Rich debt poor debt propsocial
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Debt is an extremely scary word in today’s age, where the bankruptcy age group is becoming lower and lower. People accumulate debt younger and younger nowadays, with purchases of properties, cars and other luxury items. But what many people do not understand is that there are many forms of debt - it only depends on how you accumulated your debt and how you utilise the assets you acquired from your debt.

So lets take a look at an example of bad debt.

Poor Debt

Poor debt is unfortunately the most common debt that people typically acquire - usually the moment they come out from university before their 30s. The excuses you hear is that the economy is not good, their income is not high enough, everything is getting more expensive and they cannot cover their monthly costs.

But curiously enough if you look at the bank statements of these people, you will notice that many of the purchases on their credit cards are luxury items that are unnecessary; like perhaps the latest release of smartphone or expensive dinners out every weekend. The sad thing about these habits is that their spendings will only get them into deeper debt.

A study showed that an average of 40% of credit card users never pay their credit card bills in full every month, which 10 years ago was only 25%. And the annual interest on the balance of the credit card is as high as 18%.

To make matters worse, personal loans are getting more and more popular these days as many people are attracted by the thought of getting their hands on large amounts of cash easily. What they do not realise is that this money which they probably use to enjoy themselves for a very short period of time will draw them into an even deeper debt for the next 5 to 7 years.

Credit card and personal loans carry some of the highest interest rates in the market, with the former between 15% to 18% per annum and the latter 16% to 24% per annum. Car loans only have an interest rate of about 7% to 8% per annum and mortgage loans between 4.5% and 5% per annum.

If you look carefully at the numbers, this is the reason why people with credit card and personal loan debts keep getting deeper and deeper into debt. Their income is insufficient to cover their debts, they get into deeper debt on a monthly basis, larger debts are ignored while they spend on ‘cheaper’ luxury items which depreciate in value with time, they get into an even deeper debt - and the cycle continues.

Poor debt is a depressing story indeed. So let’s now look at Rich Debts that will benefit you.

Rich Debt

First of all, ‘rich debt’ is a foreign concept for many people. How can debts actually make you rich? Let’s look at an example.

Example 1

Kate bought RM1 million of assets in form of property. She had the cash to pay for it in full, but took a 90% loan instead. So she only paid RM100,000 from her own cash, and sold her property for RM1.2 million 3 years later. So she made RM200,000 from her investment of RM100,000.

Example 2

Tommy bought RM1 million of asset in form of property. He had the cash to pay for it in full, hence he did so. Three years down the line, he sold his property for RM1.2 million. He hence used RM1 million to earn RM200,000.

If you can see the two examples above, both of them made an investment, but one made RM200,000 with only RM100,000 whilst the other made the same amount but with RM1 million instead. Doesn’t the first example make more sense?

Understanding Leveraging

A simple explanation of leveraging, is using borrowed money to make more money. Leveraging is usually done in form of property investment, because your loan is secured against your property which increases in value over time.

But what about the property instalments? Are they considered bad debt? In a way yes, they are. But you can look at it as a form of ‘savings’, as when you sell your asset, you will be gaining back so much more.

Leveraging is also good because it will not require you to come out with a great lump sum of money, which will in turn leave you with extra cash in case of rainy days. Aside from being a form of security, this stash of cash also carries an additional benefit. It enables you to take up another investment when one arises, be it another property or a business opportunity.

Good Borrowing vs Bad Borrowing

Some of you reading this might feel like it is a bad idea to borrow money in order to make money. But look at it this way - you borrow money anyway, in form of credit card debts, personal loans, car loans and many other items that are not very financially productive. Hence, if you are going to borrow, you might as well make the loan effective, which will make you money.

In fact, some of the best examples of great debts is in companies. They raise bonds of 8% to the public, and then turn around and make 15% on the money. Individuals can do the same things as well. So here’s to a financially richer lifestyle and wiser spending!



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Agreed. Managed debt properly is crucial. Borrow money to make money is wise.

Rewards ourselves is important too while we achieve something, to keep ourselves motivated. :)

James bond craig junio2006 small

Borrowing money from the bank to buy a house (asset = future ROI) is definitely better than borrowing money to buy lavish lifestyle (credit card + nice big cars = liability).

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Great way to look at debt! Before this I only thought about debt as something to avoid, but in this case, debt can be a good thing. =D

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Essentially, Banks Loans are your best buddy... they can help you finance up to 90% of the property... but how many people have RM1million in bank account and still actively look for investment? even with 3% bank Fixed Deposit, RM1million can earn you RM30k (risk free), don't forget all the legal fee and disbursement fee and stamp duty for buying >RM1million property.

At the end of the day, it really depends on your investment risk appetite. There are many ways to invest RM1million in your bank account.

My 2 cents above.

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Dominic, I would invest in several properties if I have cold hard cash of RM1 million in my bank account :P

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@veron... I will most probably diversify my investment portfolio into stocks, property, property and bank FD... property investment does not boom all the time I believe, and it is not "liquid" if you need fast cash...

Like the saying goes, " Do not put all of your eggs in one basket "... diversify and one of them might be the goose which continuously lay golden eggs!

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agreed. based on different financial goals everyone should customize their priority and method of investment

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Dominic, I've heard a lot of not so good stories about investing in shares. So far which of your investments give you the highest ROI?

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Great info to be shared with all. Think smart and do the smart move.

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@Kate... i am a new comer when it comes to property investment... In fact i have decided to fully pay my landed house loan. BTW, i am not actively investing in stock, even though i have a CDS account.

James bond craig junio2006 small

Dominic, any tips to share? What form of investment makes the most $$$ at the shortest period of time?

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high returns always come with high risks. however, if you think the risk is manageable, then go ahead.

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If I have 1 million, I would segregate it into different kinds of investments, say properties, FD, unit trust, pre-IPO investments.

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If I have RM1million cash, I will make sure to convert it into the strongest currency at the moment before investing.


Any experts in Forex investment here?

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@domng, bad timing to buy SGD and USD now :P

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@veron, agrees.

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time to buy local equity before it bounce back

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@ Veron... better than keeping heaps of Ringgit Malaysia which is depreciating now right? Foreign currency fixed deposits anyone

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Dominic, that's true. But perhaps other forms of investment? Such as property, shares, etc.

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No matter how much a person invest, always need to keep some funds as "liquid" as possible... in other words, instant CASH for emergency...

Property investment is considered rock "solid" investment as you cannot possibly cash out in a short period of time.

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Dominic, that's true! Can also keep in FD if it's a bigger amount. And not just for emergency, it's also to allocate some cash aside for things like travelling plans, etc. 

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Investing in FD can withdraw anytime ma. I like Hong Leong's FD.

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@Zara. Not forgetting CIMB's Unfixed Deposit... can withdraw funds even before reach FD maturity.

James bond craig junio2006 small

Yup, actually some people still prefer to keep in FD despite the fact that the % return is not as good, but it's very liquid. I can take it out anytime I want to.

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at least 6 months cash in hands/account to sustain yr living expenses and debts.

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You can also invest in high dividend yield stocks & established mutual funds

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Not to mention to keep a medical insurance policy. When a person really fall sick and need medical care, it matters.

I do not advocate over insuring a person's life though, better use of the money actually.

My 2 cents worth of advice above.

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plan for uncertainty for your family is important too, depend on your priority

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Fail to Plan equals Plan to Fail...

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Everyone has different investment appetite based on individual's affordability and how much they have overall. Those who has a lot, I am sure they would choose different types of investment. But those who has not much, I guess it's still safer to keep bigger chunk in FD for rainy days. 

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@kate_chew FD is good if you plan to use the money in short term, for retirement u may need to diversify in different investment

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Agree that FD is the safest form of growing your money, better than sitting in your savings account,or stashed as cash under your pillow!

EPF is not bad with its higher than Bank Interest... don't forget that every Ringgit you deposit into EPF account, the employers chips in Ringgit for Ringgit... so that is 100% bonus as initial deposit. every month!

If you work in Singapore and is a PR, the CPF is not bad as well... 20% (Employee) + 17%(Employer)... up to a maximum of S$6k salary which is CPF deductible.

I am not sure about the wage ceiling in Malaysia for EPF which is deductible. Any HR gurus here?

James bond craig junio2006 small

Actually any kind of investment would give you return somehow or another. But if you need liquidity in your $$$, then property is just not for you. 

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Fully agree with Bob... Diversification is the key, and average out your risk... so that you won't feel the pain in case certain industry go into recession...

In short, if any investment give you Insomnia and Stress, I won't recommend it.

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Now a lot of money game investments, fast and big returns, but these type of investments are blacklisted. However, many still go for it because of the returns.

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@domng should be no ceiling in epf deduction

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@Nic, i am guessing you do not need to contribute to EPF in Malaysia?

I believe the ceiling is RM20,000, and also depends on your age as well.

With that amount of monthly salary ~ RM250,000 per annum, your income tax for that year will be RM47,900... which translate to a whopping 19.16%! The amount of income tax that you are paying, is equals to the annual income for a lot of professional working adults in Malaysia.

Please refer to:

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Can someone share some advice on Nilai properties? Is it good for investment purpose? For future appreciation if I am able to hold for 10 years.

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Very informative write-up..never looked at the whole issue as Rich or Poor Debt !

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Suggest you to read this book: Rich Dad Poor Dad by Robert Kiyosaki... then you will have better understanding and is good debt and poor debt!

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@domng thanks for sharing