Answering Ong's Question.

In the previous post Mr? Ong said... 

Tuan Syed. Maybe you can share your plans with your readers how you diversified the last 5 years in order to generate a steady flow of incomes. We all would appreciate very much your generosity. Especially the retired and self employed. Thank you in anticipation. :)

Hi Ong. Sorry for the late reply. Well if you are self employed, you will already know plenty of options. I cannot advise you more than what you already know. Especially about running your own business - which is the best thing to do.

Yes it is good to have a 5 year plan for your business, family etc.

Where do you want to be FIVE years from now.

What do you need to do short term (next 12 months) and medium term (36 months) to achieve that 5 year target. Then work backwards step by step from there.

As for financial planning I do have one suggestion for those over 55 years old. 

Do read on.

The DONT first. 

Unless you  are a professional fund manager DO NOT invest in shares. 

Especially in Malaysia. 

If you wish to invest in shares give your money to a good UNIT TRUST.  

Even in the worst of years the good UNIT TRUSTS will pay at least 5%. 

In good years some of them have hit double digit returns. 

You WILL ALMOST NEVER lose your capital. 

For financial planning the philosophy or the principles are more important.

1. The first principle is compounding. Your money must multiply.

2. The second thing is diversify your source of income.

3.  The third, start young. Or start early.

1. Compounding - If you invest RM10,000 at 5% then in 10 years it will become RM16,000+.  If you invest RM100,000 it will become RM160,000 in 10 years. So start early, invest as much as you can, and if you get 5% or thereabouts you are ok. (Don't be greedy or the money will disappear.)  

Where to get 5% pa or better at minimum risk? 

• The EPF is still a good place to compound your wealth. 
• The trick about compounding is to start early. So get a job quickly, work hard and start contributing to the EPF asap.
• Put away / invest as MUCH cash as you can into any savings which pays interest / dividends. 
• Leave it alone and before you know it you have a tidy sum.

Other than EPF you can invest in unit trusts but pick the good ones. Again get started early. From very early on I advised my sons to invest their money in a unit trust. They put away monthly amounts. This is on top of their EPF / pension schemes etc. I believe they are already getting good returns.

2.  Diversify your income.

From my own experience we started early. If you are married (happily) that is a huge plus point. A two income household already has a diversified source of revenue. In our case while I worked my wife started our gold jewellery business.  Much later I stopped working and joined the business. I also started another business - property and property development. Plus some other things. We are in a position now to fully retire. But we are not retiring yet. A few more things to do and also just for the excitement.

Start your own business. Move away from earning a fixed wage or salary and earn business income ie profits, commissions etc. Starting a business is the best. No one can guarantee success but even if your business has a good run for say five years, you can earn enough to retire at a comfortable middle income level. So start a business and get started young or early. (Because if you fall down, you can always start again).

My advise for those above 55 years who have retired.

THIS ENTIRE OPTION IS BASED ON LONGEVITY OR REMAINDER OF LIFE.

If you are a private sector person you can take out your EPF savings. Treat it very carefully.  Dont forget to take out ALL your EPF the moment you reach 55 years. If you do not, then EPF will not allow you to take out your savings until you reach 60 years.

Anyway, if you are 55 years old or over it is possible that you have one or two houses to your name.  It is likely that you have no more hutang (housing loans).

If you are living in an expensive urban area (KL, Penang, JB etc) and your kids are grown up, living on their own etc then my suggestion to you is SELL YOUR PROPERTIES.

(If you are living in Kuala Nerang where house rental is RM250 for a double storey house then this does not apply to you). 

You may have a nice house but you cannot eat your house. 

Neither can your house take you on an overseas holiday.

You need cash to do all that. 

If you sell your houses then you will have cash. 

Cash is king. 

Say you have ONE terrace house worth RM1.0 million. 

Sell the house and put the money into a Unit Trust or somewhere.

Where you can get 5% per annum.  

So RM1.0 million at 5% will earn RM50,000 pa.

Then what do you do? 

Where do you live?

1. Move to a smaller town (or back to your hometown / kampong)

2. Move to a much cheaper house / much cheaper area.

If you are 60 yrs old, should you rent or buy a house?

My view is you should rent. 

Lets say you move to Town A where rental for a nice terrace house or flat is RM300 per month. (There are still plenty of places like this). 

Then your annual rental will only be RM3,600. 

You will still have RM50k - RM3,600 = RM46,400 per year surplus CASH.

Your food expenses will hardly exceed RM5000 pa for two people. 

You will easily end up with surplus CASH of RM30k to RM40k per annum.

If you want you can BUY a much cheaper house in a small town but financially that may not be a very smart thing to do.

THIS ENTIRE OPTION IS BASED ON LONGEVITY OR REMAINDER OF LIFE.

You should enjoy a financially comfortable old age.

Say you outlive Dr Mahathir. 

If you are 60 years old that means you will live for another 30 years. 

So you sell your (relatively) expensive house for say RM1.0 million. 

Then you put your money where it earns 5% pa or RM50k pa.

If you live another 30 years that RM1.0 million in investments at 5% pa will generate RM50k x 30 yrs = RM1.5 MILLION.   

Plus your original RM1.0 million it means you will have RM2.5 million  CASH. 

If you rented a house at RM300 per month, your rental outlay over 30 years is only RM108,000. 

So RM2.5 million inflow versus RM108,000 outflow for housing, over 30 years. 

Ok say you live to be 80 years old only, you will earn RM50k x 20 yrs = RM1.0 Million. Plus the original RM1.0m it will be RM2.0m CASH.

If you rented a house at RM300 per month, your rental outlay over 20 years is only RM72,000.

So inflow of RM2.0 million versus RM72,000 outflow for housing, over 20 years.

So financially speaking if you are say 60 years old, middle income, retiring from work and career, it is better to sell your house / houses / properties in expensive areas, raise at least RM1 million, put that RM1m in savings / unit trusts that can generate at least 5% pa., then rent a house / apartment for much cheaper rental in a smaller town and live out the remainder of your life comfortable with plenty of CASH to spare.

And you do not have to work anymore.

No matter how nice is your house, you cannot eat your house. Neither can your house send you on holidays. Or buy any pair of new shoes, a new watch, new mobile phone, new 60 inch LCD TV  at any time. Or in my case a laptop. Believe me folks, these are the things that you can use at 60 years of age. 

My wife and I did something like this. 

Six years ago we sold some properties and moved out of KL and now we live in what is officially Beranang in Selangor. There are wild boars in our neighborhood and plenty of wild fowl (ayam hutan). If the MCO persists I know how to catch  the wild fowl. Wild boars tak boleh lah. 

We built our bungalow with a swimming pool here in Beranang. 

16,000 sf land area for a fraction of the cost in KL.

We go to the pasar in Nilai (5 minutes) or Seremban (25 minutes).

The pasar items are much cheaper than when we were in Bangsar and Bkt Jalil.

Same sized udang RM38 /kg versus RM60 /kg at Lucky Garden, Bangsar!!

Sadly there are now two really huge condo developments very near our house. 

The wild boars are less and the ayam hutan is also getting less.

Given the chance I would really like to move back to my hometown Ipoh.

Or fantastically beautiful Taiping.

Or Penang the Pearl of the Orient (maybe Balik Pulau).

Then there are other paradises like Raub, Kuala Kubu, Gerik.

Another suggestion is all the small towns along the ETS rail network (Electric Train Service) in the West Coast.

The East Coast is also very nice and much cheaper.

But in the East Coast you have to pick up the lingo. 

Kena kecek . .

The most beautiful paradise is Sabah. 

But I like to be within travelling distance of Bangsar Village, Hydrabadi Briyani in Brickfields, that giant bookshop in Cyberjaya, Mid Valley Mega Mall, the KLIA, my friends. So Beranang is just perfect.