The Financial Blueprint

What is a 'Blueprint' ??
Can you imagine to build a house without an architecture floor plan or design?? Or perhaps building a mechanical fixture without an engineering drawing?? 

Yeah, one can argue we don't necessary need that human being can reproduce almost anything based on 'EXPERIENCES'.

Unfortunately 'EXPERIENCES' were often built up at the expenses of gold and time, as a result from try and error. 

If a BLUEPRINT (architecture design/technical drawing) is made available before actual work get started, I believe we can get the job done with ease without heavily rely on 'EXPERIENCES'.

Our Own Financial Blueprint

We spent millions of hour with our parent as we grew up from kid to adult, subconsciously we were all influenced by every decision they made, every conversation they conducted and every idea they shared. 

As a result, we would either behave exactly the same as our parent or behave exactly the opposite way, with no exception to financial sense too.



Few examples :

Mr. X grew up witnessing his parent performed stock trading daily and finally burned all their saving. Since then he lost faith in stocks and vowed to stay away as far as he could, he has removed 'stock' from his 'Financial Blueprint'. But in fact, stock is one of the most effective investment vehicle in present time if manage properly.

etc etc etc ...

There is no right or wrong ways in financial sense, there is just that thing you do, but there are some basic ingredients needed to acquire a correct financial blueprint that lead to success. 

1) Unlearn your experience and knowledge
2) Keep your mind open for new informations

Get prepare to reprogram your Financial Blueprint 

Insure Your Life - You Do It For Your Love One

There are quite a number of insurance products in the market, ranging from Life Term, Critical Illness, Income protection, hospitalization, annuity, saving, personal accident and etc 

But what we really need are Critical Illness, Hospitalization & Accident(optional). 

I am not against any other wealth accumulation policy, but just I believe we can generate better return and enjoy better cash liquidity if we put our money in stock market or equivalent investment vehicle. Always ask about 'SURRENDER VALUE' if an agent is trying to sell you a Saving Plan. =)

There are mainly two type of common policy in market stream :-

1) Investment-Linked Policy

2) Conventional Policy

And the typical differences are shown in the table below:-

Comprehensive explanation can be obtained from the link below :
    Investment-Linked vs Conventional 


Below are few scenario I would like to share:           

      "Miss X came is 24 years old, coming from an average family 
   and has limited income as a junior accountant. She believe she
   is the luckiest person in the world and therefore no policy 
   needed. Misfortune struck when she was diagnosed with kidney
   failure, the 'monster' wipe out her entire saving and her 
   family is burdened with huge medical expenses"

      "Miss Y came is 24 years old, coming from an average family 
   and has limited income as a clerk. She understands the 
   importances of insurance protection and bough an investment-
   linked policy @ RM1500 per annum. She got herself protected 
   with RM60,000 critical illness & hospitalization life time 
   limit RM200,000. If the same incident as Miss X struck, she is
   definitely in a better financial shape."

      "Miss Z bought the same insurance as Miss Y at the same age 
   and now she is 44 years old. She found out that premium has 
   been increasing from RM1500 per annum to RM4000 over years 
   (Sum of insured still RM60,000). Her agent told her that 
   market is not performing and the premium might be even higher 
   next year. She asked for quote of conventional policy so that 
   she can enjoy flat premium but to her surprise the premium now 
   is RM4500, where she was quoted only at RM2200 at the age of 
   24 years old."

      "Miss A bought a conventional policy at the age of 24 years 
   old, she paid RM2000 per annum for a RM80,000 critical 
   illness and RM600 per annum for a medical card. 20 years 
   passed, she is still paying the same premium at RM2000 and to 
   her surprise too sum of insured has increased to RM160,000
   without a hike in premium"

From each scenario as stated above, we can conclude that :

Investment-Link Policy offers better protection and coverage during young day, very affordable but premium will become ridiculously high when we get older. Your paid premium is divided  to a Investment:Protection ratio, for instance 1:9, income from investment activities will use to offset policy premium. 

Conventional Policy usually required higher premium and a separate medical card for hospitalization is needed. Not very affordable for young people but more worthy in long term


So which policy suit you ?? For me I would say both ...

Option 1:

1. Get a investment-linked policy during young day to avoid overstress of your financial power, include Rider - an option that continue to pay annual premium on behalf of ourself at the event of permanent disability.
2. Get another conventional policy when we can afford (best before 30 years old to enjoy lower premium)
3. Adjust the weightage of Investment:Protection in investment-linked policy towards investment to generate more return for premium payment. In addition to that, adjust protection portfolio towards Hospitalization.

Option 2:

1. Get a conventional policy + a medical card, stick to it until end of our journey. But make sure we can afford the higher premium and not affecting the built up of Long Term Saving & Financial Freedom Account.

Bottom line is we need protection, but don't financially overstress ourself with insurance premium

The Jar System

5 years ago I attended a seminar called Wealth Summit 2008 (free ticket) in KLCC Convention Center organized by Success Resource. It was an event that promoting wealth building workshop/programmes.

I signed up for a two days seminar called 'Millionaire Mind Intensive' facilitated by T Harv Eker, and it turned up to be one of the most inspiring session I ever had in my life.    

The most important concept from the workshop that I would like to share here is 'The Jar System', no rocket science but just a simple system that help people to start financial planning by distributing income into 6 different categories. Anyone can start with putting cash into 6 separate jars as shown in the following pictures or fund transfer to 6 separate band accounts, I opted for the second option =)

The definition of each accounts are :-
1)'NEC' or Necessity 
   - Fund for daily expenses and usually accounted most portion 
     of the income. The most important element here is Insurance  
     Protection, where a single bill from hospital nowadays might 
     wipe out all your hard saving.

      "Mr X has 200K long term saving after 10 years hard work 
       but unfortunately he is diagnosed with chronic disease  
       that need his entire saving for complicated medical 
       procedures. This scenario won't happen if he had bought 
       insurance that only cost RM1000 per annum"

2)'LTSS' or Long Term Saving 
   - Cash or cash equivalent for future expenses such as 
     marriage, new house, car or serve as emergency fund. When 
     one facing financial difficulties, the last person who will 
     help you is BANK. So cash is very important. 
     KWSP contribution excluded as long term saving

      "Mr Y is under voluntary separation scheme after working 
       for 10 years in a company, he loss his sole income source 
       but fortunately he has cash of 6 months necessity expenses
       in the bank to sustain his daily needs until he finds a 
       new job"

3)'FFA' or Financial Freedom Account 
   - Perhaps the most important account !!! Funding investment 
     (stock/mutual fund etc) related activities or start up 
     business to generate passive income. Not a single penny 
     should withdrawn for this account else the golden goose is
     killed halfway 

      "Mr Z is a saver where he put every single penny in bank as 
       fix deposit to earn 3.0% interest. After retirement he 
       found out his fund is insufficient for daily needs, WHY ??
       Inflation...Inflation...Inflation of 5.0% annually that
       eroding his power of money. Mr Z is so regret he did not
       invest in other investment vehicle such as mutual   
       fund/stock that would generate more return than fix 
       deposit since young"

4)'EDUC' or Education
   - Not for your kids but for yourself. Attending 
     Seminar / training workshop.

      "Mr A does not know neither stock nor mutual fund, so he 
       decided to participate in a course "Value Investing In
       Stock Market". Since then he is able to generate 
       substantial return from the stock market"

5)'PLAY' 
   - My favourite account ^.^. Spend every single penny out of 
     this account for travelling, partying etc to explore new 
     experiences or recharge your mind energy   

      "Mr B always reserve some fund in Play account and every
       year he is able to travel with his love one. Work-Life 
       Balance"

6)'Give' 
   - When you start 'giving', you will 'gain' more in the future. 
     For your social responsibility fulfilment and perhaps for 
     your parent. 

$$$ AMOUNT IS NOT IMPORTANT How much money you put into each jar is not important, what really matter here is the HABIT you cultivate along the way. 

Discipline is the key for this practice and if you did, your financial status would be in a good shape in the future.

So Why Wait ?? Start today when you are still YOUNG