Mar 31st, 2010 by AhYap
Every Sunday on Sin Chew paper we have FREE consultation on financial planning by “experts”. The Ah Beng and Ah Lian will ask questions like “I am working as XX and making YY and I am saving ZZ … I have 3 wives and 23 kids … can I retire at age 40?” And the “expert” will try to answer his question.
Almost all the time, these are not good advices. Sorry to hantam you again, Mr Newspaper.
These so-called “financial planner” always use one and only one solution in financial planning. They approach is for you to save X amount of money while you are working and then after you retire, you will start to consume your savings until you die!
This is a very dangerous approach because even Sultan or Mahathir don’t know when they are going to die! It can be 1 day after you retire, or it can be 50 years!!!
So how do you predict and plan for that? If you assume you die at 90 and save enough money to be spent until 90. What if you are still alive after 90?
There is no flexibility. 2 outcomes always happen.
Outcome #1 – The retiree finish his savings long before his planned “dying” age. Most people finish their EPF within the first 3 years! So they either need to work again or expect their children to feed them.
Outcome #2 – The retiree is too afraid to spend and save too much, living in a very frugal way trying to keep as much money as possible in the bank for the future. Future for them is very uncertain and they always need to “save for the rainy days”. But isn’t it the reason you work so hard in your life is to enjoy life after you retire? How do you enjoy life when you are afraid to spend, when you are still worry about the “future”?
Both outcomes are undesirable. Unfortunately, this is what the financial planner “plans” for you. Or should I say, “set you up!”
No matter which group you are in, both are very suffering outcomes. The reason you will fall into group is because of your life-long habits.
Habit #1 – If a guy makes a lot of money and contributes to EPF, his EPF will be very fat at the end of his retirement. And since he knows he is “fat” by then, he usually spend a lot of his money on his Tag Heur and Armani. A person who has a habit of spending a lot of money in his life won’t change in 1 day. He is expected to finish his EPF in a short few years even they are meant to be used for 30 years!
Habit #2 – If a guy live frugally for his working life to save a lot of money, it becomes a habit too and when you give him a lot of money to use, he is still fearful to use and spend them. It has been a habit trained for a few decades.
So what is the solution?!
That’s why, if you really plan to retire. Everyone must read the book “Rich Dad Poor Dad” and “Cashflow Quadrant”, both by Robert Kiyosaki. Don’t read newspaper! How much can you learn from short articles that was taken somewhere here and somewhere there by the reporter? All they want to do is to fill up the newspaper with contents and they have to do it every fucking day. How do you have so much great contents every day? Contents that are great retain their value everyday. But in the newspaper business, you can’t publish the same content everyday or else who wants to buy your paper?
So read more good books, not newspaper. People are reading Bible and Al-Quran for more than 1 thousand years. Do bible and Al-Quran need to change everyday?
“Rich Dad Poor Dad” and “Cashflow Quadrant” are the 2 books that you must must must must must must must must read if you want to have a good retirement. If you find it very hard to read 2 books, God bless you. I have seen many of my Uni friends that can study so hard and read so many boring college books for exam but can’t find the energy and interest to read 2 simple books that read like story books. What a shame!
Don’t borrow the book, BUY IT! Only when you buy it, you will really consider reading it. And try to be very excited about it. I suggest you to drive to MidValley or KLCC and do nothing else but just to buy the book and immediately go home to read it. With that effort invested, your mind know you are really serious and you will be able to get great results from it. [Don’t buy 2 books together, read “Rich Dad Poor Dad” first. Then drive again to buy the other book after you finish. So your mind know you are really serious]
“But you haven’t tell me the answer!”. Yes, I heard you.
The correct way for normal working people on retirement is, you don’t try to save a chunk of money that you plan for consumption when you retire. That means you don’t calculate stuff like I need 3k a month after I retire and that means I need 3k x 12 months x 30 years =~ RM1 million sitting in my bank account when I retire. So after that I can take out 3k every month from the bank account to use.
I am not saying that you can’t save that much of money. Actually you easily do so! But the problem is not on “you can’t save that amount of money”. The problem is that the plan won’t work easily after you have that 1 million sitting in the bank on the day you retire.
Why? Because as I have said earlier, people either overspent and finish them in a few years. Or they simply are too afraid to spend over worry about the future.
The problem is people get very confused when they retire. For their whole life when they are working, they are receiving salary from their job every month. They know even they finish their money this month, they will still have the money next month. So this allows them to live for a few decades without any problem.
But once they retire and is given a large chunk of money, the whole concept of financial and money changed! Now they no longer need to work. But that also means now they no longer have salary coming each month. Now what they have is RM1 million in the bank account. Do they know how to go forward from here?
If you are in this situation, do you know? If you wants to travel, how much you are willing to spend on travel? If you want a lot of Louis Vuitton, how much LV you can buy? If you need another wife from China, do you know if you can afford it? If you want to donate money, how much money you can donate before you need donation from someone else?
The consequences of all these is either – you overspend or your under-spend.
All of these happens because you (and the newspaper “expert”) focus on the wrong thing.
Newspaper way of financial planning is BULLSHIT.
To retire, you don’t focus on CASH. You don’t focus on that 1 million or 10 million in your bank account.
To retire, you focus on CASHFLOW. How much money you can receive each month when you are not working!
If when you retire, you own 4 fully paid off properties that will pay you 3k per month, you are well taken care of no matter how long you live! You can spend all your money with your new China wife or Vietnam wife or you can donate all your money to charity every month without worrying about yourself.
Because like old time, you know, next month, you have new money coming in. And better still, you won’t be fired because you don’t have a job! This is call “passive income”.
Isn’t this so much simpler than trying to predict how much to save and how long you will live? Isn’t this much more simpler than having to budget how much you can spend each month, how much you can donate, and what “grade” of China wife you can afford?
Your goal of retirement is to build passive CASHFLOW, not CASH.
For working adults, the most easy path is through rental properties.
That means, you are buying properties with the plan to rent it and not to sell it. And in your working life, you accumulate these rental properties and build up your cashflow.
For example, if you own 5 apartments in KL when you retire and the rental you collect is 4k, basically you are financially free for you entire life! This is very different than having a few millions in your bank account because you really don’t need to budget much and you can spend everything you have every month. Even if you can’t rent out 2 apartments, you are still covered by 3. Unless tsunami wiped off KL or you like to visit Genting Highlands, your financial is well taken care of. Plus rental income can keep up with inflation so your income will increase for years to come.
If you don’t want to own properties directly, you can own them indirectly through buying REITs. REITs are listed stocks in the stock market which their main business is to own properties and get rental income from it, then they will distribute the rental income it to its shareholders. There are many advantage and disadvantage of REITs but it is really a great tool for working adults. The best is you can start with very little money since REITs are mostly RM1 or RM2 stocks.
I will write more about REIT in another post. But to give you a quick example, say AXREIT (best REIT listed in Malaysia so far) is around RM2 and they pay dividend quarterly. One year you are likely to receive 16 cents after tax as dividend and that would means a 8% yield. If you have RM1 million invested on it, you can expect to receive RM80k per year (or RM20k payment per quarter to be exact).
More elaboration later but the main idea is with RM80k per year passive cashflow, it makes your life much more easier than having a big chunk of money in your bank account that you need to decide how much to be taken out for consumption. You don’t have budgeting problem anymore.
These are very simple concepts. Most people can grasp it at once. But some people find it very hard to understand. And unfortunately, it is true that for people who can’t “get it” at once, usually they will need a lot of time to understand it. And since they usually don’t invest that extra time, they will have no choice but to screw up later.
If you are that person, my question to you is, “Do you prefer to screw up when you retire, or you prefer to spend some hard time and effort to understand the concept of cashflow?”
It’s your choice. If you have read this article, that means GOD has somewhere somehow given you a choice in your life. [GOD can’t show you his face and talk to your directly… he use many ways to tell you things…]
If you still screw up, please don’t blame GOD or anyone. It is you who have decided to give up. You’ve make a choice today.