4-Step Process in Buying a Car

By Rafiq Hidayat Mohd Ramli

A licensed financial planner shares his journey of buying a new car after 16 years of using his old car.

I recently bought a new car for myself earlier this month, after having used my previous car for the past 16 years. Buying my new car was a decision that I did not make in a split second, but rather took some deliberation, as most of my major financial decisions are made.

While I am interested in cars in general, I subscribe to the view that cars are liabilities and their main function is to get you from point A to point B safely. Having a view like that which is contrary to how many other Malaysians think has certainly created interesting situations in my life, including the annual occurrence where my mother would attempt to get my son to convince me to change my car.

I would like to share with everyone the 4-step process that went into my decision of buying a new car, from the beginning until I received the my new car from the dealership.

Step #1: Do you need a new car?

A new, expensive car is always considered as a status symbol which shows that you have made it in life. However, the question is, how do you identify whether you do need a new car? The following is a simple checklist that I used in order to make my decision before purchasing my new car.

• Changes in circumstances e.g. number of family members have increased. While a 4-door hatchback might be sufficient for a family of 3 or 4, it becomes uncomfortable and not safe when you family grows larger than that.

• Costs of repairs are either the same or more than the monthly installment that you would have paid with a new car which will probably come with warranty of major parts, potentially up to 5 years.

• Total lost (accident or stolen) – self-explanatory. You don’t have a car anymore, and probably need a new one.

For me, it was a combination of the first 2 reasons which led me to decide that it was time to proceed with buying a new car.

Step #2: What type of car can you afford?

I actually wrote a post on this step for CTOS a couple of years back.  Two main guidelines that people generally use are as follows:

• Monthly salary x 12 months = The car you can afford to buy

• The value of the car you should buy with a loan should equate to

  • monthly payments that don’t exceed 15% of your monthly salary, and

  • with a loan repayment period that must not exceed 5 years.

In my view, the best way to estimate our ability to buy (afford) a car is to take into account all the expenses in advance such as housing, food, children, savings or investments (minimum of 10% of the monthly salary), insurance or Takaful, and other needs.

Only after taking into account all commitments and expenses, we will be able to estimate the remaining balance. Take that balance and divide it into two. Why two?

• One half is the amount we can afford for monthly car payments,

• The other half is set aside to maintain the car, including fuel, toll, and so on.

I do recommend you take extra the step into researching how expensive it is to maintain the car model that you plan to purchase. In my case, I checked with my mechanic, who told me the general costs involved. I took his feedback into consideration before I made my final decision.

The guidelines above shows the maximum value of a car that you can purchase. This does not necessarily mean if you can afford a more expensive car, you should go and buy one. I certainly didn’t.

Step #3: Financing the purchase

The ‘cheapest’ cost in purchasing a car is by using cash to purchase it as you would not be paying extra to the bank or financial institutions on the financing that you would have taken. However, most of us, would not be able to purchase a new car with cash. So, how do we go about financing your purchase?

• Trade in or sell your current vehicle. Your current vehicle might still have some resale value. Generally, trading in to the dealer that you are trying to purchase your new car from might be your best option, as they are interested to close the deal to sell you your new car. If not, you can still shop around to second hand car shops, forums like Mudah.my or even new startups like Carsome and Mytukar in order to find the best price possible in trading in / selling your car as this will help reduce the amount of financing that you need to take.

• Use part of your savings (if you didn’t have a vehicle to trade in), and still need to pay down payment (at a minimum), then whether you like it or not, you still have to take some money from your savings. It is not advisable to take a personal loan here to pay for the 10% deposit. If you have to do this, then you probably can’t afford that car in the first place.

• Applying for hire-purchase financing from banks. This would be the standard method, most of us would use in purchasing a new car. The process is fairly straight forward, and generally your car salesman will assist you with applying for the hire purchase financing. Some questions that you need to decide on

• Do you then take a 5-year, 7-year, or 9-year tenure? I usually take the 7-year option, but will settle my hire purchase within the 4th as I would put aside money that I would have used to pay a 5-year tenure in investments, and by the time I reach the 4th year, I would have more than enough to do a full settlement of the financing amount.

• Do you take a fixed-term or reducing-balance financing? In a lower interest rate environment, a fixed-term is always better, as you won’t be exposed to increase in profit rates when the OPR rate is increased. Please do your calculation to identify how much profit (interest) that you would pay if you take either financing to know the actual cost of your financing.

Step #4: How much should I protect my car for?

There are a few things that you need to take into account when you want to take protection related to the new car that you just purchased, but will also be relevant for any cars in general.

• Protection on the car – please ensure that if your car is still under financing with any financial institution to request for a coverage based on an agreed value e.g. if you still owe the bank RM50,000, take a coverage for RM50,000. Don’t choose the market value option (or worse still go for the minimum), and if something happens to the car (total lost or stolen), you will probably have to top up some additional amount to your respective financial institution. You can also opt for additional riders like windshield coverage or flood coverage if you feel that there are higher probabilities of that particular incident happening to your car.

• Protection for the owner – in recent years, banks or financial institutions have introduced Hire Purchase Reducing Term Assurance or Takaful products which will pay off the balance that you owe to them if you were to pass away, so that your beneficiaries will not be burdened with your liabilities. This is a similar concept to the MRTA or MRTT concept for Mortgage Financing for your properties. If you do not have sufficient life coverage, I would advise you to take this option up (you have the option not to take it – I didn’t, as I have sufficient Life or Total Personal Disability or Critical Illness coverage from my term policies). Please be advised, that this type of coverage generally covers in the case that you pass away only.

Conclusion

Those are the 4 general steps that everyone should go through when they are planning to purchase a new car, whether it is a brand new car or a used car. Please take note, that if you can’t answer Step 1 or Step 2 properly, then my advice is to hold on to the purchase of that new car as you probably have other more pressing needs to focus on. Do talk to your licensed financial planner if you need help with your numbers.

Sign up to engage with your licensed financial planner today

What do you consider before buying a new car? Share with us in the comment section below.

6 Tanda Anda Tidak Bersedia untuk Bersara

Adakah anda sudah bersedia untuk menempuh alam persaraan? Ketahui tanda-tanda anda masih tidak bersedia untuk bersara dari dunia pekerjaan

Menurut statistik oleh Bank Dunia, dianggarkan sehingga 49 juta orang menghadapi risiko kemiskinan akibat pandemik Covid-19. Untuk rakyat Malaysia, menurut tinjauan yang dijalankan oleh  Agensi Kaunseling dan Pengurusan Kredit (AKPK) mendapati bahawa sebanyak 53% individu tidak bersedia untuk menghadapi sebarang cabaran kewangan dan hanya satu langkah ke kancah kemiskinan jika berlaku sebarang krisis ekonomi.

Bersedia untuk bersara bukan sahaja bermaksud anda bersedia untuk tidak lagi mempunyai rutin bangun pada waktu awal pagi untuk bekerja dan boleh melakukan perkara yang anda mahukan tanpa perlu berfikir tentang kekangan masa tetapi ia adalah lebih daripada itu.

Perkara yang paling utama untuk menghadapi waktu persaraan adalah memahami perancangan kewangan anda. Ia bermakna anda perlu memastikan belanjawan adalah kukuh, perancangan pelaburan yang berkesan, rancangan perbelanjaan terhadap simpanan sedia ada, jumlah hutang yang masih terkawal dan juga bagaimana anda mahu menghabiskan hari-hari persaraan anda dengan bermakna. Terdapat beberapa perkara yang menandakan bahawa anda masih tidak bersedia daripada aspek kewangan untuk bersara.

#1.  Sukar untuk membayar bil dan komitmen

Jika anda menghadapi kesukaran untuk membayar segala bil dan komitmen peribadi tanpa pendapatan bulanan, persaraan boleh menjadi satu perkara yang sukar. Menurut Kumpulan Wang Simpanan Pekerja (KWSP), rakyat Malaysia perlu mempunyai sekurang-kurangnya RM228,000 apabila mereka mencecah umur 55 tahun. Simpanan tersebut merujuk kepada jumlah yang mencukupi untuk menyara kos persaraan diri selama 20 tahun bermula dari umur 55 tahun hingga 75 tahun.

Anda perlu mengenalpasti samada simpanan sedia ada adalah mencukupi untuk menjalani persaraan yang selesa tanpa perlu berfikir bagaimana untuk menjana pendapatan tambahan. Anda juga perlu mengambil kira kos lain yang akan bertambah semasa bersara seperti kos pengangkutan untuk ke hospital bagi menjalani sebarang pemeriksaan kesihatan ataupun bagi membiayai yuran pengajian anak-anak di universiti.

#2. Jumlah hutang yang tinggi

Jumlah hutang yang tidak terkawal mampu memberikan tekanan terhadap simpanan sedia ada apabila anda bersara. Individu yang mempunyai hutang melebihi kemampuannya untuk membayar berisiko untuk menghadapi tekanan yang besar terhadap kesihatan mental.

Menurut laporan The Edge Markets, jumlah yang dibelanjakan oleh rakyat Malaysia melalui kad kredit mencatatkan peningkatan hampir dua kali ganda kepada RM10.25 bilion pada Julai tahun ini jika dibandingkan dengan RM5.3 bilion pada April ini.

Statistik ini menunjukkan trend yang membimbangkan terutamanya apabila rakyat negara ini menghadapi risiko pengangguran dan pengurangan jumlah pendapatan akibat pandemik Covid-19. Kebanyakkannya mula beralih menggunakan kad kredit bagi menggantikan wang tunai yang semakin berkurang.

Membayar hutang sebelum bersara mungkin bermakna anda perlu bekerja dengan lebih keras dan tidak mustahil, anda akan memilih untuk bekerja selepas waktu persaraan iaitu selepas umur 60 tahun. Ia bukan pilihan yang terbaik tetapi terpaksa dilakukan untuk memastikan semasa persaraan, anda tidak mempunyai sebarang komitmen yang mendesak.

#3. Tiada rancangan untuk perbelanjaan masa depan

Jangan tunggu semasa anda bersara untuk membuat pengiraan semula perbelanjaan besar seperti membaiki rumah, menanggung pendidikan anak-anak atau mahu menunaikan ibadah haji. Kesemua perbelanjaan yang besar akan menjadi lebih berat apabila anda hanya bergantung dengan wang persaraan sahaja, oleh sebab itu, amat penting untuk anda memastikan bahawa simpanan sedia ada mencukupi bagi menampungnya.

#4. Tiada pelan kewangan yang tepat.

Apabila anda bersara, anda akan kehilangan gaji bulanan namun masih ada komitmen seperti bil utiliti yang perlu dibayar pada setiap bulan. Jika anda tiada pelan kewangan yang baik, amat sukar untuk mengenal pasti aliran tunai bulanan.

Oleh sebab itu, amat penting untuk anda membuat aliran tunai bulanan sebelum bersara. Merancang aliran tunai bulanan bermakna melihat semula jumlah wang yang dapat dikeluarkan daripada akaun KWSP anda sebelum bersara dan jenis-jenis komitmen bulanan yang perlu diselesaikan.

Lebih baik lagi jika anda mempunyai senarai perbelanjaan yang dalam kategori berbeza yang boleh dianalisa untuk melihat samada ia akan berubah semasa tempoh persaraan. Beberapa perbelanjaan mungkin akan berkurangan seperti hutang pinjaman bank dan perbelanjaan perubatan dan melancong akan meningkat.

Mengetahui perbelanjaan semasa membolehkan anda merangka semula jumlah pendapatan yang diperlukan untuk membayarnya. Dengan ini, anda juga boleh mengenal pasti samada simpanan sedia ada mencukupi atau tidak untuk anda bersara, dan jika perlu untuk bekerja selepas umur bersara atau memotong sebahagian daripada perbelanjaan semasa bersara.

#5. Portfolio yang tidak stabil

Mengambil pendekatan yang pasif semasa melabur adalah kurang berisiko semasa anda lebih muda dan mempunyai masa yang panjang untuk pulih daripada sebarang kejatuhan pasaran. Namun, apabila anda semakin mencecah umur persaraan, adalah lebih bijak untuk memastikan portfolio tahunan anda lebih seimbang dan memberi fokus terhadap pendapatan bergenerasi dan juga perlindungan aset.

Pesara seharusnya memastikan portfolio mereka terdiri daripada pilihan yang pelbagai, memelihara modal, memperoleh pendapatan dan juga mengelak daripada risiko. Kepelbagaian daripada segi kelas aset (bon, stok dan lain-lain) serta melabur dalam industri seperti kesihatan dan teknologi akan membantu memelihara nilai portfolio anda apabila pasaran merudum terutamanya apabila satu instrumen atau aset tidak memberikan pulangan yang baik jadi anda mempunyai aset lain yang memberikan pulangan yang baik.

#6. Anda risau untuk bersara

Walaupun portfolio anda baik dan stabil, terdapat kemungkinan anda tidak bersedia untuk meninggalkan kehidupan bekerja.  Tempoh pekerjaan memerlukan tenaga yang tinggi dan sebilangan individu mungkin berasa risau, dan tidak teruja apabila memikirkan bahawa mereka tiada sebarang aktiviti untuk mengisi masa lapang selepas bersara.

Jika anda mengalami perkara sebegini, mungkin anda boleh mencari pekerjaan tambahan selepas bersara, misalnya melakukan pekerjaan bersifat separuh masa atau menjadi sukarelawan untuk organisasi bukan kerajaan. Ia mampu memberikan perasaan diperlukan dan membuatkan hidup anda mempunyai perancangan. Jika anda bersara tanpa sebarang perancangan untuk aktiviti selepas bersara, ia adalah lebih bahaya kerana anda berisiko untuk menggunakan wang persaraan dengan tidak terkawal.

Anda juga perlu mengambil kira jika anda tinggal di bandar yang besar atau tinggal di kawasan luar bandar yang mempunyai kos sara hidup yang berbeza. Ia mampu memberikan perbezaan yang ketara terhadap persaraan anda terutamanya jika simpanan anda masih tidak mencukupi untuk bersara dengan selesa.

Kesimpulan

Anda perlu bertanya semula pada diri anda adakah persediaan untuk bersara mencukupi? Kerana ia memerlukan perancangan yang berterusan. Mendapatkan nasihat daripada penasihat kewangan berlesen mampu membantu anda menjawab persoalan dariapda aspek kewangan semasa bersara. Mereka akan membantu anda untuk menyediakan perancangan kewangan yang berkesan dan holistik.

Apakah antara tanda-tanda lain lagi bahawa anda tidak bersedia untuk bersara? Kongsi dengan kami dalam ruangan komen

How To Improve Your Cash Flow

By Helwa Sofni Md Isa

Personal cash flow is an important aspect to sustain a healthy financial plan. Learn some of the ways to improve your cash flow.

Beware of little expenses; a small leak will sink a great ship – Benjamin franklin

Being aware of and familiar with your personal cash flow is one of the ways to measure financial health. It is the most important element in wealth management. Cash flow works like a heart to everything in the wealth management process.

What is “cash flow”?

Cash flow consists of two important components, which are income and expenses. It is about how much money inflow you are generating and how much money outflow you using for spending. It is always measured at a given period often monthly or yearly basis.

• Surplus or positive cash flow is when your income is more than your expenses.

  • Meaning that you can save money and use that savings for other healthy opportunities such as emergency fund, investments, etc. 

• Deficit or negative cash flow is when your expenses are more than your income.

  • Meaning that you are likely to already or soon to be incurring debt. 

So, the next question is, how well do you know your current cash flow?

A Malaysian Financial Literacy survey 2019 by a financial comparison portal, RinggitPlus, shows that about 43% of Malaysians spend either more or exactly what they earn. It also found that 53% of the 8,000 surveyed were not able to survive more than three months with their savings.

You must gain control over your money or the lack of it will forever control you – Dave Ramsey

Here are several tips on how can you improve your cash flow and have more and more surplus cash flow!

Tip #1. Understand your current income streams

If you are employed and receive a fixed income every month, this question is easy and straightforward to answer. You just need to be aware of your paycheck date (so that you can pay your commitment timely) and what are your mandatory deductions such as for EPF, SOCSO, and Tax.

If you are self-employed, the answer to this question is likely to vary with each month. It is crucial to understand your inflow pattern to meet your commitment timely. Additionally, for a business owner, business income should not be mixed up with personal income. In other words, you need to decide how much monthly paycheck you can have and if possible, how much yearly dividend you can enjoy without disrupting your business cycle.

Whether employed or self-employed, if you are an investor you would also enjoy passive income from your investments, such as through dividends received or rental income.

Tip #2. Keep track of your expenses.

You cannot truly improve your cash flow without knowing your current cash flow.

You need to understand what are your expenses and how much you spend on expenses, both regularly frequent and less frequent. 

• Examples of frequent expenses: Monthly groceries, fuel, loan repayments, car servicing.

• Examples of less frequent expenses: Annual quit rent, renewal of road tax, insurance premium payments.

Note: Unexpected emergency expenses (such as medical bills after a traffic accident) are reasons to dip into an emergency fund, and why you need to have a suitably-sized emergency fund. 

You can choose to track your expenses with paper and pen, on your computer with a spreadsheet, or even with one of many available expense-tracking mobile phone apps.

As you track your expenses, ensure that your tracking tallies with what your actual bank account shows. This helps ensure you maintain reliable records of your expense tracking, which will be very useful for the next tips in improving your cash flow.

Tip #3. Identify the types of outflow

Once you have done tracking your expenses, look at your outflow (what you are spending on) and categorize them. For example: 

• Savings Outflow – this includes mandatory or voluntary savings and premium or contribution paid for insurance or takaful plans.

• Financial commitment outflow – payment of loan or financing commitment to the financial institutions.

• Expenses outflow – Home & living expenses, Transportation, Education, Entertainment, subscriptions, etc.

This step is crucial as it helps you visualize where your money is going. In the event that your income is strained, this step allows you to rank your spending priorities according to needs in order to deprioritize the less important items to spend on.

In some extreme cases, if  your outflow is on items you deem all to be necessary and the total is too much for your current income, then a debt management review is recommended.

Tip #4. Eliminate non-important expenses

With the information you gathered from expense tracking and categorizing your outflow, you should be able to see a pattern emerge. Use these data points to reflect on your spending choices.

Re-evaluate what are true needs versus wants for yourself and your household. Ask yourself some questions:

• Do you really need to spend on these items? What is the ROI?

• Can you find cheaper alternatives to your spending? Are the cheaper alternatives good enough?

• Can you afford to continue your spending patterns? Would the same money put into savings and investments be better for you?

This part is of course easier said than done. Often as humans, we are attracted to a certain type of lifestyle influenced by the people around us. Other times, we gain satisfaction from retail therapy. However, if such behavior results in harming our long-term well-being, it is time to shake ourselves awake. Take charge of your own life and your own choices because they determine your future. Let others determine their future, for better or for worse, and keep yours within your own hands. 

Of course we all need a treat sometimes as well. Just make sure you do not end up treating yourself daily!

Tip #5. Increase your income

If cash flow is deficit or is trending that way, another consideration on top of trimming outflow is to increase income. It can be by either increasing your passive income or active income.

Passive income is a type of income where you are not actively involved and spend less time in the process. An example of this is the dividends you receive from investments.

There are many types of investments that you can consider, but at the same time you need to make sure it is a legal/ permissible investment (not scam) and need to understand its risk too. This method is suitable to build up long term goal such as  retirement fund. The earlier you start, the better and the more you can enjoy it later. Other common passive income sources are rental income and income from the intellectual property such as from writing in ebook, photography, issuing a patent, or building a website.

Active income is a type of income where you are actively involved in and spend much of your time on it. Your salary is an example of active income (consider asking for a raise). Taking up side jobs or part-time jobs that generate income are also forms of active income. There are also other benefits to taking up active side jobs besides the money.

Ideally, equip yourself with the necessary knowledge. Perhaps extra certification or licensing could gain you better recognition and higher pay? Learn about what investment options match your risk profile. Are there opportunities out there which match your experience without much extra effort? And above all else, remember to track and manage your side income.

Tip #6. Sit down and plan your expected cash flow

At this point, you have your spending history, you are aware of your income and spending patterns, you have trimmed down your expenses. Now it is time to predict the future!

Having a plan can never go wrong. It guides you in making better, faster & more efficient decisions. Here are some of the examples you can work on to make a plan for your future. 

• Set a budget – Doing this tells you how much you can spend in order to keep your spending on track. Be realistic with your budget. 

• Meal plan – Whether single or in a household, planning your meals in advance helps you estimate what food items you can buy in bulk (money savings!) and which items you can buy less of since you won’t be using much (less rotten food is less wastage!). An additional benefit to this is you are taking good care of the quality of your food intake.

• Sign up for useful loyalty programs – Take advantage of the discounts and special offers available for stores you buy frequently from such as groceries, household supplies, or even petrol. 

• Plan your shopping trips – other than it can save your time (which is expensive), this may also reduce your traveling related expenses.

• Plan your payments for financial commitments or statutory obligations – Firstly, this helps you set aside the required sum of money. Secondly, timely payments will avoid unnecessary additional interest or penalty which can be significant to your outflow.

Do remember to continue tracking your expenses and then set aside time to regularly review your numbers. How does your plan match up with your actual spending? What needs to change?

Tip #7. Working together with an expert

You are likely keen to improve your cash flow because you want to meet a financial goal. Maybe it is to be debt-free. Maybe it is to have a comfortable retirement. Maybe you are struggling to give your family a good life after the passing of a spouse.

Having a clearer picture of how your money can work to achieve your dreams requires a more detailed analysis. By engaging a licensed financial planner, you can better understand how much you require to meet your goals, what steps can you take now to put you on the right path, what financial decisions to prioritize and what to deprioritize to best reap benefits, and how far your goal is from where you are now. 

Besides helping you align yourself,  they can also guide and motivate you. Even if you fall from the plotted path, they will be there to show you the way back. 

Conclusion 

The key to your financial freedom starts with a healthy cash flow. Managing your cash flow well results in your hard-earned money taking care of you.

“It’s not your salary that makes you rich, it’s your spending habits” – Charles A.Jaffe

What other tips you feel useful to plan your own cash flow?

Helwa Sofni has more than a decade of experience as a Chartered Accountant and held many positions in corporate sector before venturing herself as a Licensed Financial Planner with one of the top leading financial advisory in Malaysia, Wealth Vantage Advisory Sdn. Bhd.

This mother of three who resides in Negeri Sembilan, is also a certified Islamic Financial Planner. She truly believes that financial literacy is crucial for everyone in order to live life confidently and peacefully while pursuing one's dreams.