Positive Parenting

Invest In Your Child's Future
Buying Your First Home
Don't Sign Up For That Credit Card Yet
4 steps to ship your finances into shape
Grow your money through smart investing

Invest in Your Child’s Future

Children grow up quickly and before you know it, it is time for higher education.
How financially prepared are you for this day that will soon come?

By Mr Tan Kar Hor, Chief Executive Officer, Prudential Assurance Malaysia Berhad

In the old days, parents toiled, sacrificed and saved every sen for their child’s education. Things have changed. Savings alone are no longer sufficient – they may not grow at a substantial pace, the stability and interest rates offered by banks for fixed deposits are variable and due to inflation, the value of your money may shrink over time.

The big question now is, how can parents fund their children’s education? Tuition fees for local and foreign universities continue to rise every year. News reports state that next year, several universities in Australia will be charging students RM620,000 for full degrees and up to RM660,000 for a combined bachelor of arts and medicine degree. In Malaysia, parents need at least RM200,000 in 20 years’ time, as this is the predicted cost for private colleges.

investing (eg shares, unit trusts, properties, etc). In such cases, you need to rely on your ability to make sound investment decisions. The question is, how much do you know about investing? Do you have enough money to do so? How do you safeguard your child’s education fund in the event of a market down turn or if anything happens to you?

When it comes to investing, there are always risks. But when your child’s future is at stake, it is best to be safe. The good news is, there is a middle ground for parents and this comes in the form of investment-linked policies.

INVESTMENT-LINKED POLICIES

Investment-linked policies are a relatively new type of insurance coverage that integrates traditional life insurance and investment. The premiums that you pay are used for life insurance protection and to invest in your choice of equity, bond or managed funds, depending on your risk profile.

Investment-linked policies are becoming an attractive option for parents today for a variety of reasons, one of which is flexibility and control. You may vary the amount of insurance protection for your child without affecting your premium, switch your investment between funds, top up your investment with lump sum payments or make withdrawals to pay for your child’s education at any time.

Investment-linked policies are managed by professionals who specialise in reading market trends and finding investment opportunities that will bring you potentially higher returns so you can build your child’s education fund faster.

Like all investments, investment-linked policies may not guarantee returns but when you are backed by a reputable company with tremendous resources, the likelihood of losing all your hard-earned money is minimal.

Besides building your children’s education fund, investment-linked policies ensure their well-being. Coverage for death, total and permanent disability, accident, critical illness, hospitalisation and surgery are usually available. What’s more, investment-linked policies allow you to attach premium payor option that will continue to pay for the premium of the policy, even when you are no longer around. This ensures that your children’s education fund remains protected.

Investing to build your children’s education fund is a serious undertaking. Make the right investment decisions today to ensure a brighter future for your children.

EXERCISE PRUDENCE ALWAYS

Regardless of which financial product you decide to opt for, always practise prudence. Do not be hasty and do your homework. Read published reports of the company, newspapers, journals and magazines, surf the internet, sign up for investment courses and seminars. Speak to the professionals (ie banks, remisiers, financial planners or insurance agents, depending on the investments you choose).

Buying Your First Home

Here are some sound tips on how to select your first home
and finance it without burning a hole in your pocket.

Buying a home is an exciting event. However, before you commit yourself to what is probably the biggest purchase you will make in your life, you need to plan your finances carefully.

Having your plans mapped out will help you save time and avoid uncertainty and anxiety. With your loan repayments in order, your family’s joy of having your own home will not be marred by constant worry and arguments.

What types of property are out there?
The two types of residential property are landed (houses) or not landed (high or low-rise apartments or condominiums). They may be freehold or leasehold. Freehold property gives you ownership forever or until you decide to sell it while you own a leasehold property for the duration of the lease (usually 99 years).

Setting your budget will help you decide on the type of property to get. The general rule of thumb is that home buyers can buy properties that are 1.5 to 2.5 times their annual income.

The monthly instalments of your home should not be more than 1/3 of your gross family income.What you can afford also depends on the amount of loan you can get, which is based on the amount of your other commitments such as car loans, personal loan and credit cards.

How do I choose the property?
A home is a big purchase, so do some research before committing yourself. Make a site visit and note the amenities, layout, neighbourhood and find out the resale value of the property. If possible, talk to the residents there as they would be the best people to give you a clear picture of the neighbourhood.

If you are buying a property that is still under construction, do check the background of the developer. Does the developer have a good track record and all the valid licenses issued by the Ministry of Housing and Local Government and respective local authority?

Source of funding
The funding for your property can be a combination of three main sources:

Savings: You should have enough personal savings to pay for the down payment and other related costs such as legal fees, disbursement fees, stamp duties and others. The more savings you put into your property, the smaller the amount of your loan and subsequently, your monthly instalments. However, you must not ignore other needs, such as saving for emergencies, the children’s education and your retirement fund.

Withdrawal from the Employee Provident Fund: You can withdraw from the Account 2 of your EPF for a bigger down payment. Check with your nearest EPF office to enquire about your withdrawal eligibility.

Loan facility from a financial institution: You will be committing to a long-term relationship with the bank that you choose to finance your house with, so choose your bank carefully. Do your homework and check out the different types of loan packages each bank offers. Consider also their overall efficiency and reliability.

NEW PROPERTY MONEY TRAPS

Some new property owners go overboard with their renovations and interior decorations by taking a bigger bank loan to support the extra expenditure. This translates into higher instalments and a heavier financial burden for the family. Remember this before calling the contractors: try getting the building materials yourself as they will cost less, bargain with the contractor for the best price, and skip elaborate designs if you cannot afford them.

Don’t Sign Up For That Credit Card Yet

Credit card offers and promotions are tempting but
read this article before signing that registration form.

How often have you been accosted by salespeople in a shopping mall enthusiastically waving credit card registration forms at you? With so many credit cards being offered these days, you may be tempted into signing up for more than you actually need. Whether you are hunting for your first card or thinking about getting a second or third (or fourth!), remember this:

Promotional gifts
To promote their credit cards, issuers often offer special gifts. Do not be swayed just because there is a chance you might win a brand new car or a flatscreen TV if you sign up. The offers usually come with terms and conditions. Read and understand them carefully. Note what the penalties are for not complying with the conditions that have been set.

Special rates
Shop around for the best bargain. These days, many credit card issuers do not impose joining fees or annual fees for a certain time period to attract more applicants. However, do note that there are expiration dates for these offers. The normal rates that apply after that are often stated less prominently – in smaller fonts and possibly at the reverse page of the application form.

Finance or interest charges
Your credit card issuer will impose finance charges if you do not pay up your outstanding balance in full after the interest-free period. If possible, settle it in full to avoid having to pay more.

Interest-free period
Most credit card issuers allow a 20-day interest-free period from the credit card statement date. Try signing up for credit cards with longer interest-free periods to settle your balances in full without incurring finance charges.

Cash advance / balance transfer
Fees for cash advance or balance transfer can be quite high – ranging from 3% to 5%. Look for credit cards with lower cash advance/balance transfer fees. Use your credit card to withdraw cash only as a last resort.

DO NOT FORGET THE TERMS & CONDITIONS

Read the T&C carefully when applying for a credit card to understand the following:

• The various charges imposed
• Usage of the credit card
• Rights and responsibilities of the card holder and card issuer
• Repayment terms and liability for unauthorised transactions
• Privacy information

But do not stop there as there may be changes in the policy, rates and T&C from time to time. These are often announced in your monthly credit card statement, so do read them carefully.

4 Steps to Ship Your Finances into Shape

Now that you have a family, managing your money is all the more crucial

Your new baby will make you re-examine areas of your life you used to take for granted. The first is usually your finances. It does not matter how much you or your spouse is earning. What is important is knowing where you are now, where you want to go and planning a way to get there:

1 SET GOALS

Your financial goals reflect wha i’s most important to you and your family. Goals help you manage money and motivate you to budget and plan. Together with your spouse, list down:

• Short term goals: achievable in a few weeks or months like a weekend trip or new clothes.
• Medium term goals: achievable within one to five years such as a car or a computer.
• Long term goals: achievable within five to ten years like a house or your child’s education.

How much to save for each goal depends on you and your spouse. Discuss this together openly and come to an agreement you are both happy with and can manage.

2 KEEP TRACK

The first step to achieving your goals is to formulate a sound spending plan. Start by recording your household expenditure for eight weeks. Your aim is not to cut down but to find answers to these questions:
• Where and how do you spend your money?
• How much you owe every month?
• How much is left at the end of the month?

3 REVIEW

So, are your spending habits in shape? If you find that you have nothing left by month’s end, you need to assess your habits. Ask yourself:
• Which household items can you switch to a more economical brand?
• Do your grocery lists contain ‘nice to have’ items rather than necessities?
• Review your luxury expenses (eg. electrical goods, magazine subscriptions, beauty treatments, entertainment, etc). Which ones can you do without?

4 PLAN IT

Now that you know your spending patterns, you can whip up a spending plan that will work for your family. Here’s how:
• State your monthly total income
• Add up your total expenses
• Set aside a fixed amount for emergencies or seasonal expenses like road tax or insurance renewals.

If you have money left over after this, that is good news. You are one step closer to achieving your goals. If not, you need to revisit Step 3 and reduce unnecessary expenses.

NEW BABY MONEY TRAPS

Many new parents willingly splurge on the best for their precious new baby. Here are some things to remember before loosening those purse strings: plan what you need to buy, stay away from ‘oh-so-cute’ but unnecessary items, bargain for a lower price when possible, buy in bulk if you have enough cash and try to shop during sales periods.

Spend smart and baby will look like a million bucks without your having to actually spend a million.

Grow Your Money Through Smart Investing

Putting your money to work wisely can help you ensure a comfortable life for your family.

There is no magic formula to investing. You may or may not get back the sum invested, or you may get back much more. Smart investing is not about luck. It is about careful planning and time spent understanding the market, either through research or expert advice. This article helps you start off on the right note:

1 KNOW WHY

What is your investment goal? Is it to obtain income from your investments, grow your net worth or maintain the purchasing power of the principal amount invested?

Your investment goals should fit into your plans to achieve your financial goals – whether it is to buy a house or pay for your child’s education.

2 UNDERSTAND KEY ISSUES

Because an investment is a long-term commitment, you need to first consider these questions:

How much money do you have for a medium to long-term commitment?
Do you fully understand the product that you plan to invest in?
Have you compared returns on other similar investments?
Do you understand the risks involved? What is your tolerance level for loss?
How much returns will you be satisfied with?
What is your time frame for the investment?
How can you monitor the performance of your investments?

3 KNOW INVESTING CONCEPTS

Diversification. Different investments carry different risks, so vary your investments to minimise your risk.
Time value of money. Compound interest means the earlier you invest, the greater your return will be.
Inflation & taxes. Inflation and taxes reduce the value of money. Invest in assets that bring returns even after the long-term impact of inflation and taxes.
Maximising returns. Calculate how long it takes to double your savings by dividing 72 by the interest rate on your savings. If your interest rate is 4%, it will take you 18 years to double your savings (72 divided by 4 = 18). Consider other options if the calculated return is unsatisfactory.
Risk-return relationship. Different investments have different levels of risk. A savings bond has lower return but is “safer” than equity unit trust or shares which promise high returns at higher risk.

4 KNOW WHAT FITS YOU

Fully understand the investment before committing yourself. Negative returns are possible, so be prepared. Do not hesitate to ask your investment planner if there is anything you are unsure about.

INVESTMENT TRAPS

• Do not invest in get-rich-quick schemes with minimal risks. Most are illegal.
• Do not borrow money or take out cash from your credit card to invest.
• Do not rely on hot tips and rumours.
• Do not be pressured into making a decision.