Tuesday, March 11, 2008

Money Rules of Thumb from A Financial Expert

Recently, the Malaysian government made a change allowing members to withdraw money from the Employee Provident Fund (EPF) to pay housing loans monthly. Many house-buyers rejoice at the new amendment.

The EPF, something like a 401(k) in the US and some other courntries, makes it compulsory for employees to contribute 11% of his base rate into this fund while his employer contributes 12%. The entire contribution can only be withdrawn upon retirement at the age of 55 or 30% of it upon reaching 50 years of age. This too has changed slightly recently.

Allowing members to withdraw their contribution in the EPF to pay for their housing loan monthly may be welcome by some but not by others. The latter fear that there might not be enough for retirement later on if they choose to withdraw to pay off their home loan considering the rising inflation rate and the higher cost of living.

All of us have our ways of managing our finances, some with some degree of success, others not so. It's always good to maintain an open mind for new ideas when they do come along. Here are some money rules of thumb from a financial expert. Hope you'll find them useful.

1. Retirement, Part I: "Save 10% for basics, 15% for comfort, 20% to escape."

2. Retirement, Part II: "Retirement money is for retirement; until then, keep your mitts off it."

3. Student loans: "Your total borrowing shouldn't exceed what you expect to make your first year out of school."

4. College savings: "Saving for retirement is more important, but try to put at least $25 a month per kid in a college savings plan."

5. Cars, Part I: "Buy used and drive it for at least 10 years."

6. Cars, Part II: "If you must borrow to buy a car, follow the 20/4/10 rule."

7. Cars, Part III: "To compute and compare the real monthly cost to buy, insure and operate a car, double the price tag and divide by 60."

8. Credit cards: "If you carry a balance, look for the lowest rate. If you don't, get rewards at least equal to 1.5% of what you spend."

9. Debt repayment: "Pay off maxed-out cards first."

10. Financial flexibility: "You need to be able to get your hands on cash or credit equal to three months' worth of expenses."

11. Insurance: "Cover yourself for catastrophic expenses, not the stuff you can cover out of pocket."

12. Life insurance: "Those who need it typically need five to 10 times their income."

13. Mortgages, Part I. "If you can't afford to buy the house using a 30-year fixed-rate mortgage, you can't afford the house."

14. Mortgages, Part II. "Fix the rate for at least as long as you plan to be in the home."

15. Mortgages, Part III: "You almost certainly have better things to do with your money than prepay a low-rate, deductible mortgage."

16. Priorities: "Retirement, then credit cards, then emergency fund."

For details, read 16 favorite money rules of thumb by Liz Pulliam Weston



  1. How? No EPF!! :-(

    Must save more.. must save more.. must save more..

  2. No need wan. Got love and blue skies and sunshine and koi in pond and lanai and birds of paradise and fans and love (oh, I mentioned that), etc., etc., can already!

    But, it's still good to save more (for lormaikai).

  3. Thanks. But what is great in the U.S. may need some changes in Malaysia. Our government does not provide safety net, so we probably have to save a bit more for emergency.

  4. KS, so true. The government can only provide what is for the general good. The onus is really on individuals to do what is necessary as desired though the realisation part is the trigger point that gets the action going.

    Saving for emergencies is always wise. This comes to mind which is quite often preached: Pay yourself first, before you pay others. Put aside a certain amount for yourself every month. Good advice, no doubt, but for people who find it difficult to make ends meet, it can be a challenge. There is no perfect solution, is there?