulnerability, will set in, and she has to look for work.

 

But I can't help but think all of this as the reward for a tough, oft-grinding life of working motherhood.Her middle age has not been marked by empty-nest syndrome; all this space and time has instead been a revelation, a rediscovery of life's simple pleasures.

 

Chief among them is not having to rush everywhere all the time, but instead to have the freedom and the bandwidth to linger, to reflect, to notice.

 

If this is what retirement is, then sign me up.Too bad there's 40 years of drudgery, heartbreak and sleep deprivation to get through before I get there.

 

For now, I'm just glad that after years of enjoying the fruits of my mother's labour, I get to see her enjoy the fruits of rest.

Know your cashback credit cards

August 13, 2013

           

Here are some things to take note of when applying for a cashback credit card.

 

By Brendon Lee
Cashback credit cards have proven to be very popular among Malaysians. Next to the reward point system, cash rebates are a great way to save on spending. However, not all cashback cards are created alike; each one has its own cashback rate and is limited to specific spending categories.

To get the most savings from your cash back card, it’s important to choose the right one for your spending habits.

Here are some things to take note of when applying for a cashback credit card.

#1: Rates and categories Cashback rates and spending categories are interrelated as most cards limit their cashback to specific categories. The most popular categories are petrol, groceries, dining and utility bill payment. There are three mechanisms on which cashback cards operate:

• High cashback rates (5%-10%) limited to 2-4 categories and lower rates (0.5%-2%) for residuary categories.

• Blanket rate for all categories with a median rate (3-5%).

• User selected categories with fixed rates for each category set by the bank (0.5%-5%).

Depending on your spending habits – choose the card with categories that suit you.

#2: Caps Most cashback credit cards come with a monthly or annual cap, that is, a maximum amount of cashback that you can receive in a billing cycle. The most competitive products available usually have caps that fall in the range of RM50 – RM100 a month. It’s important to know what your card cashback cap is to ensure you don’t spend more under the false impression that you are earning cashback.

Usually, principal and supplementary cards contribute to the same cashback cap every month but some products calculate the spending separately and allow individual caps for the principal and supplementary cards.

#3: Fees and charges A cashback credit card, like any other will be subject to the usual fees and charges such as annual fees, cash advance fees, and late payment fees. However, if a cashback credit card allows you to select categories of spending, do note that every time you switch categories, there may be a fee involved. If you add on a category (if the card allows you to do this) you will have to pay a fee on this extra category as well.

Also, it is important to note that not all cashback cards have the same annual fee. Annual fees range from RM70-RM190 for mid-level credit cards and up to RM1000 for premium credit cards.

#4: Special terms and conditions
The terms and conditions of a new credit card commonly goes unread. But if you’re keen on making the most of your card’s cashback feature; it’s vital that you understand the special requirements that qualify you for a cashback card each time you swipe. For instance some cards advertise high cashback rates but are only available during the weekends while others require minimum amount of spend.

Others will only recognise transactions that conducted online or via standing instruction. Some banks are known to have tie-ins with specific merchants and offer bonus cashback if you do business with them.

A cashback credit card can save a few hundred ringgit a year. However, it can also be complicated. The key to finding the right credit card is to first evaluate your spending habits and pay attention to the fine print.

This was brought you by Brendon Lee from RinggitPlus.com. RinggitPlus compares credit cards, debit cards, balance transfers and personal loans to help Malaysians get more for their money.