4 Ringgit Myths You Need To Know

Myth 1 - You have to be rich to start investing

In the mind of many, one has to be rich to start investing. Many thought that to start investing, one would need to have a sizable amount of Ringgit. But the fact that with new technology, investing has become easier and the minimum amount is lower. Robo-Advisors such as MyTheo, Stashaway, and Wahed Invest make it very easy to start investing with just RM100.

*Bonus: If you invest RM100 in Wahed Invest using my referral code (limwei1), both you and I will get RM40 bonus each after maintaining the RM100 for 1 month. 

Myth 2 - I don't earn enough to save

It is possible for everyone to save no matter how much is the income. The real question is are you willing to save? The easiest way to save is to allocate a small amount for saving when you received your salary and make do with the balance for the rest of the month.

Expenses = Income - Saving

You can start by saving as little as RM50 and slowly increasing the amount as time goes by.

Myth 3 - The safest way to keeping my money in a savings account 

While it may be good to have some money in a savings account, to keep all that you have there is not recommended. Many people do not realize that the bank is paying you interest at an average rate of 1% per annum for the money that you keep it the savings accounts. Also, the average inflation is about 3% per year. So, every year, your purchasing power is actually reducing by 2%. So, unless you need your money in the coming 3 years, do not keep it in your savings account. 

Myth 4 - Credit card is evil

The truth is, a credit card is just a tool, not being good or evil. It is how we use a credit card will determine if the credit card is a friend of a foe. Credit card it good when we need to purchase something of high value but you must be able to pay off the amount at the end of the month. Otherwise, the interest that you need to pay for the outstanding amount will totally kill you.

This article is first published in Radical Ringgit.

Buying a car without a loan

Everyone believes that it is impossible to buy a new car without a loan but that does not mean that it is really impossible. What actually requires is patience, hard works, and the right method.

Why should we buy a car without a loan is because the interest that we have paid by the end of the loan period will actually amount to almost a second car by itself? Also, a car is the type of assets that would depreciate in value over time. So, why pay even more for something that is depreciating in value. 

Firstly, we must work on how much can we afford to pay for the monthly installment. Can you pay RM 500 per month or RM 1000? If you can afford to pay this amount for a monthly installment, you should pay it to yourself first before buying that car.

Instead of buying that dream car of yours straight away, look for a decent second-hand car (as a temporary car) with an affordable value. A second hand Perodua Kancil will cost about RM 4000 (at the time of writing) and the good thing about the car is how fuel-efficient it is. So, if you can pay yourself RM 500 per month first, you can buy it on cash after 8 months of paying yourself.

After purchasing this temporary car, continue to pay yourself the same amount every month. By doing this, you are accumulating your fund to upgrade your car to a better one.

Repeat as needed until you are able to buy your dream car. While it may take many years before you get your dream car, at least you would not need to pay for the interests.

This article was first published in Radical Ringgit.

Personal Income Tax

It is the end of the year. Have you maximize your tax reliefs?
Below is a simple guide regarding the tax rates and tax reliefs for those who are eligible.

Tax residence status of individuals

An individual is regarded as a tax resident if he meets any of the following conditions, i.e. if he is:

• in Malaysia for at least 182 days in a calendar year;
• in Malaysia for a period of fewer than 182 days during the year (“shorter period”) but that period is linked to a period of the physical presence of 182 or more “consecutive” days in the following or preceding year (“longer period”). Temporary absences from Malaysia due to the following reasons are counted as part of the consecutive days, provided that the individual is in Malaysia before and after each temporary absence:

                               - business trips
                               - treatment for ill-health
                               - social visits not exceeding 14 days

• in Malaysia for 90 days or more during the year and, in any 3 of the 4 immediately preceding years, he was in Malaysia for at least 90 days or was resident in Malaysia; or
• resident for the year immediately following that year and for each of the 3 immediately preceding years.

Rates of tax

1. Resident individuals

• A qualified person (defined) who is a knowledge worker residing in Iskandar Malaysia is taxed at the rate of 15% on income from employment with a designated company engaged in a qualified activity in that specified region.
• An approved individual under the Returning Expert Programme who is a resident is taxed at the rate of 15% on income in respect of having or exercising employment with a person in Malaysia for 5 consecutive YAs.

Personal reliefs for resident individuals

Types of relief	YA 2020 (RM)
Self	9,000
Disabled individual - additional relief for self	6,000
Spouse	4,000
Disabled spouse - additional spouse relief	3,500
Child:
· per child (below 18 years old)	2,000
· per child (over 18 years old): receiving full-time instruction of higher education in respect of: - diploma level and above in Malaysia; or - degree level and above outside Malaysia OR serving under articles or indentures in a trade or profession in Malaysia	8,000
· per physically / mentally disabled child	6,000
· physically / mentally disabled child (over 18 years of age) receiving full-time instruction at institution of higher education in respect of: - diploma level and above in Malaysia; or - degree level and above outside Malaysia OR serving under articles or indentures in a trade or profession in Malaysia	14,000
Life insurance premiums (Note 1)	3,000*
EPF contributions (Note 1)	4,000*
Private Retirement Scheme contributions and Deferred annuity scheme premium (until YA 2021)	3,000*
Insurance premiums for education or medical benefits	3,000*
Expenses on medical treatment, special needs or carer expenses for parents (evidenced by medical certification)	5,000*
Parental care relief (until YA 2020): father mother	1,500 1,500
Employee’s contribution to Social Security Organisation (SOCSO)	250*
Medical expenses for self, spouse or child suffering from a serious disease (including fees of up to RM500 incurred by self, spouse or child for complete medical examination) or expenses incurred on fertility treatment (w.e.f YA 2020)	6,000*
Fee expended for any course of study up to tertiary level other than a degree at Masters or Doctorate level, undertaken for the purpose of acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications or any course of study for a degree at Masters or Doctorate level undertaken for the purpose of acquiring any skill or qualification	7,000*
Purchase of supporting equipment for self (if a disabled person) or for disabled spouse, child or parent	6,000*
Lifestyle relief consolidated with the following:       purchase of books, journals, magazines, printed newspaper and other similar publications for the purpose of enhancing knowledge       purchase of personal computer, smartphone or tablet       purchase of sports equipment and gym memberships, and internet subscription	2,500*
Purchase of breastfeeding equipment	1,000*
Fees paid to child care centre and kindergarten (Note 2)	2,000*
Deposit for child into the Skim Simpanan Pendidikan 1Malaysia account established under Perbadanan Tabung Pendidikan Tinggi Nasional Act 1997 (until YA 2020)	8,000*

Maximum relief
Note:
1. For public servants under the pension scheme, combined relief up to RM7,000 is given on Takaful contributions or payment for life insurance premium
2. Previously the relief was limited to RM1,000 in YA 2019

Tax rebates for resident individuals

Types of rebate	RM
Individual’s chargeable income does not exceed RM35,000	400
If husband and wife are separately assessed and each chargeable income does not exceed RM35,000	400 (each)
If husband and wife are jointly assessed and the joint chargeable income does not exceed RM35,000	800
Rebate for Zakat, Fitrah or other Islamic religious dues paid	Actual amount expended
Rebate for departure levy paid for performing umrah and pilgrimage to holy places (w.e.f YA 2019)	The actual amount expended (twice in a lifetime)

The above rebate granted is deducted from tax charged and any excess is not refundable.

Emergency Fund

What is an Emergency Fund?

An emergency fund is a stash of Ringgit that you set aside for when an emergency happened and it turns your world upside down and you need the Ringgit to do what needs to be done. Having an emergency fund gives you the peace of mind to know that should something truly awful happen, such as losing your job, you can worry about how to deal with the emergency itself and not worry about how you’re going to survive financially.

While a person’s emergency fund will vary from situation to situation, most financial experts agree that a fully stocked emergency fund should hold between three to six months of monthly expenses.

Getting started with your emergency fund

The first amount does not matter. What is important is for you to start. On average, an emergency fund of around RM500 to RM1,500 is a good first step to build a solid emergency fund. A smaller goal is much easier to achieve and it allows you to feel accomplished once you reach this first awesome milestone. 

Once you establish the small emergency fund, you can handle life’s small emergencies without going back into debt. This allows you to focus on gaining momentum when it comes to saving your Ringgit stash rather than switching back to focusing on paying off the debt incurred by small emergencies.

How do I determine what number to use for my monthly expenses?

As mentioned, an emergency fund should hold between three to six months of expenses. This to figure out the total emergency fund, one will have to look into how much is your monthly expenses. This figure varies from person to person but the important thing is that the fund can ensure that you could continue to live your life without any income. There are people who would even include luxuries in their emergency fund while others would just keep the basic amount that provides just enough money to pay the bills.

It is your choice how much you would want to keep as an emergency fund but it is important that the amount is not to exceed that you don't feel uncomfortable about it.

Why do you need an emergency fund? 

A lot of people would think that it is unnecessary to prepare for an emergency fund. You might think that your job is really secure and you would have no problem to find a new job in case of lay off. Or you may have thought that using a credit card as an emergency fund is okay as long as you pay it off before the end of the month.  Still, you will still need to pay off the credit card debts. Otherwise, you will have to pay for the interest and that's never good for anyone.

What is an emergency?

Financial emergencies are unexpected major expenses that require you to use an amount of money immediately. These expenses must be related to preserving your financial future, your health or your assets.

A few examples of true financial emergencies where it would make sense to use your emergency fund are as follow:

• Job loss. 
• Unexpected medical expenses to maintain your health. 
• Sudden unexpected car breakdown or accident
• A sudden unexpected problem with a major system in an owned house such as an air conditioner, roof or electrical system. 
• A family member passes away and you need to purchase last minute travel to the funeral. 
• A family member gets hurt and you need to take time off work to provide the necessary care. 

What isn’t an emergency?

Some people would stretch the idea of what an emergency is to access the cash they have put away.

Examples of expenses that would not justify breaking into your emergency fund are as follows:

• Elective healthcare such as plastic surgery. 
• A great deal on a cruise vacation. 
• A last-minute request for you to fly to a destination wedding. 
• You really want to buy a new TV for the Super Bowl but didn’t save enough

Where to put your emergency fund? 

An emergency fund should be kept in a high yield savings account or a money market account. This will let you have almost instant access to the money when you really need it.

It often makes sense to keep your emergency fund at a bank separate from your main bank accounts. By doing this, you won’t be tempted to dip into your emergency fund for everyday expenses.

This article was first published in Radical Ringgit.

Wahed Invest - First Impression Review

The first third robo-advisor in Malaysia was officially launched last week. Wahed Invest, is the first Halal robo-advisor that provide investors a chance to invest with shariah-compliant companies and bonds.

In comparison to MyTheo and Stashaway, I felt that to invest in Wahed Investors my preference as I have always wanted to invest in those largest companies in the USA, such as Apple, Facebook, Microsoft, Google, etc. But to invest directly will be very cost-ineffective. To invest via the only US Dollar-denomination ETF, MyETF Dow Jones US Titans 50, that invest in these same companies, you have to open a US dollar account with one of the local banks and the process is tedious. 

Highlights from Malaysia's Budget 2020

Below are the highlights from Malaysia's budget for 2020:

• 10 yr tax break for the electronics sector that shifts towards 5G and Industry 4.0.
• Shorten procedures to register a business.
• Allow delayed payments at customs to speed up trade.
• MYR 250m on rural connectivity.
• MYR 50m for the 5G ecosystem.
• MYR 550m grant for companies to automate, promote smart manufacturing.
• MYR 20m for e-sports.
• MYR 30 in credit to open e-wallet.
• MYR 500m guarantee for women entrepreneurs.
• Grants to improve financing access for Bumiputeras.
• MYR 2bn industry transformation.
• Special task force for Islamic Finance.
• Extension of the tax break for Sukuk issuance through 2025.
• Extends tax break for Syariah funds through 2023.
• Extends tax break for green tech investments through 2023.
• Solar industry 70% income tax break for 10 years.
• MYR 550m for palm oil farmers replant.
• MYR 810m for FELDA settlers.
• MYR 524m for the public R&D sector.
• A 10-year tax break for intellectual property.
• MYR 1.1bn on tourism targets 30 million tourists in 2020.
• Special investment incentive to attract Fortune 500 global companies.
• Incentives to help unemployed graduates for >12 months, top-up MR 500 for the employee, MYR 300 to the employer for hiring the employee.
• Increase maternity leave to 90 days.
• Higher minimum wage MYR 1,200/mth in main cities.
• SME tax threshold raised to MYR 600k (from MYR 500k), taxed at 17%.

Looking at the list, I felt that it has actually ignored the M40. A lot of the budget is for the B40 and companies. Nothing much for the rest of us. A reduction in income tax will be much appreciated. With living expenses on the rise, less income tax will be helpful. Only happy that we are getting RM30 in our e-wallet. Now, I wonder which e-wallet will the government transfer the RM30 to, since most of us have Boost, TnG eWallet, Bigpay, Setel, etc.

Still, if you already have a financial plan ready, just continue with the plan. Any additional stuff that the government gives is a bonus.

The Simple Path to Wealth by Jim Collins

The author of the book advocates a self-directed approach to investing and money management. In short, it tells you to avoid debts, save half of your income, invest your savings in low-cost index funds and ignore the news about the up and down of the stock market.

In the book, you will learn that the investment industry is interested in making you feel that the whole investment process is complex. For this reason, you would need help to be successful in the stock market and your only solution is to go for those advisers that, without you knowing, will earn money for themselves at your expenses.

The book also offers specific recommendations for self-directed investing, and carefully explains the rationale behind his conclusions. He also translates studies and stats into easy-to-understand English.

The only thing that the author said that an investor needs to do is to invest in the following two funds:

• VTSAX - Vanguard Total Stock Market Fund
• VBTLX - Vanguard Total Bond Market Fund

With these two funds, we are basically covered and the more we invest in it, the better. However, to invest in both of the above funds, big capital is needed. So, the author provided an alternative which is the equivalent ETF:

• VTI - Vanguard Total Stock Market ETF
• BND - Vanguard Total Bond Market ETF

It is possible for us to invest in both ETF but there will be more works that need to be done before we are able to buy it. I have a bit of experience in this and will share what I know in the near future.

Other information given may not be suitable for us, Malaysian. Stuff such as 401K, Roth and Malaysian low-cost index fund does not really exist in Malaysia. But still, it is a very good read to understand that investing can actually be very simple.

Personally, I have learned a lot from reading this book and my investment strategy is mainly based on the author's concepts of investing but with a tweak to suit our Malaysian market. If you are interested to read this book, you can buy it here.

KWSP i-Invest: Review

A few days ago, the Employees Provident Fund (EPF) has launched its i-Invest platform which allows its members to invest in unit trust funds with their EPF savings. The great thing about this platform is that it is almost zero cost.

With this platform, members can invest with a sales charge ranging from 0% to a maximum of 0.5% of the transaction amount. As a comparison, offline and traditional transactions through agents are usually charged at 3%.

The conditions for investing via i-Invest are under the Members Investment Scheme. Members may transfer from their EPF Account 1 up to 30% of the amount in excess of Basic Savings, to be invested in the qualified funds. The platform is very user-friendly and there is a lot of information given regarding each fund. 

For members aged 55 and above, they can also use i-Invest using Akaun 55 or Akaun Emas through i-Akaun as a mode of withdrawal. It is also subject to a minimum balance of RM1,000 in their account.

EPF has strict guidelines for Fund Management Institutions (FMI) to safeguard the integrity of the scheme and the interest of participating members. There is a total of 389 funds from various categories (equity, mixed assets, bond, money market, and property trust) that were approved under the EPF Members Investment Scheme for the period of 2019/2020.

You can get started by logging in to your i-Akaun, then click on the “Investment” tab at the top.

Alexiares' comment on i-Invest:
Do not rush in to invest in this platform. Do your due diligence to make sure that you know what you are getting yourself into. Do note that while it is possible for you to get higher returns from investing at those private funds, it is possible to for you to lose money.

The sales charges range from 0% to 0.5% of the transaction amount. So, if you are investing RM10,000, you will be paying RM50 for the sales charges. And remember that when you sell the investment, you will be charged again. So, if you made RM 1,000 after a certain period of time, you would be paying RM 55 for the sales charges.

Personally, I would not touch my EPF accounts and let it reap the benefit of an average of 6% given by EPF. So, if you are not willing to take the risk, don't try this.

KWTBB - Kumpulan Wang Tenaga Boleh Baharu

I was looking into my house's electricity bill and I noticed that I was paying for 1.6% surcharge for KWTBB. The amount was small but it just captured my attention. Thus, I began to look into what this KWTBB is.

Not my bill. Just one that I found on the internet.

It turns out that this KWTBB is "Kumpulan Wang Tenaga Boleh Baharu". The name in English is "Renewable Energy Fund". The 1.6% levy for ‘Kumpulan Wang Tenaga Boleh Baharu’ is used to develop Malaysia’s renewable energy program. It is meant for maintaining a mechanism called the Feed-in-Tariff (FiT). The FiT allows homeowners and businesses to earn money by producing energy through renewable resources that will be fed into the utility grid for distribution throughout the country. In other words, those who participate in the FiT program will be generating energy that Tenaga Nasional Berhad (TNB) will use to produce the electricity that we consume on a daily basis. The idea is to reduce our reliance on fossil fuels as a source of energy (a non-sustainable option in the long run).

From what I have learned, only households that consume electricity above 300 kW (electricity bills that exceed RM77) are required to pay this surcharge. So, if you do not want to pay for this 1.6% surcharge for KWTBB, save more on your electricity usage.

Electricity Bill - How are we charged by TNB

I was curious about how our electricity bill is being calculated. Thus, I decided to do a bit of research on this topic. My first stop is Tenaga Nasional Berhad website, www.tnb.com.my. I have learned that there are many different types of tariffs, depending on which category you are in. But for the sake of our common people, we would be interested in only two tariffs: Tariff A for domestic tariff and Tariff B - Low voltage commercial tariff.

How does both this tariff is related to us?

Tariff A is meant for residential areas, such as your house, no matter it is a bungalow, linked house, apartment or condominium. The way the electricity bill is being calculated is the same.

Tariff B is for low voltage commercial buildings, which include service apartment that some of us may be staying in.

Below is the Tariff A and B:

So, for most of us that stay in houses, apartments or condominiums, we only look into Tariff A. From the way it is structured, the more that you use, the more that you would have to pay. Let us look into a simple home that used about 374 kWh.

For the first 200 kWh, we would have to pay RM 43.60 (200 kWh x 21.8 sen/kWh)
For the next 100 kWh, we would have to pay RM 33.40 (100 kWh x 33.4 sen/kWh)
For the balance 74 kWh, we would have to pay RM 38.18 (74 kWh x 51.6 sen/kWh)

Thus, the total payable is RM43.60 + RM 33.40 + RM 38.18 = RM 115.18

But if your house used about 748 kWh, you would have to pay a lot more

For the first 200 kWh, we would have to pay RM 43.60 (200 kWh x 21.8 sen/kWh)
For the next 100 kWh, we would have to pay RM 33.40 (100 kWh x 33.4 sen/kWh)
For the next 300 kWh, we would have to pay RM 154.80 (300 kWh x 51.6 sen/kWh)
For the balance 148 kWh, we would have to pay RM 80.81 (148 kWh x 54.6 sen/kWh)

Thus, the total payable is RM43.60 + RM 33.40 + RM 154.80 + RM 80.81 = RM 312.61

If you look carefully, I deliberately double up the quantity from 374 kWh to 748 kWh to make a point here. While the total electricity is double, we are paying more than double for it. Thus, the best thing that we could do to minimize our electricity bill is to minimize our usage.

There are many tips that can help but the few that I find most helpful are the following:

1. Air-conditioning temperature to be kept at 25 or 26 Deg C.
2. Use mild temperature on water heater when taking a bath.
3. Iron your clothes in batch.

Do you have any other tips to help bring down the electricity bills?

The Market is Crashing!

The market is crashing! The market is crashing!

Truth be told, we are hearing this almost every day. And it really will crash. But the question is when and are you ready for it?

If you look back into historical data, the market will experience either a major or a minor crash every few years. And what happened soon after that? The market bounced back from the crash and moved on to achieve new highs. Don't believe me? Here are some records:

The market crash is not something that you should fear. Rather, you should anticipate it with eagerness. Just like when the shopping mall goes on sales every now and then, market crashes mean prices of stocks in the market are sold at under discount. This will be the best time to buy in and two the benefits in the long run.

What you should and should not do when a market crashes.

No. 1 - Don't do anything.

This is a very hard thing to do. Everyone is selling their shares like crazy because the price is going south. All the experts will be telling you that this is the end of the world. You will be tempted to sell too to reduce your losses. But if you have bought into a good company in the first place, keep faith that everything will be okay.

When the market crashed, as long as you don't sell your shares, you are only experiencing paper loss. It is nothing. Once the share price moves up again, you will recover the paper loss. And it definitely will.

No. 2 - Buy into great companies at a bargain.

Before a market crashed, do your research into companies that you think are good or great companies. Know what is their values and keep watch.

When the market crashed, a lot of companies shares will be sold at a discounted price. Some of these will be companies that you might have researched. So, when the shares prices of these companies are a bargain, buy-in and let it grow.