Make This Hari Merdeka Your First Day Towards Financial Independence
Tomorrow marks the 59th Hari Merdeka for Malaysia. A strategically located country that is rich in natural resources and talent, Malaysia is known for its delicious delicacies with influence from different ethnicities, breath-taking sights to behold such as beautiful sandy beaches in the East Coast, and the majestic mountains and caves littered all over the country, and last but not least, the warm and friendly Malaysians of different races.
However, as we celebrate more than half a century of independence, Malaysians are still struggling to achieve personal financial freedom. The common thread of lamentations we hear from Malaysians are the rising cost of living, the “unnecessary” implementation of the Goods and Services Tax, or the stagnant salary that does not match today’s living cost.
Mired in debts? Drifting further away from your financial goals? These are all common problems Malaysians face today. However, instead of giving up and submitting yourself to a life riddled with financial problems that is one accident away from bankruptcy, there are many areas within our control that will propel us towards financial independence.
We’ve spoken to a few experts on how best Malaysians can tackle financial independence, and with these handy tips, we can all start our journey towards financial independence this Merdeka!
Ahyat Ishak, property investor
It has become a norm for us to get in the car, and start up our GPS app to lead us to our destination because we know how ruthless making a wrong turn could be in today’s traffic. We may have made headways in our direction, but we don’t seem to realise how detrimental it can be to our financial health if we make a wrong turn in life.
That is the biggest problem that is preventing most Malaysians from achieving financial independence – not the rising cost of living nor debts. We are so engrossed with our current financial situation that we rarely think about our future.
We seem to think that it’s okay to burden our future self to satisfy our current self. To prevent that, we need to go back to the basics, which is the wealth formula. The wealth formula says one’s expenses must be lower than one’s income, and to obtain positive cash flow that is enough to fulfil your (good) debt commitments.
Sounds simple enough. However, our actions almost always seem to be sabotaging our ultimate goal of achieving financial freedom. It’s always easier to make decisions that will take us on a detour to our end-goal. For example, it is always easier to spend three hours with our friends watching a football game, than to spend three hours research about the next investment to make, or even to take a self-development course to better ourselves.
To get back on the road to financial independence, ask yourself before making any decision, “Will this action or decision bring me closer or push me further away from my goal?” Even if the decision in question is buying a RM15 cup of coffee every day.
Start taking notice of every sen you have and you spend, then you will find yourself on a speed track to financial freedom.
Yap Ming Hui, Founder and Managing Director of Whitman Independent Advisors
From the financial planning point of view, Malaysians need a holistic financial plan first before they can embark on their quest to financial independence.
First, they need to know where they stand financially, and what is their financial goal. By knowing your current financial situation, you can better plan your strategy in getting to the desired destination.
Without knowing this, whatever financial actions or decisions you make will be just a stab in the dark – if you are lucky, you’ll get some returns, otherwise, you’ll crash and burn.
The common financial goals that most middle-class Malaysians aspire for are to own a nice home (short-term goal), provide good tertiary education for their children (medium-term goal), and retire comfortably (long-term goal).
To achieve them, you will need a holistic financial plan. This is a 360° evaluation of one’s personal financial plan, which includes insurance planning, children’s tertiary education planning, retirement planning, investment planning, tax planning, asset protection, estate planning, as well as debt and loan management.
With a financial plan that is customised to your current stage in life, you will know if your financial decision will propel you closer to your goal or drag you further away from it.
Faizul Ridzuan, CEO of FAR Capital
Financial freedom sounds like a huge goal to have, and hence, must be very difficult to attain.
Luckily for us, that’s not quite true. And one of the most popular ways many Malaysians prefer to kick-start their investment is via properties. There are just three steps to achieve your financial freedom through property investment.
Step 1: Know your numbers
Your numbers refer to your expenses and your target income. Figure out how much your monthly expenses is – what is the bare minimum you need to survive.
Next, identify the end-goal. How much do you need to achieve “financial freedom”? Is it RM5,000 income a month? Or maybe RM10,000?
Step 2: Figure how property investment can contribute to your goal
Ask yourself how buying or selling a particular property will get you to financial merdeka. If you can’t answer the question, don’t do it.
Step 3: Manage your assets
What kind of assets can help you to achieve your goal(s)?
This will help you to strive for positive cash flow in your property investment. For example, if your rental yield is RM500 a unit, you will need 10 units to achieve your financial goal of RM5,000.
However, if you find it difficult to achieve positive cash flow, where your property’s rental is the same as your instalment, work to pay off your mortgage as soon as possible.
Kim Iskyan, founder of Truewealth Publishing and the editor of Asian Investment Daily
Compounding is the most powerful force in finance. Over time, it is one of the easiest and most effective ways to grow your money.
Compounding is what happens when any interest or dividends earned on your original investment are reinvested – instead of withdrawn or spent. Then the reinvested proceeds, along with the original sum, start earning interest. When this is repeated year after year, your savings can grow very quickly.
It’s like a snowball rolling downhill, picking up more snow along the way and getting bigger and bigger. When the interest earned is repeatedly reinvested, the amount of interest you earn every year gets bigger.
For example, if your investment capital of RM10,000 is invested with a 5% annual interest, you will be paid RM500 of interest at the end of the year. However, instead of taking and spending the interest, you reinvest the RM500, which then also starts earning 5%.
At the end of year two, you would receive RM525 in interest (5% on RM10,000 + 5% on RM500). This also gets reinvested, and the total invested amount becomes MYR11,025.
After three years, you would receive another RM551.25 in interest. Your total investment amount is now MYR11,576.25. This is how it’s like a snowball – it just keeps growing as more and more interest gets reinvested. All thanks to the magic of compounding.
The real power of compounding comes with time. For instance, that same RM10,000 earning 5% will be worth more than RM16,000 after 10 years. After 30 years, it will be worth RM43,000. And you only invested MYR10,000 originally.
Fees and taxes will make your total return a little lower. But the benefits of compounding will more than make up for it.
On Hari Merdeka this year, reflect on our nation, our freedoms, and our personal efforts to release ourselves from financial shackles that have kept us away from out financial goals. Actively improve on your own financial independence with these simple steps and concepts and may you be on track to achieve your independence. You might be surprised at what you can do to further your journey on the path toward financial freedom.