Personal Finance Terms You Should Know

This are the personal finance terms that you should know. It is not completed but good to have. Hope you enjoy it.

 

• Active management - A type of financial portfolio strategy that involves frequent hands-on strategic intervention (buying and selling assets) from a financial adviser.
• Amortization - The process by which the amount due on a loan is reduced over time. Generally a higher proportion of each payment goes toward interest when you begin paying off the loan, with an increasing proportion going toward principal over time.
• Annual Percentage Rate - Annual percentage rate (APR) is the total amount it will cost you to borrow money, be it through a loan, credit card, or other instruments, each year. It takes the amount of interest you'll owe and adds it to any other relevant fees.
• Annual Percentage Yield - Annual percentage yield (APY) represents the total amount of interest you'll earn on an investment or savings account in a year, including the effects of compound interest.
• Appreciation - An increase in the value of a particular asset over time.
• Asset - An item a person or entity owns that has financial value or is expected to have financial value in the future.
• Asset allocation - The mix of different financial vehicles (such as bonds, stocks, ETFs, cash, mutual funds) that an investor can spread their money across. It's important to maintain an asset allocation that's in line with your risk tolerance.
• Balance sheet - A document that provides prospective investors with a summary of a company's financial standing by detailing its assets, liabilities, and shareholders' equity.
• Bankruptcy - A legal proceeding that gives a person or business who can no longer pay their debts a chance to be released from the responsibility of paying those debts.
• Bear market - A way of describing the state of the stock market that indicates that stocks are declining in value overall.
• Blue chip - A term used to refer to companies whose stock is considered a solid investment. Maybank, Axiata, Kuala Lumpur Kepong, and Nestle are blue-chip companies.
• Bonds - A type of investment that is essentially a loan from the investor to the bond issuer ( such as the Malaysia government or a corporation). The bond issuer pays back the invested money, with interest, at specified intervals of time. Bonds carry less risk than stocks.
• Bull market - A way of describing the state of the stock market that indicates stocks are increasing in value.
• Capital gain - The profit that results from selling an asset that has grown in value.
• Capital loss - The loss an investor experiences when they sell an asset that has lost value.
• Cash flow - The movement of a person's, household's, or business's money (coming in as income and going out as expenses).
• Fixed Deposit - A financial instrument that locks away cash so that you can't use it for a certain time in exchange for a higher interest rate. Returns on FDs are guaranteed.
• Index - A tracker that measures the market performance of a particular sector, often by using a group of different securities to represent a theoretical investor portfolio. The KL Composite Index and the Dow Jones Industrial Average are indices.
• Index fund - A mutual fund made up of investments that reflect a market index, which gives investors built-in diversification. Index funds are known for their low fees.
• Inflation - The percentage by which the cost of goods and services increases and the value of money decreases over time.
• Initial public offering (IPO) - The first time a private company offers shares of itself to investors at large.
• Liabilities - Money that an individual or entity owes someone else.
• Management fees - Money paid to investment managers and/or investment advisers in exchange for managing investments.
• Mortgage - A loan you take out to buy a piece of property, where the piece of property is the collateral. That means if you fail to make payments, the lender can seize the property.
• Mutual fund - A financial instrument that uses a pot of money from many different investors to buy a diversified mix of stocks, bonds, and other securities.
• Net worth - The total value of all of your assets (wage income, investments, property) minus the total amount of your debt.
• Passive management - A hands-off investment strategy where the investor sets up a portfolio to reflect a stock index, often through ETFs and mutual funds.
• Premium - The amount you pay monthly to maintain insurance coverage.
• Price-to-earning (P/E) ratio - The measure of how a company's current stock price relates to its current earnings per share.
• Principal - The dollar amount of money you deposited into an account or borrowed, not including interest.
• Real Estate Investment Trust (REIT) - A public company that owns a series of properties that generate income. Investors can buy shares to gain exposure to real estate.
• Recession - A prolonged period (at least several months) of declining economic activity.
• Refinance - To replace a loan, such as a mortgage, with a different loan that has a better interest rate or other more favorable terms.
• Return on investment - ROI is a measurement of how much a particular asset has grown in value since you bought it relative to how much you paid for it.
• Risk tolerance - The measure of how much market fluctuation an investor is willing to take on in their investment portfolio. Risk tolerance depends on many factors, including how close a person is to retirement, what other goals they may use the money for, and their general disposition.
• Robo-adviser - An online service that offers financial planning and automatic investing operated by algorithm, generally with a much lower fee than a human financial planner.
• Stock - A type of investment that, when purchased, gives you partial ownership of the company. Also known as a share.
• Yield - The earnings an investment returns to its owner, expressed as a percentage. Yield can include interest and dividends.

Versa - Digital Cash Management

I have been looking for alternative for Fixed Deposit for a long time. I don't think FD is a good option due to the long lock-up time. I heard about Stashaway Simple, but I think the process to get into it was tedious thus, I didn't do anything with it.

Then, I came across Versa and after using it for a while, I find it very easy to use. Furthermore, the returns that I am getting it great.

A bit of information about Versa:

• Established in 2021
• Regulated by Securities Commission of Malaysia
• Earn up to 2.46% interest per annum (on par with FD)
• Any Malaysians aged 18 and above can start saving/invest via Versa from as low as RM1
• Can withdraw anytime without being charged any penalty fee.

How it works:

1. Versa help investor to put their money into the money market (short-term debts issued by bank in order to accumulate a short-term cash-pile to make up for their shortfall in their daily deposit reserve).
2. Versa invest the money they got from investors into Affin Hwang's Enhanced Deposit Fund and earn similar interest rate to FD as returns.
3. Versa give the earning back to investors.

Versa is a safe place to use as it is under the regulation of Securities Commission of Malaysia. The cash deposits from investors are held by HSBC (Malaysia) Trustee (a third party trustee).

What else you need to know about Versa:

• Withdrawal will take 1 or 2 days, depending on the time of withdrawal.
• It is not Shariah-compliant.
  

As long as you have a smartphone that can download the app, you can sign up as a investor with a minimum deposit of RM 1 only. And if you use my referral code (X3Q3UGR8), both you and me will be able to get a bonus of RM 10 as bonus once you deposit RM100 into your account.

Versa: https://versa.com.my/

The Side Hustle Series 4 - Tell the World

There is a saying that said, "if you build it, the customers will come to buy from you." For those that have started some sort of business, you know that this saying is not true at all.

 

No matter how good you built your products, if no one knows about it, no one will come to buy it from you. So, if you want to sell your products, you will have to tell the world about them. And the best way to tell the world is without spending any money.

While it may not be easy in the past, the current world has changed so much that there are a lot of methods available to you to use to promote your products to the world without using any money. The only thing that you need to put in will be your time.

Social media platforms such as Facebook, YouTube, Instagram, Twitter, blogs, etc have become a part of our lives. And these platforms help a lot to spread the news. And best of all, it is free to use.

Also, another way to get people's attention is to give some samples for others to try. If the product is good, it will definitely capture the audience's attention and, hopefully, convert them into your customers.

In The Malaysia Dividend Champions List, we also gave some samples for free so that potential customers would know what they are paying for when they sign up as a subscriber.

Many people would have forgotten that the services are also very important. When you give good services, the customer would be happy, and in turn, will share about the good experience that the customer got from you. This is called word-of-mouth marketing. It is the same on the other end. If your services suck, it will be spread even faster.

The Green Ringgit Challenge

Hello 2021.

We are now in a new year and to kick off this new year, let us have a look at this challenge that I did personally for 2020.

More than a year ago (2019), I came across this Challenge to save money. I felt that it could be fun, so I told myself that I would do that challenge for 2020.

The challenge is very simple. I will keep every RM 5 (that is why I call it the Green Ringgit Challenge) that pass through my hand (if it belongs to me). It started very slowly because I don't use can much but somehow, at the end of 2020, I managed to keep 50 pieces of RM 5. When I did the maths, it means that I managed to save up RM 250 in 1 year. It may not be a lot to some but still, I'm proud of myself to be able to save up this RM 250.

With 52 weeks in a year, it means that I almost find one RM 5 every week.

The only thing that I can say is that if I'm able to save RM 250 with this method, you can do it too. If you want to bring it up a level, you can do the following challenges:

The Red Ringgit Challenge (RM 10)
The Orange Ringgit Challenge (RM 20)
The RM 50 Ringgit Challenge

As for me, I have decided to continue with the Green Ringgit Challenge for another year. Will try to beat the 50 pieces records.

Would you want to join me in this Challenge?

Is lottery our God of Fortune?

Who are not intrigued by the thought of striking a lottery and get rich? Chances are, you would have bought some lottery tickets before just to test your luck. Maybe you are still buying it religiously every week.

Many people that went to buy the lottery would view the seller at the counter as their God of Fortune. But is it really as what you think? God of Fortune supposed to be giving you a fortune. But when you are buying the lottery, are you getting any "fortune" from them? Or are you giving your "fortune" to them? 

But if you really look into the possibility of winning the lottery, you would soon realize that the odds are actually against you. For a game of four digits (4D), there are a total of 10,000 combinations so, if you buy one number, the probability of winning is 1 over 10,000 or 0.01%. I am not sure about you but for me, that percentage is very, very low. 

Do note that it does not mean that you will win it once after buying the same number for 10,000 times. Every time you buy, you have the probability of 0.01% of winning.

So, the best thing that you should do is to save up these monies and invest it in right places, such as SSPN (if you have a child), money market or investing in REIT or some of the blue chips stocks such as PBBANK, MAYBANK, or TENAGA. This way, your money would be able to grow.

The simple maths to achieve Financial Independence.

Financial independence is where your stash of Ringgit is able to provide you with enough Ringgit to pay for all your expenses without the need for you to work at all (unless you want to). The stash of Ringgit would usually be invested somewhere with a minimum return of at least 4%  (the higher, the better).

For you to be able to achieve financial independence, there is only 1 factor only. And the factor is (drum rolling), your savings rate, as in the percentage of your take-home pay.

WHAT? WHAT IS THAT?

To put it simply, it is how much of the pay that you are saving.

For example, if your salary is RM 36,000 per year and after all the expenses are being deducted, you still have RM 3,600, then your savings rate is 10%. If you still have RM 18,000 after all the expenses, then your savings rate is 50%.

To find out how long would it takes to achieve financial independence, we would have to make some assumptions to proceed.

• Assumption 1 - You can earn a 5% investment return after inflation during the savings years.
• Assumption 2 - You will live within the 4% safe withdrawal rate after retirement.
• Assumption 3 - You will want your stash of Ringgit to last forever.
• Assumption 4 - Your net worth is RM 0.

Below is how many years you would have to work until you achieve financial independence according to the different savings rates. 

As you can see, if you can increase your savings rate, you would be able to achieve financial independence faster. 

So, how do you increase your savings rate?

There are two factors:

1. Increase your income.
2. Reduce your expenses.

While both of the above are important, you can start working on increasing your savings rate by cutting down on your expenses. Tracking down all your monthly expenses would give an idea of how much is your expenses (and how much you are saving at the moment). Look into your expenses and think of how you can reduce it. The more common methods are changing mobile phone plan to a cheaper one, eat at home instead of eating out, cut subscriptions that you don't use often (gym, Astro, Netflix), and take public transport if possible. The reason is simple to start reducing your expenses because of its double effect:

1. Increase the amount of money you can save.
2. Reduce the amount that you need every month for the rest of your life.

With this, you would be able to achieve financial independence faster!