Welcome 2009 with optimism

I'm back after such a long hiatus. It's almost the end of year 2008 and wow, what a year it has been. In 1998, we were hit with financial tsunami. Some of our corporations and individuals were caught with their pants down or worse lose their pants all together. Ten years later, another tsunami is hitting our shores and this time it's the MOTHER TSUNAMI.

Looking back at the beginning of year 2008, a lot financial pundits were predicting new highs for almost any asset class. As common sense tells us, whatever goes up must come down, and this time really it did crash, and crash hard! Most of us and the rest of the world panicked and try to sell off their financial assets at a huge loss. But of course some of us with barrels of cash in hand are getting elated at the golden opportunity that might come once in a life time.....

So what have I been doing this year? I started building a portfolio of unit trust funds beginning June 2008 and still waiting for further investments. As I mentioned before, whatever that goes down will goes up again and who knows it might shoot through the roof one day? That day might not happen in 2009, but with gradual accumulation of financial assets at beaten prices, surely that day will come and that's the day you will laughing all the way to the bank.

So how do you handle your finances in 2009? Below are some of the pointers that I can foresee some of us doing:

1. Start checking your cash flow status - try to monitor what goes in and out of your bank account and at the end of the month, see whether you are in the black or red. This is a very important step to know your financial health, especially in financial turmoil time. You might be a millionaire with ten bungalows but with negative cash flow, you might end up with nothing if the disaster hits you one day.
2. Reduce unnecessary spending - if you are in the red, you should reduce your spending immediately. It doesn't matter where you want to cut your expenses, but make sure you cut enough until your cash flow is positive. I know this is tough financially and emotionally, but think about this, what is more painful than losing all you have, all that you've paid for because you cant pay off your debt?
3. Start saving - with positive cash flow, you need to start saving the extra money monthly. If you don't have any emergency fund, try to build it with a target size of at least six months of your expenses. Put this money away in time/fixed deposit and never ever touch it until emergency time.
4. Be positive - having some cash buffer around during rainy days can bring positive aura/mood to a person because you know you have done your basic job in protecting yourself financially, emotionally as well as psychologically. After building enough emergency fund, you may use the extra cash to invest.
5. Buy low, sell high - 2009 might be a good time to buy financial assets because prices are coming down hard. You might not be able to buy at the lowest price point, but i guess you are close to that. Who knows ten years later looking back, you are glad that you did buy low and lower.

As people said, Roman is not built in a day. This is the same case here. What is critical is to stop procrastinating and start the steps mentioned above. As for me, I'm looking at step 5 now and looking forward to another exciting 2009....

Watch out 2009, I'll be hunting for more!!!!!!

Fixed Deposit (aka Time Deposit) Comparison

As mentioned in the previous post, fixed deposit (FD) or time deposit (terms used in some countries) is a very popular financial instrument in this country, especially for the risk averse consumers. In fact, for most people, FD makes up a major portion/allocation of their financial resources.

For those FD die-hard fans, here is a link where you can compare the FD rates among all consumer banks in Malaysia: http://www.bankinginfo.com.my/04_help_and_advice/0401_useful_tools/comparative_tables/pop_up/balances_up_1m.php

Should I put my money in Fixed Deposit?

I guess everyone at some point in time have opened fixed deposit/time deposit (FD) accounts before, especially for us, Malaysians who have very high savings percentage. In fact, there are billions of Ringgit being kept in FD accounts in our banking system now.

So why is FD so popular? Well, some part of it is due to legacy reason. In the older days when there wasn't any viable financial instruments to invest in, FD is considered the de facto choice. It is relatively safe (guaranteed by the government), and offers high liquidity (easy to redeem/withdraw to cash). It is because of these two reasons that so many people, especially the elders, trust FD so much.

Some of you might question on why we need FD since we can get higher interests by investing in unit trusts/shares. My personal opinion is that all of us should have FD as a part of our financial portfolio because:

1. As a liquid source of money for short term needs - the money that you need to use in 6 months to a year should be kept in a liquid position. FD is a good choice, especially if you can keep it in monthly term.
2. Safe investment - even though the interest rate is quite low at the moment, we should consider keeping some money in FD due to its safe investment nature.

As a summary, just keep enough money in FD for your short term needs, and invest the rest in other financial instruments. We will explore other options in the future article!

Cash Management - Savings/Current/Hybrid Accounts

A lot of us saves our monthly pay in a basic savings account. Depending on your needs / requirements, this might not be an optimum way of enhancing your returns. Let's explore the basics of some of the most common cash management accounts that we have in the market now.

Typically, cash management accounts can be divided into 2 main streams: Conventional and Islamic accounts. Conventional accounts basically means that the bank will pay you an interest for the money that you loan / deposit to the bank. Islamic accounts operate based on profit sharing concept, i.e. the bank will use the money to generate income that is compliant with Syariah laws. Then the returns are shared (either in 70:30 or 60:40 ratio) between the bank and you, as the co-owner of the money. So, what is the difference? To non Muslim folks, it doesn't makes a difference since the returns are almost similar, but for our Muslim friends might feel comfortable with Islamic accounts.

Both Conventional and Islamic cash management accounts have different products to cater to different needs/groups of people. These products can be categorised as follow:

1. Savings accounts - you are normally issued a passbook and you will not be charged any monthly fees/service charges.You will normally earn peanuts from the interests (normally 0.1 - 0.3%). I don't encourage you to save in this kind of accounts since our objective is to maximize our returns!
2. Current accounts - you are given a cheque book and issued a monthly statement for tracking purposes. This type of accounts will normally not be given interest but instead will be charged monthly fees for maintenance and statement printing purpose. Again, this is not we want to achieve our objectives.
3. Hybrid accounts - this is basically a current account that earns you interests. You will have the flexibility of current account and earn some extra cash as well. For some banks, they don't charge any monthly fee should you maintain a minimum deposit monthly or half yearly. For others, they might charge a nominal fee monthly.

As a recommendation, I would encourage you to make use of hybrid accounts since you have the flexibility and earn interests as well. The key is to find the suitable hybrid accounts that suit you cash level so as to minimize your costs (due to monthly charge) and maximize income (higher interests earned).

For this kind of hybrid accounts, most banks will require you to maintain average monthly balance of RM5,000 and some other banks RM10,000. Some of hybrid accounts that we have in the market are:

1. Prime account from CIMB Bank
2. My1 account from RHB Bank
3. Maybank Premier 1 and Premier Mudharabah account-i

Let's review the type of accounts that you use now and see whether it can maximize your returns. If it doesn't, then it's time to scout for the hybrid account that will cost you least but earn you most. This doesn't mean that you have to put all your money into such accounts since there are many more instruments that we can explore further in the future articles.

So, Happy Hunting, guys!!