Tuesday, April 1, 2014
Friday, March 28, 2014
My study loan of RM50,000 was charged at a flat rate of 9% where I was required to repay this principal and interest within 5 years after my graduation from university. The study loan was a flexible loan where I could repay more than the minimum monthly repayment or a whole lump-sum in order to save interest costs.
However, my 1st year in work did not even make me to save at least RM10,000 as I was only paid RM750/month, so repayment of RM50,000 study loan seemed impossible. I once doubted that the ROI for my tertiary education could be negative. Fortunately my working income jumped few folds after I completed the graduate training programme and the bank hired me as the permanent staff.
With stable income and fat bonus from the bank, I was able to save close to RM30,000 in the 2nd year of work and invested these savings into shares listed in Bursa. I was able to settle the study loan and its interest with full repayment after working for 3 years so I could move on to next phase for a plan to possess my own assets. Over the years in my 20s, there was peer-pressure of having a nice car, fancy gadgets, fantastic holidays, delicious food etc, but I resisted all temptations to overspend with the will of being financial freedom earlier before age 40.
As I have shared in the previous post that I took a 2-year break for full-time study of the CFA programme commenced in year 2008, where my investment portfolio and savings were amounting to RM150,000. During the 2-year study, I got a lot of free time, hence I also engaged in other businesses and activities and these almost exhausted of my investment and savings.
The expenses breakdown of the 2-year study were shown below:
Examination and registration fees for the CFA Programme= US$1,500 (approximately RM4,000 to RM4,500 for all 3 levels)
Extra curriculum class for the CFA Programme = RM11,000 (for Level II & Level III)
2-year living expenses = RM30,000++
Travelling expenses = RM10,000++ (1 month to Thailand and 3 weeks to China)
Prawn rearing business start-up costs = RM20,000
Acquisition costs for 2-acre vacant land = RM70,000
The prawn rearing business did not work well and it was eventually written off from my book, left only 2-acre vacant land which is turned into a banana estate. The reasons I bought the 2-acre land due to attractive price and also this land is nearby my home town house and thus my father who is a retiree can spend his spare time in plantation.
I completed the CFA programme in August 2010 where I only had left with some pocket money of less than RM5,000, I realised I was just back to square one in my finances and this was the similar situation when I graduated from the university 8 years ago. I was broke and need a job to re-build my financial goal again during the time when the world economy was just recovering from a financial crisis since year 2008.
Thursday, March 13, 2014
An 18th century math equation may hold answer to finding missing plane, say scientists
Scientists believe the solution to finding Malaysia Airlines flight MH370 may lie with a mathematical equation.
Speaking to Al Jazeera, they say that Bayes' Theorem, an 18th century mathematical equation, could help to locate the missing plane which dozens of authorities worldwide have not been able to after five days of search and rescue operations.
“It’s a very short, simple equation that says you can start out with hypothesis about something - and it doesn’t matter how good the hypothesis is,” said Sharon Bertsch McGrayne, who has authored a book explaining the method in layman's language, The Theory That Would Not Die.
And the hypothesis is subject to change, based on probability, but can still be used with the theorem. Pretty much based on the concept of learning from experience, one can say.
It is because of this character of the formula - forcing researchers to change their hypothesis with each new information - that the probability becomes more accurate.
According Lawrence D. Stone, chief scientist at Virginia-based consultancy Metron whose help was sought to apply Bayes’ Theorem in the Air France incident, Bayes’ Theorem “allows the organisation of available data with associated uncertainties and computation of the PDF (probability distribution function) for target location given these data".
In the past, Bayes’ Theorem, said to be discovered by an amateur mathematician in the 1740s and modernised by French scientist Pierre Simon Laplace, had helped locate German U-boats during World War II and spot Soviet submarines during the Cold War. More recently, it is used in Google's "driverless cars" project and in stock market predictions.
Advocates of this theory said it was also used in the search for the black box of the ill-fated Air France flight 447, which crashed in the vast Atlantic Ocean in June 2009.
What took two years for other experts in the search for the black box, took only five days for consultants who applied the Bayes’ Theorem, to finally find the device 12,000 feet under water.
Stone told Al Jazeera that in the current search for flight MH370, it is “highly unlikely” that Bayes’ Theorem is being applied.
That is not to suggest it is totally absent.
Bayes' Theorem is pervasive, and those involved in the current search have applied a certain Bayesian flavour in their search, "but it then got upset when their prior calculations were incorrect,” said statistician Professor Bradley Efron of Stanford University, as quoted by Al Jazeera, referring to the conclusion by Malaysian authorities that the MAS plane could have ended up in the Strait of Malacca.
Bayes' Theorem, after all, is all about learning from experience, which is probably why Efron said one would need "reasonably accurate past experiences" for the theorem to work. In other words, to calculate accurately to locate the plane. – March 13, 2014.
When I first read this news, I was wondering how can Bayes' Theorem can find the missing plane MH370?
The formula of the Bayes' theorem is stated below:
As mentioned in the press above, the sentence highlighted the key character of this formula is "forcing researchers to change their hypothesis with each new information - that the probability becomes more accurate".
By referring to the prior probability and feeding the posterior probability with new information to ascertain the location of the missing plane. This could be further supported by Laplace's Bayesian Probability, i.e. to make a reference analysis in determining the subjective probability and focus on zones that are within the circle of highest in Bayesian Probability.
I hope the Bayes' Theorem can be applied practically in the searching of the missing plane MH370.
With all the plans in place, the next step was to set a financial target in the accumulation of a net worth of RM1 million. There are 2 key variables in the formula of wealth accumulation, i.e. annual savings and the investment return for the annual savings.
Initially in the 1st scenario, I set an annual saving target of RM10,000 and together with an annual investment return rate of 10%, I realised I may not be able to achieve the mark of RM1 million within 20 years or before age 40. Below is the illustration that I could only achieve a networth of approximately RM640,000 within 20 years.
In view of the above, I revised the variable on the annual savings from RM10,000 to RM20,000, and I would be able to reach the mark of RM1 million in year 18 as shown in 2nd scenario below:
Well, I was not content with the result of only achieving the mark of 1st million net worth in year 18, I wanted to make this happens more earlier. So subsequent 2 more scenarios with the assumptions that I could up the higher annual rate of return to 20% and/or have my savings increment will inflate at a rate of 3% annually.
Looks like the 4th scenario would be the ideal plan on meeting my 1st pail of gold within 12 years. I was excited and started to dream that should I not only work hard so I would earn and save more and have salary/savings increment, but I would also spend time on doing lot of research in finding good investments with an annual return of 20%, then I would be able to be a millionaire when I’m at age of 32!
This year I’m at the age of 31, am I close to be a millionaire now? Well, things seem not going as planned.
Thursday, March 6, 2014
I was wondering how could I make a fortune of RM1 million when I began to work 10 years ago. What can I do to achieve the target? How would I execute plans to achieve the target? Should I work my ass out to be a top executive in a company so I would be rewarded high income salary and bonus? Should I become an entrepreneur in doing my own business or become an active investor? I had no idea at that juncture.
During the time I was staying at Wangsa Maju, I used to visit my best friend who was still studying his diploma at Kajang during the weekend. We always talked about what would be our future and 1 day he shared me a book and told me that this could be our future. The name of the book is ‘To be an intelligent investor’ (做个聪明的投资人) written by John Mark (麦青远). This is the book where I came to know Berkshire Hathaway, its CEO Warren Edward Buffet and value investing, to realise that I can be financial free by investing into good companies and to find out long-term investment holding is far more superior than short-term trading.
As I came to click with the idea of investment as a way to achieve financial freedom, but I didn’t have any capital to roll for an investment portfolio. Then I came across to books related to financial planning. "The Millionaire Next Door" by Thomas J.Stanley and William D. Danko is one of the many books that shaped my philosophy in financial planning.
I did try to explain and educate my friends about the the lifestyle to live below our mean. For example, if I have a salary income of RM3,000 so I can afford to buy a local 'Proton', I'd still keep using public transportation such as LRT. If my income is RM6,000 and I can afford to buy a foreign branded car like 'Vios', but I choose to own a local 'Myvi'. Indeed, I had only bought a car when I turned 30 in year 2012 (which was 10 years after I started my first job) and changed to a job that requires me to drive for meeting at outstations. Having said so, I will only drive my car for meetings that not beyond 300 KM away from my PJ house otherwise I'd demand the company to pay me to take on flight, and I still regularly take LRT with free shuttle GO KL to my office. I only pakai my car when I need travel outstation, going back hometown or meeting friends. Even until today after 18 months I bought the car, the mileage of my car is lower than 9,000 KM.
Another practice I adopt to manage my finances is to 'pay myself first'. Whenever I get paid of my salary, I will put aside a portion of my net salary in a different savings account from the account that I use to receive my salary. When I start to apply this practice, the portion I put aside was 10% of my net salary, I adjust the percentage according to the scale of my disposable income. Currently I'm working in a non-profit organisation and thus getting much lesser income, but I still practise 'paying myself' with 30% out of my current salary income. Should I still continue to work in the commercial, I'd have higher disposable income up and hence would be able to 'pay myself' up to 50%.
With these practices, I nurture a habit that allow me to save for future spending or investment disregard I'm earning high or low income. When I save enough emergency fund which is about 6-month of my monthly expenses, the subsequent savings would be allocated to another savings account just to get myself prepare to grasp any investing opportunities. When we have the bullet, it's time to go for hunting.
Wednesday, March 5, 2014
When I graduated from Victoria University of Wellington in December 2003, I had only NZ$300 left in my pocket. I spent NZ$200 to treat my friends a good meal and bought them farewell gifts before I returned to Kuala Lumpur (KL) the next day after I attended the graduate ceremony. In addition, I graduated with a study loan of RM50,000 which would require me to commit for monthly repayment 1 year after my graduation. At that moment, I was just a naïve 20-year old fresh graduate without knowing which direction I would be heading to.
In KL, I was staying with my elder brother who was still studying in Help College and we were staying at Damansara Heights (DH). Rental expenses in DH was as high as RM500/room. My brother took care of the rental, then I took care my own spending on meals, transportation and other spending. My first job was financial planning attached with AIG and I quit the job in 2 months as I realized I couldn’t do sales of insurance. During these 2 months, my new cell phone and expenses in meal cost me close to RM1,000, which exceeded my remain leftover NZ$100 (approximately RM200), so I had to borrow from my father to cover the short change.
Eventually I was offered to be a Graduate Trainee Officer (WTF, GTO!?) in April 2004 by the Securities Commission (SC) and attached to the corporate finance department of a merchant bank. As a GTO, I did not receive salary but allowance of RM750 from the SC, and this GTO program lasted for a year. Few months after I commenced the work as GTO, my brother graduated from his study and he was moving out from DH. By then, I had to support myself in KL with a pathetic allowance of RM750.
I subsequently shifted to Wangsa Maju and rented a place to sleep at a cost of RM100/month. I shared a room with 4 fellows. Life was tough, but I was still able to save RM50/month for repayment to my dad. Until today, I'm still proud that I could save RM50 with an income of RM750 only, and most of my friends didn’t believe of my RM50 savings/month.
I still recalled the breakdown of living expenses during the time when I was earning RM750. There was no EPF because the amount was allowance instead of salary income.
Fund to parents: (RM50)
Net Savings: RM50
Everything seemed settled except my study loan coming due for monthly repayment in year 2005. As my family was poor and my parents are retiree and not able to lend any more financial support to me, I had to find my way out or else I'd be in financial woe.