What Is a Sinking Fund and Why You Need Them?
- By CompareHero.my
- July 1, 2021
We’ve covered a ton of strategies to help you shave just a fraction off your spending, given some ideas to help you combat that inner impulse spender in you, and even some ideas to make some money on the side. If you’ve gotten to know all of them, you’d have a pretty good picture of how to structure your finances. Heck, you might even end up with more than you first imagined.
But there is one more component to your financial planning other than your emergency fund and savings account — A sinking fund.
Contents
What is a sinking fund?
In simple words, a sinking fund is the money that you save each month towards something you want to spend on. These are things like birthday parties, vacation, or even renovation plans. What you don’t want to do is tap into your emergency fund or use your credit card.
Related: 6 Confessions Of A Credit Card Junkie
A sinking fund saves you from having to scramble money together at the last minute because you’re already prepared for it.
Why do I need a sinking fund?
We can’t possibly know what’s going to happen in the future, for better or worse. But one extremely likely scenario is that we’ll be faced with an expense that is outside of our usual budget. Maybe a friend of yours is getting married, a typhoon swept the country, or if there was an amazing vacation deal that you can’t miss. That’s just life.
When you have a sinking fund, you’ll know that in case anything happens, good or bad, you’ll have some money on standby that is apart from your emergency fund. From the bigger picture perspective, you’ll have a much lower risk of getting into debt and it will help you stay on track with your financial goals or budget calendar.
Sinking fund vs emergency fund
On the surface, it sounds quite similar to an emergency fund, doesn’t it?
Well, the fundamental difference between these two forms is when you would use them.
Emergency funds are used only during extremely dire situations. It’s crucial protection because you will never know when there will be an emergency and you have absolutely zero control over how much it’s going to cost you. For example, car accidents or an urgent need for surgery.
Sinking funds, on the other hand, is an event where you can anticipate (most of the time) and plan for. The notion is to remove the element of surprise these events can cause to your savings buckets.
In short, think of your weekly/monthly budget as the first level, then the sinking funds as the second level (“money-to-blow”), and your emergency fund as the “absolutely-no-choice-left” level.
Sinking fund vs savings account
“Okay, what if I just use my savings account instead? Why do I have to go through the trouble of setting up a sinking fund?”
While mechanically, there isn’t much of a difference between a sinking fund and your savings account, the difference is mainly your desired outcome and easier budget planning. With a sinking fund, you have a specific target that you aim for (mostly short-term); with a savings account, however, it’s geared towards your financial goals (long-term goals).
Related: High Interest Rates Savings Accounts From Malaysian Banks
A huge part of doing this also owes to the psychology of your spending. If you don’t set up a sinking fund, there is a good chance that you’ll exceed your initial budget, which then affects your overall financial planning.
Examples of sinking funds
There are no hard rules for what we can use sinking funds for. After all, we live in a world with a lot of needs and wants. But here are the six most common categories to help you get prepared:
- House sinking fund – Damage repairs, security systems, and maintenance. Anything that your insurance does not cover.
- Car sinking fund – Gas, insurance premiums, servicing, maintenance, or even saving up for a new purchase.
- Furniture sinking fund – New couch, new TV, new computers, new curtains, etc.
- Self-employment tax sinking fund – If you run your own business and are generating a profit, you need to expect the taxes. It applies to both freelancers and independent contractors.
- Wedding sinking fund – Whether it’s your own wedding or a friend’s, you’ll need to spend on gifts, transportation, and even to get a new suit or dress.
- Seasonal sinking fund – Chinese New Year, Hari Raya, Deepavali, or Christmas. There is bound to be some spending like giving Angpau, making traditional food, or wrapping gifts.
The bottom line
Sinking funds make your budgeting a little healthier as you’re allowed to spend on the most ridiculous items, as long as you plan for it. Just like other financial concepts and tools, it aims to reduce the uncertainty around your money.
Read More
Should You Open A Joint Bank Account With Your Spouse?
- By CompareHero.my
- June 30, 2021
When it comes to having a partner or being married, the topic of personal finance shifts. We can put a ring on their fingers and exchange vows, but the reality is “til’ death do us part” doesn’t always manifest itself and there will be bumps on the road.
Managing your finances as a couple doesn’t exactly come with an instruction manual. Ergo, it might be a foreign concept to many. Do you split all the bills in half? Or do you set up a joint bank account?
There is no right answer for this topic but we hope this article can help you understand more about opening a joint bank account with your spouse.
Contents
1. Benefits of a joint bank account
In an ideal marriage, you and your spouse are a team who plan to grow old together. That means there will be investment choices to be made, properties to be bought, weddings, and honeymoon adventures to experience. All of which involves two people. In that sense, having a joint bank account where both of you contribute evenly can make it even more impactful.
Not just when things are going great, but if, touch wood, something bad happens to your spouse and they unfortunately passed, you’ll still have access to that account without having to go through a ton of legal process.
It’s also about making sure that both of you discuss the important decisions. Both of you will be able to see what’s happening in the account. “Teamwork makes the dream work.”
There is even a study that concluded joint bank accounts can make your marriage happier.
2. Drawbacks of a joint bank account
On the other end of the spectrum, there is a price when it comes to mismanaging your joint bank account.
Having to constantly update and discuss money can be annoying and intrusive, especially when there are so many things we buy on a daily basis. It can even feel like losing independence if each of our purchases has to be justified.
Another issue could arise if your spouse isn’t very good at managing their money. That means they might have a bad credit score or are in more debt than you. In return, having a joint account may impact your credit score and cause you trouble when you try to get a loan.
3. Benefits of having separate accounts
Having separate accounts doesn’t mean taking the discussion part out of the equation. The responsibility is still equally shared between both of you and you’ll still need to work out how the bills will get paid.
Yes, although you are a team, that doesn’t mean every single financial decision has to be made together. What if you felt like getting chewing gum at the petrol station or want to surprise your spouse with a box of chocolates because they looked stressed?
Using your own account to pay for items can give you the space you need and even grant you the freedom of spending your money on your hobby.
Related: We Asked Malaysian Bloggers For Financial Management Tips For Couples!
4. Drawbacks of having separate accounts
It goes back to the reason you want a separate account. Don’t do it for the wrong reasons, like wanting to hide your bad spending habits or any other reason you can’t tell your partner. If that’s the case, strictly using a joint bank account will force you to be more accountable. Plus, we’re sure your spouse will be more than happy to work on this issue together with you.
Transparency is important. Not only on the financial side but also for the relationship.
Remember, you’re a team now. And often, it’s the both of you against the world so you have to work together if you want a shot at financial independence.
How do you make the decision?
With all these being said, it doesn’t matter whether you have a joint or separate account despite the benefits they may offer. What matters more is communication and being transparent with your goals.
Ask these questions:
- What happens if we’ve accumulated debt together?
- How are we going to structure our investments and brokerage accounts?
- How do we manage our spending when we don’t agree on something?
- How do we contribute equally when one of us has a higher income?
- What is our approach during emergencies?
If you’re still unsure about which method will work best for you, try both. Everybody has their own preferences, and no strategy is foolproof. One thing for certain is that there will be a lot of adaptation and modifications to fit your lifestyles. Start with having open communication and you’ll figure it out in no time.
Read More
Highlights on PM Muhyiddin’s RM150 Bil Pemulih Aid Package
- By CompareHero.my
- June 29, 2021
In a special announcement on the 28th of June, Prime Minister Tan Sri Muhyiddin Yassin announced the latest aid package for the country – Pemulih. This eighth assistance package is worth about RM150 billion is predominantly aimed at continuing the Prihatin Rakyat agenda, supporting businesses, and accelerating the vaccination of the nation.
Without further elaboration, here are the highlights:
1. The Prihatin Rakyat Agenda
- The government promises to distribute RM100 to RM1,400 through Phase 3 of the Bantuan Prihatin Rakyat (BPR) in September.
- 11 million households, senior citizens, and singles in the B40 and M40 income groups will be entitled to RM4.6 billion worth of Bantuan Khas COVID-19 (BKC) in the form of cash handouts:
- Poor households – RM500 in August and November & RM300 in December.
- Poor single individuals – RM200 in August and RM300 in November.
- B40 households – RM500 in August and RM300 in December.
- B40 single individuals – RM200 in August.
- M40 households – RM250 in August.
- M40 single individuals – RM100 in August.
- Those who became unemployed or lost their sources of income are entitled to RM500 in October based on their Employees Provident Fund (EPF) and Social Security Organisation’s (SOCSO) data this year.
- Fresh graduates and employees in the informal sectors who are not registered with SOCSO can register with MyFutureJobs and receive an RM300 allowance.
- All members of Parliament (MPs), including those in the opposition party, are eligible to receive RM300,000 to provide food aid to help their constituencies.
- RON95 petrol, diesel, and liquefied petroleum gas (LPG), which is subsidised up to RM6 million will not have any changes to its prices.
- RM1 billion will go to locking the price of 5kg of cooking oil at RM30.
- RM15 million will go to non-governmental organisations (NGOs) to aid with psychosocial issues in the community.
- There will be electricity bill discounts between 5% and 40% until September based on individual electric usage with a maximum limit of 900kW per hour – the highest being 40% off for those using less than 200kW per hour per month.
- A six-month automatic moratorium for all borrowers. The bank will automatically approve this after receiving borrowers’ applications from 7th July 2021.
- RM10 million will be allocated to implement the food basket initiative, especially for the Orang Asli.
2. Business support
- The government will be providing RM600 in subsidies for every 500 employees under each employer for four months.
- RM100 million will be allocated for those in the entertainment sector, including musicians, actors, artists, and production crews.
- RM1,500 cash handout will be given over the course of three months to 20,000 disabled people who have lost their jobs or sources of income.
- Entrepreneurs with Majlis Amanah Rakyat (MARA) loans will receive a three-month moratorium or can extend their loan period for up to 36 months. This 30% discount for tenant premises will also be extended until the end of the year.
- EPF withdrawals will be allowed under a new i-Citra programme. Members can withdraw up to RM5,000 at a rate of RM1,000 over five months.
- All individual borrowers can opt-in for a six-month moratorium on the bank loans.
- All National Higher Education Fund Corporation (PTPTN) borrowers will be able to opt-in for a loan moratorium of three months.
- RM500 million is allocated to telecommunication companies for the agreement to extend the 1GB of daily free data until the end of the year.
- An additional RM500 will be given to eligible recipients under the Prihatin Special Grant (GKP) 3.0 initiative.
- RM18 million is allocated for local banks to provide about 30 units of mobile banks in Peninsular Malaysia (Sabah and Sarawak).
3. Accelerating the vaccination
- RM400 million will be allocated to increasing the vaccine supplies within the country.
- RM200 million will go to opening up new vaccination centres and improve outreach programmes.
- Vaccination centre volunteers will get increased allowances from RM50 to RM100 per day.
- Healthcare professionals at vaccination centres will also receive an additional RM600 in allowance for six months.
Read More
Is It Too Late to Invest in Cryptocurrencies?
- By CompareHero.my
- June 28, 2021
If you’ve been on the Internet for the past couple of months, it’s more than likely you’ve come across the rage of cryptocurrency. Headlines after headlines and Elon Musk’s involvement in it made everyone think that this technology is going to change the world.
All the news and buzz certainly has to mean something, right?
Well, it’s definitely something worth diving deeper into because to say that digital currency has no chance of being implemented in the future is irrational either. We can’t tell you for certain what will happen, nobody can. So, here are a few critical things about cryptocurrencies that will hopefully help you make more informed decisions.
Contents
What is cryptocurrency?
At the very core of it, cryptocurrency is a virtual coin, or digital money. It is also a decentralised asset, in the sense that it has no ties to any traditional financial institutions, banks, or currency system. In a practical sense, it means that when you make a transfer to somebody else; it doesn’t have to go through any intermediaries (e.g. banks) at all.
In 2021, there are multiple companies that accept certain cryptocurrencies as payment methods (e.g. Microsoft, Paypal, Starbucks) or you can buy it as an investment. Just recently, the country El Salvador even adopted Bitcoin as a legal tender.
The demand for this asset has definitely seen some exponential growth over the past few years, especially with more and more wide-scale adoption headlines. But is that enough to warrant an investment decision?
Reasons for buying cryptocurrencies
When blockchain technology was first developed into a cryptocurrency, it was meant to replace physical cash and remove the middlemen. And that’s still true today, but there are other reasons to buy cryptocurrencies too.
1. Hedge on inflation – Although not every financial analyst agrees on this, there are a lot of investors who use Bitcoin to hedge the devaluing of our fiat money. (Bitcoin is limited to 21 million coins, hence nobody can dilute the value of the coin.)
2. Portfolio diversification – If you can achieve the same returns while taking on lower risks, why not?
3. A long-term bet on adoption – Currently, cryptocurrencies still live in the grey area and countries on the fence. But as more and more companies accept cryptocurrencies as a form of payment, countries will follow suit and it will cascade down the economy.
4. Incredible returns – Ethereum is up about 160% at the time of writing this article. And considering the fact that it has declined about 47% from its highs, it boasts a much higher return than the average of 13% in the S&P 500 or the 5% in the Malaysian stock market.
What are the risks of buying cryptocurrencies?
With the possibility of tremendous returns comes the possibility of tremendous losses. Because remember, the markets are a zero-sum game. The volatility that cryptocurrencies have is sometimes more than what the average investor can handle. On top of that, if you’re caught on the wrong side, it will be a slippery and quick ride down the hill.
Not just that, because of its nature of being digital, it is prone to a certain level of hacking, despite the layers upon layers of firewalls and security measures. Just ask Bitcoin, they’ve been hacked over 40 times already.
One more thing, because Bitcoin and Ethereum have been doing so well for the past year, many smaller cryptocurrencies like altcoins and stablecoins have surfaced just to capture this short-term opportunity. And to be brutally honest, most of them might not be around for the long-term because they just aren’t equipped with the tools for that.
In short, only risk what you’re willing to lose in cryptocurrencies. Treat it in accordance with what it is — a speculative bet.
Is it too late to buy cryptocurrencies?
No one truly knows what will happen to a speculative investment. That’s why it’s labelled as speculation. But one thing to add on is that the ceiling for this asset is beyond what we can see. El Salvador was only the first among about 195 countries in the world to adopt cryptocurrencies. And in terms of companies, there have only been a few that have implemented it.
Think about these questions yourself, because no one has the answer to them:
- How long does a country need to adopt cryptocurrencies?
- Are the laws and regulations rigid enough to protect transactors?
- Other than cryptocurrencies, what can replace fiat currency?
- What do you think will be the catalyst for the wide-scale adoption of cryptocurrencies?
The bottom line is that nobody can tell you whether it’s “too late” to invest in it. If somebody does, that’s their speculation. You have to weigh the risk versus reward yourself and if it makes sense to have this asset in your portfolio.
Disclaimer: Neither CompareHero.my nor the content on it is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. The content on CompareHero.my is for general information purposes only and is not intended to be personalised investment advice or a solicitation for the purchase or sale of securities.
Compargo Malaysia Sdn. Bhd. and/or its affiliates cannot and do not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. CompareHero.my may receive compensation from the brands or services mentioned on this website.
Read More
6 Ways to Lower Your Electricity Bill
- By CompareHero.my
- June 25, 2021
Something that many people assume is “stuck with them” and don’t put any effort into lowering the cost is the electricity bill. Although it’s true that this cost will most likely still exist for the foreseeable future, we can still take certain actions to lower them significantly.
Contrary to popular belief, lowering your electricity consumption doesn’t mean sacrificing the comforts that you’re currently enjoying. In fact, it’s quite the opposite, it requires you to assess the most energy-consuming products in your home and upgrade them to one that’s better and more efficient.
Cutting to the chase, here are 6 creative ways that you can implement in your home that will lower your electricity bill.
Contents
1. Go solar
It’s quite obvious that installing solar panels can save you a lot of money and energy in the long term. What’s even more is that this is sustainable energy, which helps the planet just that tiny bit. But since its introduction, it has been known that solar panels can make a real dent in one’s wallet, costing upwards of five figures, maybe even six depending on the system. This is not-so-great news when our main reason is to save a few cents.
But, there is good news for you if you’re actually considering this. TNB will actually pay you if you are okay with selling them the extra electricity you have. This is part of their energy conservation initiative called Feed-in-Tariff (FiT).
So even if you’re fantastic at conserving electricity, it will still make sense to install a solar panel as it can become a money generator for you.
2. Switch to LEDs
A typical LED light bulb uses about 25% to 80% less energy compared to the traditional incandescents. On top of that, they also last up to 25 times longer than traditional bulbs. 25 times! That is an insane value, especially now that the prices have come down a lot. Almost everything about LEDs is targeted to address the inefficiency of traditional bulbs.
Alternatively, save even more by installing dimmers in your home. It greatly lowers your wattage and output. In other words, lessen your cost of electric bills.
3. Reduce air-conditioning
In Western countries, electricity bills are usually higher in the summer, that’s because more air-conditioners are on. But in Malaysia, it’s arguably summer all year round, we sweat all year round. It’s understandable if you still want to sit in a cooler room, but if you can, try to reduce the time when your air-con is on.
Here’s the other thing you can do: Service your air-conditioning often. Old air-conditioners are generally power hungry and do not get the job done — cooling down the room. It’s not as pleasant for you and the environment.
So, an easy way to counter this is to clean the filter in the air-conditioner yourself every month. It comes at a zero cost, you’ll get to keep a few more drops of sweat and more importantly, a few more dollars in your wallet.
4. Adjusting the temperature of your fridge and freezer
Fridges are important to keep our food fresh, but by doing so, we may end up with a much higher bill at the end of the month. So here’s a fun fact: The peak efficiency of a fridge is 4℃ and the freezer is 0℃. Apart from that, here’s what you can do to ensure the cold stays inside:
- Reduce the times you open the fridge.
- Don’t overstuff the fridge.
- Don’t leave it too empty; fill it up with anything you can (empty boxes works too!).
- Ensure the door magnet is working.
- Clean your fridge regularly.
Related: You Can Save Money by Not Wasting Food, Here’s How
5. Unplug your devices
Even though you’re not actively using the devices like a TV, a radio (if you still have those), a Wi-Fi router, or even your wireless phone chargers, they are still drawing power from your socket. That means you’re paying for electricity just to leave it on standby.
Nonetheless, make it a habit to unplug or flip the switch when you’re not using them. It’s a simple practice that can be your biggest cost-saving area. Not just your devices, that goes the same for your fan and your lights.
6. Upgrade old appliances
In today’s market, there have already been a number of electricity-saving appliances. These are your air-conditioners, fridges, fans, etc. This new form of innovation is especially targeted to help the public reduce cost as those items mentioned are the biggest electricity vampires you can have.
It might cost you a larger sum upfront but this investment will pay off in the long run as you upgrade more and more of your appliances. Even the smallest bit of change can make an impact over the long run, so just start with one at a time.
