Agreed!

The purpose of money is to provide for a good life, not the other way around. One could live simply or simply live. Many money-minded folks are so narrowly focused on money that they see no value in anything else.

Most of us are familiar with the commonly cited story of 2 brothers, where one starts saving at age 21 and stops at 30, and the other starts at 31 and doesn’t stop until 65. The story concludes that, assuming an 8% APR, the early saver beats the late saver; giving the implicit moral, as echoed in some earlier comments of this thread, that young people should start saving early.

I will only offer this point to ponder: if one were to agree that value can take many forms other than wealth, then is it not true that the second brother–if he had spent the money wisely on something truly meaningful, such as education, family obligations, and traveling–would have enriched himself beyond what the first brother could ever rival?

Quote from simon:
Assuming you spend RM 3000 on your PS3 and not putting RM 1 away for another 3000 days, at your retirement, you get RM 27,633,878.32 and a very very very old PS3 console. in other word, your PS3 cost you RM 46 million future money.

Ok, lets assume the PS3 will cost RM46m in future money, but when you are that old, are you able to enjoy the same experience as you were when you’re young? i’m not against saving money and investing money but recently, i had the opportunity to take a look at someone’s life who is over 50yrs old now. He spend almost all of his life saving money and investing. I can say that he is pretty successful at this, but when you look back at the life he had gone through, you might think again, is this worth it? There are things in life which you can’t buy back even if you have RM46million. Do you think playing a PS3 at the age of 25 vs playing PS3 at the age of 55 is the same? Can you buy back the time of you being young and full of energy playing PS3 or Wii with RM50milion or even RM1000000000000millions? As of now, i dont’ think so…maybe technology will evolve and it might be possible in the future, who knows? but it’s up to you to bet on it then…

I will not comment further but what i am trying to say here is…manage your money well and don’t forget to enjoy life! Get a PS3 if you can afford it now (save 10% of your salary till u are able to buy it?) cause 50yrs down the road, do you think you will regret missing out on the joys and wonders of life? you live only once… you don’t wanna wake up one day at the age of 55yrs old with tons of cash but an empty life…

Anyway, I have recently remortgaged it to a shorter mortgage term of 20 years, instead of 25 years. My capital repayment mortgage is currently 42% of my take home pay (Ouch!). I am still okay with that as my wife take care of the rest of the bills and expenses.

We divided our financial commitments whereby, I take care of the mortgage and investment side of things, she take care of expenditure and saving. She has approximately 1 year worth of expenses held in the form of FD whereas I have approximately 15 months worth of mortgage payment in the form of stocks and shares.
I have only about a month of cash sitting in my account (spare cash) and even that amount has been pencilled in to be invested in exchange traded fund this middle of the month. I normally hold very little amount of cash in my account because of the split of our financial duty and our attitude to risk (To me Cash is Trash, I eagerly convert cash to bullion, commodity, shares, bonds as soon as I had it on my hand. To her, Cash is King, she eagerly put them in FD as soon as she had it on her hand)

When you say maintaining a debt to total asset ratio of not more than 50%, do you mean secured debt or unsecured debt. We have not had any unsecured debt, hence the ratio is zero. But if you mean both secured and unsecured debt, that ratio is hellish (600% = 95k mortgage / 15k stocks)

Both my wife and I are researching into buying our first B2L property. I think we are at the verge of able/unable to afford a B2L property. Our combined income cannot support a second property. We have to rely on tenants paying their rent to repay our interest only mortgage. Our combined investment, saving and income allow upto 8 months of void. In the other blog, I realise you are a B2L investor yourself, may I have some idea of how many months of B2L mortgage you have set aside for emergency? Or have you been in a more fortunate position whereby you could afford both mortgage on your primary residence and mortgage on your B2L property? How many B2L properties have you got? We are doing our first deal and therefore we are a bit nervous and would like some hand on experience from someone who has been through this before. Say if you have 10 B2L properties, having 6 months of mortgage payment on each of them in emergency fund would be a bit over the top, won’t it?

The general rule of thumb is to keep your debt repayment level (loan repayments & credit cards) at not more than 30% of your monthly take home earnings. And to have at least 6-8 months of emergency funds in cash and liquid assets to protect against any unexpected financial commitments. Generally, it would be prudent to keep a debt:total assets ratio of not more than 50% also. Total assets would be things like bank deposits, investments in stocks, mutual funds, property, EPF and the cash value of anyinsurance policies. Note that property would exclude your home, as it is not something that you would want to sell, when faced with a credit crunch.

Managing your cashflow and gearing or debt ratio is as important in personal finance as it is for corporate finance! It is easy to be tempted to over-borrow so as to buy more properties…and hope that the property market goes up and take your net worth with it! But make sure that you would be able to easily afford the mortgage repayments when times are not so good (eg no tenant, in between jobs). Don’t forget that there are other extra costs involved too in owing property like renovation, furnishing, fire insurance, council rates and maintenance which will add up approximately 40-45% to your monthly costs according to the financial guru Suze Orman.

What Loan to Value you should aim for…well the lower the better, so that your monthly repayments are lower and you save on the interest….especially if you’re talking about your home, and not buy to let property. There are no tax benefits to be gained from paying a higher interest. So with lower monthly loan repayments, you can at least use another part of your salary for investing in stocks or mutual funds. Hope this helps.

HOWEVER, if your investment vehicle is some mutual funds, shares, stocks, bonds, etc, the return is not predictable. You could easily lose your shirt if the market turn against you and still have to think about how you are going to repay your credit card loan.

muzze, it has all got to do with maths. Because compound interest is truly magical and the only magic potion it needs for it to work is time. Say if your parent helped you to say RM 1 per day since birth and continue to do so without fail until you reach the age when you can earn your own money and still without fail you carry on this legacy till you are 65. Guess how much will you have by the time you retire at 65?

RM 74,133,823.25 (Assuming you put your money in some mutual fund with average return of 12% per annum – not uncommon at all). So before you spend RM 3000 on your PS3, think about how much it cost you in your retirement. Assuming you spend RM 3000 on your PS3 and not putting RM 1 away for another 3000 days, at your retirement, you get RM 27,633,878.32 and a very very very old PS3 console. in other word, your PS3 cost you RM 46 million future money. So, before you exchange your ringgit with a junk, think about how much it cost you in future ringgit. I am not against anyone buying PS3, and certainly not against Sony. I believe there are lots of things in life we will bound to think of buying, it maybe plasma tv, ipod, car, house extension, etc.

My example is only to put away RM 1 per day into an average mutual fund. I am not even talking about putting away RM 10 into an outstanding investment with 20%, 30%, 40% return per annum. Imagine, how much would you have if you have a strong determination to do so every day without fail. The number would be astronomical.

Good luck in your adventure to the world of investment.

Say, using funds tight up with credit card with interest rate of 15% to invest in an instrument that can potentially gives you 30% return.