Wednesday, 5 August 2009

Tame My Budget 4 : Manipulate Banking Services

We have look into budgeting and saving. Clearly it is good to have sustainable budget and healthy habit for saving. But what if our financial state are already in deep trouble? What if our income barely enough to survive for the month, we are barely able to pay the 5% credit cards, we are missing on installment payment for loans, house loan and car loan? Savings? I believe that savings is the least of what in our mind right now because we are unable to find enough money to survive the expenses moreover to keep aside any savings.

I was lucky enough to purchase “Teknik Manipulasi Sistem Kewangan” e-book here in Malaysia. This one e-book truly change the way I look into my situation. The e-book is such a hotseller, the publisher even have to stop selling the e-book. Apparently, the e-book exploits ways to make use of banking system to our own good. I was unable to promote the link, due to the e-book was no more in sale. However, let me breakdown the method introduce by the e-book. I hope, my fellow readers out there, able to make use the system to get your money flow back on track.

The system introduces 2 main tools:

Overdraft (OD)
  1. Overdraft is a form of loan from bank. But instead of bank releasing the full amount of loan to us, they put the cash in current account which link to the overdraft account.
  2. The interest is calculated daily, based on how much money you have used out from the overdraft account. As soon as you fill up or pay back to the overdraft account, no interest will be charged.
  3. Overdraft normally coupled with your other bank services such as Fixed Deposit, Home Loan or ASB Loan. The maximum value of the overdraft account depends on the value of your mortgaged on fixed deposit, home loan or ASB Loan.
  4. Since OD account is mortgaging from other account, bank have low risk to maintain the OD loan, thus allowing them to provide low interest rate. For example, RHB bank OD is only BLR – 1% per annum. Refering to my BLR list, RHB is currently with 5.55% BLR. Means, its OD is only 4.55% interest per annum.
  5. When you plan to take OD, please take note of the interest rate so that you can get maximum savings through this system.

Amanah Saham Bumiputera (ASB)
  1. Here in Malaysia, we have ASB available for Bumiputera. The ASB is a form of Unit Trust investment where the government guaranteed that we will not lost any of our capital investment. The return of investment was paid as dividend and bonus by end of the year.
  2. Since the last few years (as shown in table below), ASB reported return up to 8% dividend with 1% bonus. That is a total of 9% dividend paid to investors.
  3. Furthermore, since the investment is guaranteed from losing capital, ASB provides us with a very low risk investment capability.
  4. If you do not have access to ASB, there are still a lot of options out there. Main point for this 2nd tool is to find a medium risk investment that minimally can give us annual return more than the OD interest rate. Since OD interest rate is 4.55%, you need to find investment that minimally will give you 5% dividend.
  5. If you plan to use this tool for long term, you also need to consider inflation. Malaysia’s inflation is about 4% each year. So, if you are able to get investment that provide return of 9% per year, that dividend can help to support OD interest rate and also any future money inflation.
  6. For Malaysia’s Bumiputera out there, ASB will give all you need to go through with this system. Of course there are many other tools, but ASB would be the safest. Please make use ASB smartly.
Year End 31 Disember Dividend (%)
Bonus (%)
Total (%)
2006 7.3 1.25 8.55
2007 8 1 9
2008 7 1.75 8.75


Money Management Flow (ASB – OD)
So, how do we start? The e-book introduced the flow that will give you the maximum control over your money. However, as I went though the explained process, some of the requirement is a bit too far fetch. Let me try to derive the process on my own point of view and hopefully it will be able to cover as much scenario as possible to fit your case:

Initial capital for OD
  1. OD must be coupled with another account as mortgage.
  2. OD value also must minimally be 6 months of your current income to allow for maximum diversity use for OD.
  3. OD amount must include any credit card outstanding balance that you are currently having. Concentrate only for credit card, not on other low interest loans.
  4. For example, your income is $3000 per month and you have $5000 of credit card outstanding balance. So, you need to have OD amount of $3000 x 6 months + $5000 which equal to $23,000.
  5. Normally, bank would allow only 95% from your value mortgage for the OD facility. That means, to have $23,000 of OD value, you need to have $24,200 of mortgage.
  6. Where can you get this lot of money? It can come from your savings, retirement saving, emergency savings or home refinancing. If you can borrow from your rich line of family also would be great as long as no interest charged. But, please do not “borrow” from along or loan shark.
  7. You might also opt for ASB Loan from RHB. RHB’s ASB loan is having average interest rate of 4% per year. This will be a quick way to get the initial capital but you might have to re-visit your monthly expenses in order to cope with the monthly payment for ASB Loan.
  8. You can also get personal loan, but the additional installment monthly will stress your OD usage. So please be careful on this.

Preparing the OD mortgage
  1. Let me use ASB as the example here to clarify the detail of the process.
  2. Once you have the money, deposit them to ASB. For ASB, this can be done at post office or any bank that provided ASB service.
  3. Then, go to the nearest PNB branch and asked them to convert the investment from the account book to certificate. Remember, OD value is only 95% of the mortgage size. So, make sure you calculated the value of ASB certificate needed in order to get the OD value that you want to use.

Applying OD Facility
  1. Once you have gotten the certificate, go to the nearest RHB bank. Go to the customer service counter and tell them that you want to take Overdraft Facility with ASB as mortgage.
  2. During the application, you will be asked to surrender the ASB certificate to RHB bank. They will hold on to your certification through out the period of OD facility. However, the annual dividend of the ASB certificate value will still be calculated and deposits to your ASB account, so no need to worry about surrendering the certificate.
  3. Once your application approved, you will received ATM card, checkbook and DotCom card. DotCom card is for accessing RHB online account for any online transaction needs.

Start Up with OD
  1. Now that you have the OD facility bend to your needs, I do not expect you to go spend them like crazy. Remember that the OD is a tool for a better money management, not a tool for you to spend your heart out.
  2. The first thing you need to do is to assess your budget. List down all those installment and monthly payment that you need to pay and include its due date.
  3. One thing you need to remember, OD calculated interest daily based on the amount of money you used from the facility. That means, if you withdraw the money today, they will charge interest from today onward until payback. If you withdraw your money next 20 days, then they will calculate interest only by that time.
  4. The concept is to pay up your bills as close as possible to its due date using OD facility. For example, if you due date on 20th, then pay the bills by 18th. Remember that, the later you use OD, the lesser the interest rate.
  5. Pay up all your bills or installment using OD cheque or online. Using cheque, you can back dated to the due date. So, you can send out the cheque earlier but bank can only withdraw money from your OD based the cheque date. Try to avoid withdrawing money using OD ATM unless you plan to withdraw money and pay bill at the same day.
  6. As for your credit cards, by its due date, pay the WHOLE outstanding balance. WHAT? The whole outstanding balance? YES, please pay the whole outstanding balance. Use OD cheque, backdated to the due date and pay the whole outstanding balance. This is the reason why you need to include all credit cards outstanding balance in you initial OD capital.
  7. Special for credit card usage, look at the credit card statement. Look at the statement date and due date. Only use your credit card between the period of statement date until due date. Stop using the card after the due date. Once due, always pay the full outstanding amount as indicated in your statement (which consists of your last month spendings, but not current month spendings). This will ensure that no credit card retail interest will be charge to your card. Also, please never take cash advance from your credit card.
  8. For your daily expenses, as much as possible, charge them to credit card. Minimize having to withdraw cash from OD to further reduce its interest. Only withdraw cash from OD when really really needed.

Manage your life with OD
Throughout the month, keep on doing these activities:
  1. Pay bills and installment using OD cheque back dated to the due date
  2. Always pay credit card full outstanding balance.
  3. Use credit card for daily expenses
  4. Withdraw cash from OD only when really needed.

Rejuvenate OD with salary
The day you received your salary, do these activities:
  1. Take 30% from your income and invest in ASB.
  2. Put aside some cash that you will need to use monthly in order not to withdraw cash from OD.
  3. Whatever the balance, deposit back to OD to pay back the amount you have used.

Concept of OD
  1. When you pay back OD using you balance income, OD might not be able to reach its original full amount. The balance is the one that will be charged with interest until the next payback.
  2. Manage you expenses so that OD will not be drained minimally within the next 2 years.
  3. The 30% savings will accumulated in ASB and returned with dividend by end of the year. Withdraw the dividend and payback OD. Do what ever you want with the balance dividend (shopping!!)
  4. By the end of 2nd year, your dividend from ASB must be able to full pay back OD. If not, this is the first indication that your spending habit is ICU critical. Revisit your spending so that OD will not be fully drained by the time you top up with ASB yearly dividend.

Power of OD
  1. You have 6 months income reservoir in case of emergency.
  2. Your hard earn salary will be emphasized as ASB investment, growing more money for you.
  3. You used credit card as a tool to pay your daily expenses, instead of relying on OD cash. But pay credit card by full amount so that bank will not able to charge us any interest.
  4. ASB certificate will continue to get you dividend even though you mortgage them and use through OD.
  5. OD interest counted daily. The later you use and the earlier you payback will drastically reduce the interest. That is why you should spend your daily expenses on credit card instead of OD cash.
  6. Coupled with OD, credit card become a helping hand to your budget, rather than kill you in slow death.
  7. The more savings you put in ASB, the more dividends you get end of the year. Having more dividends, you can make full payback to OD and spend the rest of the dividend till your heart content.
Diversity of OD
Here are other options that you can take up instead of the system above:

ASB initial deposit
  • Own savings
  • Home refinancing
  • Borrow from others
  • ASB Loan. Only RHB allows ASB Loan with OD facility, for now. Make sure apply ASB Loan only through RHB for the OD facility.
  • Personal Loan. Additional ASB Loan or Personal Loan will add stress to your OD. Make sure you get the lowest interest rate. It is good to make sure the monthly payment and the tenure of loan is low. Rules of thumb, try for installment of 20% your income with 2 years tenure or 13% your income with 3 years tenure.

Non-ASB for OD mortgage
  • Fixed Deposit
  • House or land mortgage
  • Gold mortgage

For non-ASB OD mortgage, you can deposit your 30% savings to other investment. But the investment must be at least 8% per annum return to maximize your dividend. Here are some examples:
  • Amanah Saham Wawasan – 7% to 8% return
  • Fixed Deposit – make sure the maturity period is not more than one year. However, FD normally only provide 2.5% return per annum.
  • Unit Trust – depends on its performance. Public Bank Mutual Fund for example able to provide around 10% to 15% return.
  • Gold investmentGold is much better used for long term. But for annual return, it could gives between 10% to 15% depends on the diversity of gold price. I will explain more under Gold Investment topic in future.

Hope that this system can work for you. I setup a flow below on how you can roll your money across this system. By making use services from our banking institute, we can use them as tools to improve our money management. Good luck!


5 comments:

Anonymous said...

kamal,
im an OD user and im sure u've heard of the news about the discontinuation of mortgaging ur ASB. they did stop for a month or so few months back and if the rumours that i heard is correct, they will discontinue it by end of this yr.

and i heard the charge to change your asb to cert has increased from rm10 to rm100.

anything that u've heard so far?

Kamal said...

The only recent news I heard so far, is that CiMB also start to provide service for OD by mortgaging on ASB cert. They are providing BLR-2% for the OD. Have not heard news about other bank such as RHB stopping their ASB-OD services.

Wida said...

Salam

Terima kasih di atas penerangan yang panjang lebar

Untuk download OD Tracker – tool untuk manage OD dan interest.. silalah melawat ke blog saya.. EmasdanTanah.com

Wida
http://www.emasdantanah.com
Nota pelaburan emas dan hartanah

Azman said...

Salam, as per current, I heard that PNB has add some more conditions of certificate for OD like SSM registeration and PBT license or permit. When you want to explain some more on gold investment?.

Kamal said...

Yes Azman, no more ASB-OD for individual account since July, if I am not mistaken. At least need to register under SME to be eligible for ASB-OD. ASB-OD is a good tools, maybe because of market saturation or PNB worried that it was misused, the privilege has been taken back. No worry, many other tools still can support for a smart financial. Thanks for your request on gold investment and I will try to explain it further once I try it myself. Thanks for your support.

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