Best Practices On Saving For The Future

We had a great chat with Mr. KC Lau from KCLau.com back on 7th March 2018 during our March Facebook Live Event. Here is the complete interview with transcript. Enjoy!

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Stanley:                                  Hello everyone, welcome back to our “Ask-Us-Anything” Facebook live session happening every month for you guys, we try to have different guests every month for you to ask question about investing and also personal finance. I’m very much honored that today we are able to invite Mr. KC Lau from KClau.com. So, he’s one of the most prominent, I would say personal finance blogger now in Malaysia, he has been – he started in 2006, if I remember correctly and throughout his journey, he has created many books and also courses on both investing and personal finance. So I just want to welcome KC, thank you so much for joining us.

 

KC:                                         Hi, Stanley always great to talk to you because I like to see your face, so handsome and you’re so smart.

 

Stanley:                                  No, no, no, we’re always learning from each other, and to be honest I learn a lot from you both on the blogging techniques as well and from personal finance and investment, also today we just want to maybe share you know, some of your personal history, and also just to let other people know, how can we release start saving and creating wealth for yourself in the long-term future. So, can you share a little bit about yourself, when did you first start to realize that you need to save for the future?

 

KC:                                         You know, I got involved you know it’s quite a long story, but I cut short is that, I don’t know anything about personal finance, until when I first start working during my last few years, I think that’s five years in university study in UTM, when I play music at night, so I was playing something like full-time in Johor Bahru, one of the hotel is called Hyatt, but now is no longer Hyatt, I don’t know what it is called, I play there on the piano, and then of course my partner is a flutist. So, he’s quite a successful entrepreneur, so he’s the one who introduced me to the book, he said Lau if you want to read books other than your textbooks then you should read this one [indistinctive 02:38 to 42] which is the famous one, so that’s how I got to learn that, there’s this topic call personal finance. I think it’s started that time that I already plan a seat to me that I want to achieve financial freedom. So, how do we go about that so of course saving is a big part of it?

 

Stanley:                                  Okay, once you got this book, what are some of the tips that you straight away implement, when you’re talking about saving, what’s the first thing that you realize that you can maybe increase your saving?

 

KC:                                         Is this talking about increasing saving right?

Stanley:                                  Yes.

 

KC:                                         Mainly we have to know that the most important concept is to live below your means, that means so whatever you made – you cannot spend everything of it, but the problem is a lot of people I see in Malaysia is that, we are not making enough due to inflation, things are getting more expensive, and then the pure pressures, those kind of stuff, so of course we are in hard situation, say last time even harder [Crosstalk 03:54] during our parent’s time, during our grandparents time, it’s even harder for them. But they managed to save right, they can still live peacefully, and they have that habit until now. So why not us?

 

Stanley:                                  Exactly, I think you touch a point on how to live below your means so, a lot of people will get some question, I think we have a few question who are students I think from [inaudible 04:21] he was a  fresh grad, and he is thinking about when he’s first starting out, what are the things that may be from your personal experience, how do you find ways to increase your income and then say when he’s starting out, what kind of protection he should have, what’s the main insurance that he should get, because he’s bombarded by so many insurance agency, you know he don’t know which one is really necessary which one is not  necessary.

 

KC:                                         So should we talk about insurance right now? I didn’t get that few parts of your question so, if you are talking about insurance, once everyone start to make money of course, you have to pay for your own premium. I never allocate more than ten percent to do that, so if you are smart with the choosing the right policy, then probably gets like five percent of your income to buy insurance, and you are fully covered already. So there are mainly five things to cover here, so the first one is the recover the first D is death, this is the whole life insurance right. The second when you buy death, you come with the TP DSL total permanent disability, when you cannot work, and then the third one is the critical illness, so before we come to the illnesses protection, it used to be only the first two D; so the first two D come first, but now you have to pay a little bit more premium, so that you can accelerate the payment, so that when you buy that illnesses, it come with everything together. So, it’s just like pay you earlier than before, last time you have to wait until you die before they pay off [inaudible 05:56] get paid already after you pay, you got pay for the illnesses then normally the other two D you can like fully claim. The fourth one will be the medical card, so medical mainly you just cover all your hospitalization expenses, when you go to hospital. So, this is like the necessity I guess, when you are working for a company normally your employee also provides that, but you have to check whether it is enough, then the fifth one would be the personal accident, so this is covering anything, whether you lost your fingers, due to accident those kind of stuff.

 

Stanley:                                  Okay.

KC:                                         Maybe we need these five.

Stanley:                                  Okay, so all these five coverage that you have to be talked about. we should spend no more than five percent on our income.

KC:                                         Ten percent I would say, but five percent you’ll be good.

Stanley:                                  Okay and as your income increase do you increase your coverage as well?

 

KC:                                         Because it all the figures you can – it is all like calculated based on your income. So, I’d say that is [inaudible 07:05] how much do you want to cover this at least like three years of your income. So, if you earn more then of course you increase your coverage like death one, TBD and the person accident, those are also tied to your income. So, it’s all – you should insure at least ten times, eight times, ten times of your income.

 

Stanley:                                  Interesting, okay, I think more people are starting to come in as well, Sebastian say hi to you.

KC:                                         Hello, hello.

 

Stanley:                                  If you guys have any question, you know just comment down below, during our conversation, I will pop them in with KC, going back to say your journey now you are a musician now in Hyatt I think, and the hotel now is thistle.

KC:                                         Thistle how do you spell that?

Stanley:                                  Thistle, I think.

KC:                                         Is this still five star?

Stanley:                                  Yes, it should be [inaudible 08:04] long time, but so you are still playing and is that a full time you are playing at that time?

KC:                                         Last time, it’s like every week I will play at least like, four or five nights

Stanley:                                  Okay.

 

KC:                                         We have a few musicians, but I take the majority of the time I’m the one who perform so and then Hyatt is just one of the place I have  performing at the mooch, last time if you have a mooch chiming attending there. So, I perform there as well, and then I do a music production during day time. So, I do arrangement music recording, I record my albums.

Stanley:                                  Okay.

KC:                                         I will give it to you because I still have a few copy [inaudible 08:46] so many years.

 

Stanley:                                  Definitely. So, at that time because you are continuously working, and do you reach a point, where you decided to venture into financial industry as well, you went into the insurance industry, why is that the case, do you see about the future?

 

KC:                                         Later on I moved to a [inaudible 09:18] and then anyway because of the music industry how it works like CD series is going down. So, artists cannot make much money from cutting records sales, if they do album they had to spend money, but they couldn’t make it back because the CD sales are not there.

 

Stanley:                                  Okay.

KC:                                         So that’s why they also cut down all the production costs, low music production cost, that’s when we are the guys at the back end, we are not having a lot of jobs to do. So, even if you sell songs also, we compose and if you can sell song, it’s not like last time when you sell one song to Andy Lau and then you can buy a car with that money, now it’s like you sell one song, hope you get five thousand, ten thousand maybe it can last you for one month only. So, you keep selling every time like two, three songs a year, then you’re enough for your life, but that time is over, so I have sometimes do something online day time. So, that’s when my mentor, KC Chong; he recruited me to do financial planning [inaudible 10:28] me to do financial planning and then of course, the first license we get is to sell insurance that’s how I get started.

 

Stanley:                                  I see, okay. And I guess at that time, you are already starting to save up, and invest as well. Is that the time that you are already starting to venture into saving and investing?

KC:                                         We try to do saving all the time even though when you make less money right, so of course I’m not saving a lot like the first, I think the first ten thousand I saved was used for buying the first house [inaudible 11:04]. So, I think it’s still the best investment I made.

 

Stanley:                                  So, you still recommend that when people are saving up. You know, the first thing that you should save is probably your house.

 

KC:                                         Yes, for young people I think the first thing you should buy is not the car everything else maybe you can try stocks, but at the end you still have to have first goal of getting the first property.

Stanley:                                  Okay! So, you should continue to drive a more affordable car you know design…

 

KC:                                         My car is very affordable is like my first car is twenty-year-old that [inaudible 11:47 to 49] car just a few thousand ringgit. I think I bought it seven thousand or eight thousand, but five or six years later I sold like two thousand or five thousand.

 

Stanley:                                  So you actually make a profit from your car purchase?

KC:                                         No, there’s no profit, at 7,000 and you sold it at 50% loss…

Stanley:                                  Because of the inflation as well.

KC:                                         Yes.

 

Stanley:                                  Okay, at the time I think because you say that your income is not very high right, so how do you squeeze up – a lot of people right now, because their spending is even higher than what they are earning, and a lot of them going to credit card debt, and have to use credit card to maintain their life style, you know so maybe for people who are facing this situation right now, where they are in credit card debt, so what’s your advice on you know trying to help them parry down, and where can they find the place that they can probably cut out too safe from their expenses?

 

KC:                                         Okay, so the first part of the question is about how to have a saving right? So, this is not hard to do, in fact you know how much you make right? So, you just have to make sure that you spend less than that, so how we do that? So, a lot of people don’t have the emotional strain to control their spending, so that’s why tends to overspend. But once you know this, once you know that you cannot keep on spending more than you earn, so when you have that down, then you try to look at your saving rate. So, if you’re saving zero or negative, then how do you do that right? So, there are two parts of it, first you do offense, will be the best offensive play will be you have to make more money, you have to focus on a job, get an increment, or you do some side gig, you know startup business or something. So, this is the first thing, and even when you do this, and you don’t control your spending is still going to be a big problem for everyone, but not paying focus on the defense. So, defensive play is you have to cut down an expense, so to cut down on expense, the first activity I recommend is that you jot down everything you spend, so it’s like even you take the MRT right when we get tense and you have to jot that down, so every little thing you have to jot it down, and then you analyze on how much you spend on certain category. So, I’m sure that you will find places where you can cut down for example, there are subscription that you can cut off for, example like Astro maybe you don’t need it so much, so many channels, or if you watch sport channels, you don’t have to subscribe to it, you can go to the [inaudible 14:44] to watch on, with their tariff’s even cheaper right, and there are all sort of things that you can cut your expenses from, even your mobile phone bill, or like your data plan, maybe you cannot fully utilize you have to cut it down to the lower package things like that. So, I think there are always things that we can cut, because when you make three thousand. I think your lifestyle should be like spending around at most, seventy to eighty percent of what you make, and you have a saving of thirty percent. So for example, I say you go to the bar minimum already, let’s say now this is all the time, all the thing you can cut, but you are still like making  [inaudible 15:25] right, what do you do to have a saving is that you have a few years planner two, three years plan. So, the next year let say you make a little bit more ten percent more, then you still maintain your lifestyle plus, you have a ten percent in saving rate. So, give it another one or two years then you can climb it up to like thirty percent.

 

Stanley:                                  Exactly okay, that’s interesting. So, the two ways to attack it, is to both increase your income also try to systematically to pare down your expenses, I think now there’s quite a few of  expenses app that you can even use so much easier compared to last time to [inaudible 16:04]…

 

KC:                                         Last time [inaudible 16:06].

Stanley:                                  So, it should be much easier now and no excuses, and I like the fact that you say when you are earning three thousand right now, you save eighty percent. But if you are income increases you try to maintain the same lifestyle, don’t increase your lifestyle spending, and so you’re earning rate just shoot up, maybe you’re earnings become six thousand, and you’re actually saving fifty percent, if you’re still maintaining three thousand dollars lifestyle.

 

KC:                                         For example, even when you make more right, you can increase your expenses, so that you can enjoy [inaudible 16:47] you can make like fifty thousand a year or a month, then you can still spend seventy percent, I can spend thirty-five thousand it’s a lot of spend like, I can still save fifteen thousand, you can still save a lot.

 

Stanley:                                  Okay, interesting, for people who may be facing some debt, like credit card debt, or student loans, or you know car debt. Do you recommend that they quickly pare down this debt first, or they should save and invest the money, and then just pare down slow as per their schedule?

 

KC:                                         When you talk about debts right, debt is actually financing, so you’re financing for you to do something right, so if it is financing you are to do investment, then its fine we keep that debt as long as possible,  as long as the interest is low, so for example what other interest that is  low maybe look at a mortgage is the lowest right, 1.5% and it can be – the next may be car loan up to like five to six percent, and then you come to personal loan maybe eleven to twelve percent [inaudible 18:01] rate and then you come to  credit card more than eighteen percent, and the rest would be like more than credit card rate. So, if you’re talking about the debts that have very high interest, then of course, it should be paid off as soon as possible, because you couldn’t get that kind of return with your investment. It’s kind of impossible right, impossible for the long term, let’s say you’re investing in stock, if you’re as good as Warren Buffett you’re getting like maybe twenty percent a year, but paying credit card debt up to eighteen percent, it doesn’t make sense you are making a very thin margin right. So, it doesn’t make sense, but you’re keeping your mortgage loan, then it makes sense right because like 5% to 20% percent then you have 15% margin of error, so by all means keep that there.

 

Stanley:                                  Definitely, I think you make a good point on finding out how much you can increase your income from your investment compared to, how much you have to pay out from your debt and if to say KLCI; I think for the long term maybe they are just using about 7-8% right and in the Singapore market as well, maybe five to seven percent. So, if your debt is higher than that you should really consider paring it down rather gambling trying to beat the market.

 

KC:                                         Yes, you are completely right.

Stanley:                                  Okay, moving on, maybe on increasing the income or so, I think your life story sort of showcase that, after being in the finance line for a few years, you decided to start a blog, and then try your experimenting with online businesses. Is that a way because you see that it’s a good way to implement your income at the time. What’s your plan for it?

 

KC:                                         When I first started right, I didn’t have a clear picture of how to make money from it, it was just purely sharing the things I learned in the financial industry, because sometimes when my client asked me something, I need to type long email, or I have to talk to them right. So, why not I just use those material, and just put it up on a website like a blog, and I can send them a link. So, eventually when I keep doing that, I was quite consistent, I blog for without getting paid for quite many months, and I think years, I don’t even know how to monetize that, the only monetization I put up is the Google ad sense so put on the ads and then you get paid, that’s barely enough to sustain my lifestyle at the time. So, eventually it become serving more of the strangers rather than my customers over a few months’ time. So, I get more people asking for more stuff, that you want to learn, how to do insurance planning, how to do investment those kind of thing. So, later on only I realize now how to actually conduct these as an online business. So, it’s all true learning as well sign up some courses learn from the successful internet marketers, and learn how they conduct a business. So, I just so conduct the things in my niche issue with personal finance.

 

Stanley:                                  I see, okay and at that time you were writing a book as well right, is that book part of the offering of your website or is it…

KC:                                         My book was the first one published in 2008, is called top money tips from Malaysians, and at that time I was thinking just to get a book published, and then maybe give me some credential to do something else maybe do some speaking gigs, or things like that. Of course, the books turned out to be to be okay, it served its purpose because you know, you were getting more publicity from the books, and then people think that you an expert already, because you have a book published. So, it makes all the other things I need to conduct.

 

Stanley:                                  Okay, that interesting. So, you’re growing your income, and then trying to keep down your expenses at that time, how long does it? Actually take from your experience, how long did you take until you reach the point where you say that I think I’m – I already have quite a substantial passive income, that I don’t have to worry so much, and you can choose your own lifestyle now right, you have your own business. So, if someone is transitioning, maybe give them a sense of the timeline, how long does it take you to reach the point where you are more comfortable in your passive income in your life?

 

KC:                                         Well when you talk timeline right, I think a plan should be around ten years, I think you know if we talk about timelines, but I would say the reality is that we keep changing, we keep changing, the priority change, and our commitment change, and our life really will also change, so for example right, when I study in the university I can spend three hundred ringgit a month, that’s enough already. My room went one third of one hundred, then I spent two hundred ringgit that’s enough for me, a little on you know you get married, we have children right, and then you want to provide better stuff for family. Of course, the all the things will keep growing, and I think is a process. I will say now that I think the best advice I can give in this area is that when you think about financial freedom or retirement you don’t think of like you want to spending this kind of money and then you have to pay this money in ten years and then you suddenly know quit a job, so everything and then you [inaudible 24:04] and retire and then you do whatever you want, and I would say that when you do this, or as most people might be disappointed when they retire [inaudible 24:16] to do in your life.

 

Stanley:                                  Are you speaking from experience?

KC:                                         I guess it’s like, you know let’s say, you ask me should I just sell all my thing on sell my business, I can all my property and only could add everything, and then I moved to somewhere I live frugally the rest of my life, I don’t think I want that life. Well when you have achieved certain stages in your life is small like you want to contribute to the society, or you want to continue a family, it just keeps changing. So, I think the goal is you should  keep upgrading not just get out of your comfort zone, and then do better because of course now, if  you ask me to retire I can spend ten thousand no worry. But no I’m striving for more now, you see, I think it’s for you also I think.

 

Stanley:                                 Yes, I thoughtly agreed with you, I got that view mainly from reading a book by Tony Robbins, where he talked about the real truth to happiness. The happiness of human is really about progress, you need to have some progress in your life something that the next aim, what’s the next aim, if you don’t have that, or you just have enough money to spend to sustain your life, you know this you wouldn’t find fulfillment.

 

KC:                                         Especially for someone like me, so maybe they hate that job right they say – okay, I’m gonna [inaudible 25:51] for this ten years, and I would retire all these [inaudible 25:55] people normally they will get very disappointed when you retire.

 

Stanley:                                  Not just focus on saving up for your wealth, but also saving up mentally on things to do as well. Okay, we have a question from Victor; hi Victor, he’s asking, what is the best way that you have in beating high inflation and low which growth error at this time?

 

KC:                                         This is about playing on the offense side, so of course, I think that the best investment of course is in yourself, because once you increase your capability, and increase the value you provide for your employer or to your customers, and then you increase your income. So, when you increase your income, it is not like one of those things you know when you do that you increase the income for this year, is like perpetuate for all the rest of the years, unless you are talking about playing basketball you know like [inaudible 27:01] of course it cannot figure forever like business, when we do a business we provide value to our customers, and then when we do that, then it tends to like, if you can make more this year, and then the next year, you would be like you just keep growing right. So, the first thing you’d plant our expense, so you invest in yourself get better make more money, so the second thing is, when you have that money of course, you cannot plow everything back just into your brain and I make it like X flow right, you couldn’t do that, you still have money left behind, then use that money to invest you know, you have to learn how to do investment, investing other people’s business like stocks, and buy some properties. So, mainly these are the things very simple, you must get better on yourself, or invest in other people’s business, and you will definitely beat inflation.

 

Stanley:                                  Okay, so maybe this is more of your personal view, when you are choosing between say property and stocks, how do you make that may be, you  have this sum of money right now, how do you make the decision whether even I should buy another shop [inaudible 28:01] or I should invest in the stock market.

 

KC:                                         I invest in both, so let’s say for young people when you get started right, because you have long financing horizon, you can – you have long to [inaudible 28:19] thirty-five years for your loan, so you make it a very leveraged for advantageous, for young people to start with properties, and then since properties in more in a long-term place. So, it will not go wrong if you buy [inaudible 28:36]  people would like to stay in it, and then you keep it for ten years, twenty years surely [inaudible 28:41] long, and then I also do stocks because does it complement property as well because stocks give me the liquidity that I need for property, if you are over leveraged you buy all properties and if there’s  economic downturn where you have a cash crunch that means you don’t have enough cash to pay on installment, let’s say some of your properties are vacant, then your rental income is not coming in enough to pay all your mortgages obligation, then you have in a cash crunch situation, so that’s when it is handy when you have liquid assets like stocks.

 

Stanley:                                  Okay, that’s interesting I think property sector especially say if you’re talking about a property market in Johor people has really seen a lot of cash crunch over the past few years with the sector.

KC:                                         I think one thing I didn’t mention when you first started go into properties at first sight and then it’s on when you want to collect even more wealth, I think stocks and business is the way to go because as you know when you buy a very simple analogy when you buy your property in [inaudible 30:01] Stanley you stay [inaudible 29:59 to 30:00] is it a double story [inaudible 30:01] house.

 

Stanley:                                  Yes, [inaudible 30:04].

KC:                                         Okay, so after thirty years he still a double story [inaudible 30:06] house right unless you build another story  [inaudible 30:13] but for example if you buy stocks let’s say you bought Coca-Cola back in the sixties or you bought Book share back in the sixties by sixteen dollar for books you head a week now it’s like sixteen thousand dollar right, sixteen thousand become two hundred thousand, but during that period [inaudible 30:32 to 33] houses is still a [inaudible 30:34] house. So and that thing cannot happen on the properties. But it can happen on the stocks because good business keep going.

 

Stanley:                                  Definitely I totally agree with you that’s why I actually I tend to buy more stocks then property.

KC:                                         Thanks.

 

Stanley:                                  Okay, so right now I think KC has shown us how you can find ways to increase our passive income at the same time some of the tips to reduce our expenses as well in fact KC actually has eBook that you can download, I’ll share with you a link later on or you can just go to KC Lau. Com/ LP; it’s the forty-four personal finance market tips that you can download straightaway and you talked a lot about this practical guides on how you can invest save up more especially if you are Malaysian staying here and  I think that’s very fruitful and thank you so much for your time KC. I really appreciate and learn a lot from you over the past few months and I hope we can invite you again soon.

 

KC:                                         There’s always my pleasure to talk to you thank you Stanly for an invitation, so for those who are interested to get my eBooks you can go to that page KClau.com/lp is free of course you have to enter your email and name, so that can send you more because I have volume two, three, four is coming up.

Stanley:                                  Yes, definitely well great I’ll be looking forward to that thank you very much KC, hope to speak to you soon.

KC:                                         Thanks Stanley, do have a great day.

Stanley:                                  Bye.

KC:                                         Good bye.

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