Malaysia Financial Blogger | Financial Freedom Ideas | imDavidLee.Com

How Much Do You Know About Malaysian Tax?

It’s clear that Malaysia has had its tax system which was implemented since many years ago. However, how many people of you really familiar with that? Generally, there’re broadly 2 categories of taxes, which are direct and indirect. A direct tax means the tax which bear by person and he/she need to pay for it. An indirect tax is paid by a person who claims it from the consumer of his goods or services.

Is income tax a direct tax or indirect tax? Yes, income tax is a direct tax because the taxpayer files his/her annual tax return and liable to pay the tax due. On the other hand, the trader who imports goods is responsible for paying the import duty and sales tax. He does not bear the tax but passes it on to the consumer by including the hidden amount in the price of goods.

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Why is Cash Flow Important in a Business?

Companies that generate high cash flows are expected to survive, thrive and deliver strong returns to their shareholders. Companies that generate higher levels of cash generally indicate that they are in the right business. It implies that they have been offering the right service or products at the right time and at the right place.

A high cash flow company has defensive qualities, which become the favorable option for investors during the volatility periods. Those companies have sufficient operating cash and capital will be stay longer in the market. In the other words, they are not relying on external sources of funds to pursue their opportunities.

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How Compound Interest Works?

Anyone who has ever had a savings account has received compound interest. For example, suppose you place RM1000, which is your present value (PV), in a savings account that pays 4% interest annually. How will your savings grow? At the end of the first year you will have earned 4% or RM40 on your initial deposit of RM1000, giving you a total of RM1040 in your savings account. That RM1040 is the future value of your investment that is the value of your investment at some point in time.

Assuming you leave the RM40 interest payment in your savings account, known as reinvesting, what will your savings look like at the end of second year? You begin the second year with RM1040, and you add the interest you earned in the second year (4% on RM1040 for a total of RM41.60 in interest) and you end up with RM1081.60.

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Will Renting Better Than Buying A House?

For most people, the rent versus buy decision is not just based on finances but also on lifestyle. Perhaps you want to rent a house because you want to have more freedom, or you may want to buy a house because you want to live in a particular neighborhood.

Let’s examine the advantages of both renting and buying. As you can see, many of the reasons for renting focus on flexibility because renting actually involves lower monthly payments and lifestyle flexibility as you can avoid the responsibilities associated with the ownership.

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Nominal vs Real Interest Rates

A nominal rate of return is also called gross rate of return. The real rate of return is simply the gross return less inflation. Do you think is it better to use real returns or nominal returns for your future projections?

Due to the inflation changes the money value, so the investment value of RM100,000 today is totally different it was 20 years ago.

When I plan for my retirement savings, I always use real rates of return with an inflation rate of x%. The reason is to make the numbers more understandable. Let’s take an example:

Michael and Jackson are 30 years old and want to retire in next 25 years. Let say they own RM100,000 in investments and are able to put away RM1000 per month. If we assume a nominal rate of return of 8% and an inflation rate of 4%, how much they will have at retirement age?

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Investing Rules of Thumb

If you have been reading investing blogs then you have come across some investment rules of thumb. It is a general guideline that you can approximate a value quickly.

The number one rule of thumb is ‘Pay Yourself First’. You need to set aside your money for savings every month before using it for other purposes, including investment and etc.

The question of how much do you need to invest depends on:
• When you started investing
• When you plan to retire
• Whether or not you plan to continue working part-time,
• Whether or not you expect passive income to pay out at the rate which is currently promising you,
• Whether or not you’ll have any pension income or EPF savings

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How to Calculate Reducing Balance Loan?

Most of the people face with difficulty in calculating the loan interest rates. And, most of the time they will opt for the lower interest rate because it seems to suggest that the burden on a borrower will be less. However, this is not always the case because you might end up paying a higher amount of interest fees even the rate of interest on the loan is lower than some other loans. So, we need to consider carefully, and decide properly about selecting a particular personal loan with different kinds of interest rate calculation.

Do you know what is reducing balance loan? Let say you take a RM100,000 loan at a interest rate of 10% for 20 years. You need to pay back the total amount of RM 231,605 which inclusive of the principal and 10% interest fees. Thus, you need to pay back RM11,580 every year. But, the loan will keep reducing over the years as you paid back RM11,580 every year.

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