Introduction To Financial Planning

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1.1 DETERMINE THE NATURE AND SCOPE OF FINANCIAL PLANNING


1. 1. 1

WHAT FINANCIAL PLANNING? >> The development and implementation of a coordinated plan for

the achievement of a client’s overall personal financial objectives.

>> The task of determining how a business will afford to achieve its strategic goals and objectives.


O BJ ECT I VE S O F F I NANCI AL PL ANNI NG

To ensure availability of funds

To see that firm does not raise resources unnecessarily

Determining capital requirements


1. 1. 3

FINANCIAL PLANNING PROCESSS A) BUDGET PLANNING

• Is process of constructing a budget and then utilizing it to control the operations of a business or individuals.

• The purpose of budget planning is to mitigate the risk that an organization's financial results will be worse than expected.


B) MANAGEMENT OF CASH FLOW AND BASIC ASSETS • Cash flow management is the process of tracking how much

money is coming into and out of your business.

• Keeping track of this flow and analysing any changes to it. This

helps you spot trends, prepare for the future, and tackle any problems with your cash flow.


C) RISK MANAGEMENT AND INSURANCE P L A NNI NG R isk M an ag e m e n t an d I n su ran c e P l an n in g is re q u ire d f o r an y o rg an iz at io n t o re v ie w t h e ir

r i s k m a na g e m e nt s t r a t e g i e s a nd t o o p t f o r risk t ran sf e r m e asu re s l ik e av ail in g

i ns u r a nc e c o v e r


O BJ EC T I VES • T o c a r r y o u t a s y s t e ma ti c, c r i t ic al a p p r ais a l o f a l l p o t e n ti al r i s k s i n v o lvi ng p e r s o nnel , p l a n t, s e r v ice s a n d o p e r a ti ons ( r i s k i d e n ti f i ca ti o n, a s s e s s m ent a n d c o n t ro l) • T o r e v i e w t h e i n s u ranc e c o v e r a ge a n d t o i d e n t if y a r e a s o f c o v e r ag e t o o p t i m iz e t h e r i s k e x p o s ur e


D) INVESTMENT PLANNING • the process of identifying financial

goals and converting them through building a plan.


E) TAX PLANNING -> Tax planning is part of the overall financial planning, and an unavoidable

expense in our lives. ->The objective of tax planning is to make sure there is tax efficiency.


F) RETIREMENT/ESTATE PLANNING * Retirement planning is the

accumulation of wealth to provide income and financial security in retirement.

*Estate planning focuses on wealth preservation and wealth transfer.


G) ISLAMIC ESTATE PLANNING Islamic estate planning is a fixed proposal for

the management and outlook of an individual’s assets throughout their life and upon their passing, created by means of

existing Islamic estate planning tools, for instance, farāʾiḍ (inheritance), waṣiyyah (will),

hibah (gift) and waqf (endowment).


1.1.4

= A situational decision that involves diminishing or losing one quality, quantity,

THE TRADE-OFF CONCEPT

or property of a set or design in return

for gains in other aspects. In simple terms, a tradeoff is where one thing increases, and another must decrease.


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THE MARKETING OF THE FINANCIAL PLANNING SERVICES Financial service marketing uses various marketing strategies and techniques to create and drive awareness of financial products. The process goes further to capture leads and convert them into loyal customers through a series of ongoing marketing campaigns.


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THE RISK PROFILES OF INVESTORS - A risk profile is an evaluation of an individual's willingness and ability to take risks. - A risk profile identifies the acceptable level of risk an individual is prepared and able to accept.


1.2 Analyze The Analytical Tools For Financial Planning  Comparative Financial Statement

-ComparativeComparative financial statements are used in horizontal analysis or trend analysis. It helps in analyzing the periodic change in various components of the financial statementsand displays which component has the maximum impact.Such comparative financial statements can be either prepared in currency amount terms or percentage terms.


 Common Size Statements -It is the first financial analysis tool. In the market, companies of various sizes and structures are available. In order to make them comparable, their financial statement must be prepared in absolute format, which brings all the particulars at one level. The globally acceptable format to disclose the financials for comparison is to bring in data in a percentage format. The organization will prepare main financial statements like Common size Balance sheet, Common size Income statement, and Common Size Cash flow statement.


 Ratio Analysis

-Ratio Analysis is the most commonly used financial analysis tool used in the market by an analyst, experts, internal Financial Planning & Analysis department, and other stakeholders. Ratio Analysis has various kinds of ratios, which can help in commenting on •

Profitability Ratio Formula

Rate of Return Analysis

Solvency Ratios

Liquidity

Coverage of Interest or any cost

Comparing any component with turnover


 Benchmarking -Benchmarking is the process of comparing the actuals with the targets set out by the top management. Benchmarking also refers to the comparison made with the best practices and strives to achieve the same, keeping the same as the target. In benchmarking below steps are to be performed: •

Step 1: Select the area which is needed to be optimized.

Step 2: Identify the trigger points with which it can be compared.

Step 3: Try to set up the better standard for the same or take industrial standards as the benchmark.

Step 4: Evaluate the periodic performance and measure the trigger points.

Step 5: Check whether the same is achieved or not; if not, do variance analysis .

Step 6: If achieved, then strive to set up the better benchmark.


1.2.1 Two Types Of Concepts And Application In Relation To Time Value Of Money :  Time Value Of Money (TVM)

-The time value of money (TVM) is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim. This is a core principle of finance. A sum of money in the hand has greater value than the same sum to be paid in the future.


A. Rudimentary Concepts And Applications

-Rudimentary is basic skills, the early stages of development or basic fundamental concepts of education. An example of rudimentary skills are basic reading, writing and math skills.

B. Advanced Concepts And Application

-The “Advanced Concepts in Result-based Financial Management and Budgeting for Managers” course provides the basic grounding in Result-based financial management, policies, strategies, and managerial decisions as they relate to an organization’s financial well-being. The course explains and analyzes financial concepts such as capital structure, capital investment decisions, financial ownership, and conflicts.


1.2.2 The Insights On Risk Tolerance In Financial Decisions  Risk Tolerance -Risk tolerance refers to the amount of loss an investor is prepared to handle while making an investment decision. Several factors determine the level of risk an investor can afford to take.  Types Of Risk Tolerance -Investors are usually classified into three main categories based on how much risk they can tolerate. The categories are based on many factors, few of which have been discussed above. The three categories are:


1. Aggressive -Aggressive risk investors are well versed with the market and take huge risks. Such types of investors are used to seeing large upward and downward movements in their portfolio. Aggressive investors are known to be wealthy, experienced, and usually have a broad portfolio.They prefer asset classes with a dynamic price movement, such as equities. Due to the amount of risk they take, they reap superior returns when the market is doing well and naturally face huge losses when the market performs poorly. However, they do not panic sell at times of crisis in the market as they are used to fluctuations on a daily basis.


2. Moderate -Moderate risk investors are relatively less risk-tolerant when compared to aggressive risk investors. They take on some risk and usually set a percentage of losses they can handle. They balance their investments between risky and safe asset classes. With the moderate approach, they earn lesser than aggressive investors when the market does well but does not suffer huge losses when the market falls.


3. Conservative -Conservative investors take the least risk in the market. They do not indulge in risky investments at all and go for the options they feel are safest. They prioritize avoiding losses above making gains. The asset classes they invest in are limited to a few, such as FD and PPF, where their capital is protected.


1.3 ANALYZE THE FINANCIAL PLANNING INDUSTRY IN MALAYSIA 1.3.1

DESCRIBE THE LOCAL AND GLOBAL DEVELOPMENT OF FINANCIAL PLANNING

1.3.2

IDENTIFY THE PROVIDERS OF FINANCIAL PLANNING SERVICE IN MALAYSIA ​

1.3.3

EXPLAIN THE RANGE OF FINANCIAL SERVICES AVAILABLE ​

1.3.4

IDENTIFY THE PROFILE OF A COMPETENT FINANCIAL PLANNER ​


Describe Local & Global Development Of Financial Planning

• • • •

Loca l

Glob a l

The Development Of Financial Planning In Malaysia :

These Global Influences Also Affect Personal Financial Decisions:

Provide economic stability Provide range specialized financial products and service to suit the specific needs Maintain acceptable employment levels​

Less money is available for spending and investing Interest rates may rise.


Providers Of Financial Planning Bank Negara Malaysia BNM ​ ● The bank negara Malaysia primary role in the country

economy is the regulation of the money supply ​ ● BNM also monetary authority that oversees Malaysia’s financial system and economy​ ● Main purpose is to issue currency, act as banker and adviser to the government of Malaysia ​ ● Regulate the country's financial institutions, credit system and monetary policy.


Providers Of Financial Planning AKPK (Agensi Kaunseling &

Pengurusan Kredit)

● Known as Agensi Kaunselling Dan Pengurusan Kredit (AKPK) or the credit counselling and debt management agency​

● It was established by bank negara malaysia (bnm) in 2006


The three main services that AKPK provides include: • • •

Financial education on the responsible use of money and credit management skills Counselling and advice on financial management Debt management programs to assist consumers to regain financial


Providers Of Financial Planning KWSP (Kumpulan Wang Simpanan Pekerja

● It manages the compulsory savings plan and retirement planning for private sector workers in Malaysia ● Membership of the EPF is mandatory for Malaysian citizens employed in the private sector, and voluntary for nonMalaysian citizens ● As a retirement plan, money accumulated in an EPF savings can only be withdrawn when members reach 50 years old, during which they may withdraw only 30% of their EPF; members who are 55 years old or older may withdraw all of their EPF


The Range Of Financial Services ●

Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, individual managers, and some governmentsponsored enterprises.


The Range Of Financial Services Foreign Exchange Services

Banks •

Keeping money safe while also allowing withdrawals when needed​

Allow financial transactions at branches or by using automatics teller machines (ATMs)​

Issuance of chequebooks so that bills can be paid and other kinds of payments can be delivered by the post

Currency exchanges – • where clients can purchase and sell foreign currency banknotes.​

Remittance – where clients that are migrant workers send money back to their home country.​

Other Financial Services Credit card networking – Companies that serve as the bridge between the retailers and the banks who issue the bank cards. The four major credit card networks are: Mastercard, Visa Inc., American Express and Discover Financial.​


The Range Of Financial Services Investment Services

Insurance •

Insurance brokerage – Insurance brokers shop for insurance (generally corporate property and casualty insurance) on behalf of customers. Recently several websites have been created to give consumers basic price comparisons for services such as insurance, causing controversy within the industry.​ Reinsurance – Reinsurance is insurance sold to insurers themselves, to protect them from catastrophic losses

Venture capital – Private equity capital typically provided by professional, outside investors to new, highgrowth-potential companies in the interest of taking the company to an IPO or trade sale of the business. Startup companies are typically fueled by an angel investor​

Collective investment fund – A fund that acts as an investment pool so investors can put money into a fund that will reinvest it into a variety of securities based upon their common, outlined investment goal


Profile Competent Financial Planner Abilities

Knowledge Professional Skills

A comprehensive analysis that identifies the abilities, knowledge and professional skills required to competently perform the tasks of a profession is the cornerstone of a quality professional program.​


Profile Competent Financial Planner •

To competently deliver financial planning to a clients, a financial planner needs to combine the ability to carry out the tasks of financial planning using appropriate professional skills and drawing on his or her knowledge of financial planning matters.

FPSB expects that clients of financial planning professionals will benefit from a globally accepted set of competency standards for financial planning professionals.


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Section 1.1 Financial Decisions and Goals personal financial planning arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals

Personal Financial Decisions Personal finance is everything in your life that involves money. Some of the benefits of personal financial planning are: ▪ You have more money and financial security. ▪ You know how to use money to achieve your goals. ▪ You have less chance of going into debt you cannot handle. ▪ You can help your partner and support your children, if you have a family. 1


Section 1.1 Financial Decisions and Goals liquidity the ability to easily convert financial assets into cash without loss in value

Understanding Risks When you make a financial decision, you also accept certain financial risks. Some types of financial risks include: ▪ Inflation Risk ▪ Interest Rate Risk ▪ Income Risk ▪ Personal Risk ▪ Liquidity Risk

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Section 1.1 Financial Decisions and Goals Types of Financial Goals Two factors will influence your planning for financial goals. These factors are: ▪ The time frame in which you would like to achieve your goals. ▪ The type of financial need that inspires your goals.

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Section 1.1 Financial Decisions and Goals Time Frame of Goals Goals can be defined by the time it takes to achieve them: ▪ Short-term goals take one year or less to achieve (such as saving to buy a computer). ▪ Intermediate goals take two to five years to achieve (such as saving for a down payment on a house). ▪ Long-term goals take more than five years to achieve (such as planning for retirement). Start with short-term goals that may lead to long-term ones. 4


Section 1.1 Financial Decisions and Goals service a task that a person or a machine performs for you good a physical item that is produced and can be weighed or measured

Goals for Different Needs Services and goods are two different categories of financial needs. A haircut is an example of a service, while a new car is a good. How you establish and reach your financial goals will depend on whether a goal involves the need for: ▪ Consumable goods (such as a soda) ▪ Durable goods (such as a car) ▪ Intangible items (such as an education)

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Section 1.1 Financial Decisions and Goals Guidelines for Setting Goals When setting your financial goals, follow these guidelines: ▪ Your financial goals should be realistic. ▪ Your financial goals should be specific. ▪ Your financial goals should have a clear time frame. ▪ Your financial goals should help you decide what type of action to take. Your financial goals will change as you go through life.

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Section 1.1 Financial Decisions and Goals Influences on Personal Financial Planning Many factors will influence your day-to-day decisions about finances. The three most important factors are: ▪ Life situations ▪ Personal values ▪ Economic factors

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Section 1.1 Financial Decisions and Goals Life Situations and Personal Values Your financial planning will be affected by changes in your life situation, such as: ▪ Going to college ▪ Starting a new career ▪ Getting married ▪ Having children ▪ Moving to a new city Your personal values also influence your financial decisions.

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Section 1.1 Financial Decisions and Goals economics the study of the decisions that go into making, distributing, and using goods and services economy the ways in which people make, distribute, and use their goods and services

Economic Factors Economic factors across the country and around the world play a role in day-to-day financial planning and decision making for most people. To understand economics and the economy, you need to be aware of: ▪ Market forces ▪ Financial institutions ▪ Global influences ▪ Economic conditions

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Section 1.1 Financial Decisions and Goals supply the amount of goods and services available for sale demand the amount of goods and services people are willing to buy

Market Forces The forces of supply and demand determine the prices of products, or goods and services, you purchase. When there is a high demand for an item, or when a company cannot manufacture enough of a certain product to keep up with the demand, the price of the product rises.

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Section 1.1 Financial Decisions and Goals Financial Institutions Most people do business with financial institutions, which include: ▪ Banks ▪ Finance companies ▪ Savings and loan associations – Bank Rakyat, MBSB ▪ Insurance companies ▪ Investment companies Financial institutions provide services that increase financial activity in the economy.

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Section 1.1 Financial Decisions and Goals Bank Negara Malaysia the central banking organization of Malaysia, also known as the BNM

Bank Negara Malaysia (BNM) The Bank Negara Malaysia primary role in the country economy is the regulation of the money supply. The Fed controls the money supply by: ▪ Determining interest rates ▪ Buying or selling government securities Its decisions affect: ▪ The interest rate you earn on your savings ▪ The interest rate you pay when you borrow money ▪ The prices of the products you buy 12


Government policy decisions are used to regulate the economy in an effort to:

• Provide economic stability • Maintain acceptable employment levels 13


Monetary Policy • Controls money supply • Used to stimulate or contract economic growth

Fiscal Policy • Controls levels of taxation • Sets levels of government spending on various programs

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Policies seek to control:

• Economic Cycles – Stages related to employment and production levels – Growth measured by changes in GDP

• Inflation – Measured by changes in CPI – Affects purchasing power and interest rates – Affects financial plans and goals

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Economic Cycles HIGH

Levels of Employment and Production

LOW Expansion

Recession

Depression

Recovery 16


Section 1.1 Financial Decisions and Goals Global Influences You and the money you spend are part of the global marketplace, which is another economic factor that can affect financial planning. The economy of every nation is affected by competition with other nations. When more money is leaving the U.S. than entering it, for example: ▪ Less money is available for spending and investing. ▪ Interest rates may rise. These global influences also affect personal financial decisions. 17


Section 1.1 Financial Decisions and Goals Economic Conditions Current economic conditions also affect your personal financial decisions. The three important economic conditions are: ▪ Consumer prices ▪ Consumer spending ▪ Interest rates

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Section 1.1 Financial Decisions and Goals inflation a rise in the level of prices for goods and services

Consumer Prices Over time the prices of most products inflate. The main cause of inflation is an increase in demand without an increase in supply. For example, prices will rise if: ▪ People have more money to spend because of pay increases or borrowing. ▪ The same amounts of goods and services are available. The inflation rate affects consumer prices and varies from year to year.

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Section 1.1 Financial Decisions and Goals consumer a person who purchases and uses goods or services

Consumer Spending Consumer spending affects the economy by helping to create and maintain jobs. When people buy more goods or services: ▪ Companies have to hire extra employees to meet the demand. ▪ The employment rate rises, making more jobs available. ▪ More people work, and they have more money to spend. When consumers buy fewer goods and services, companies have to produce less, and unemployment rises.

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Section 1.1 Financial Decisions and Goals interest the price that is paid for the use of another’s money

Interest Rates

Interest rates represent the cost of money and are also influenced by supply and demand. Interest rates will affect your financial planning as you: ▪ Save ▪ Invest ▪ Obtain loans Interest rates are just one facet of the economic factors that influence your personal financial planning.

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Section 1.2 Opportunity Costs and Strategies Main Idea Why do you think you may have to make trade-offs to meet your financial goals?

By recognizing the trade-offs of financial decisions and learning to use your money wisely now, you will be able to live according to your values and meet your financial needs and goals throughout your life.

Personal Finance Unit 1 Chapter 1 © 2007 Glencoe/McGraw-Hill

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Section 1.2 Opportunity Costs and Strategies Personal and Financial Opportunity Costs Whenever you make a choice, you have to give up, or trade off, some of your other options. When making your financial decisions and plans, you will need to carefully consider: ▪ Personal opportunity costs ▪ Financial opportunity costs

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Section 1.2 Opportunity Costs and Strategies Personal Opportunity Costs Like financial resources, your personal resources require management. These resources include: ▪ Health ▪ Knowledge ▪ Skills ▪ Time You have to decide how to use your time to meet your needs, to achieve your goals, and to satisfy your values.

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Section 1.2 Opportunity Costs and Strategies time value of money the increase of an amount of money due to earned interest or dividends

Financial Opportunity Costs You also must make choices about how you spend money. To help make choices, consider the time value of money every time you: ▪ Spend ▪ Save ▪ Invest Think about the time value of this money as an opportunity cost.

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Section 1.2 Opportunity Costs and Strategies principal the original amount of money on deposit

Calculating Interest You can calculate the time value of your savings by figuring out how much interest you will earn. To do this, you will need to know: ▪ The principal ▪ The annual interest rate ▪ The length of time your money will be in an account By comparing interest rates at several financial institutions, you can figure out which one will make your money grow the fastest.

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Section 1.2 Opportunity Costs and Strategies future value the amount your original deposit will be worth in the future based on earning a specific interest rate over a specific period of time

Future Value of a Single Deposit You can determine the future value of your savings by: ▪ Multiplying the principal by the annual interest rate. ▪ Adding that interest amount to the principal. Each year, interest is earned on your principal and on previously earned interest.

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Section 1.2 Opportunity Costs and Strategies Compounding To calculate the interest earned for the second year: ▪ Add interest earned in the first year to the principal. ▪ Take that amount and multiply it by the annual interest rate. Future value computations are also called compounding. With compounding, your money increases faster over time.

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Section 1.2 Opportunity Costs and Strategies annuity a series of equal regular deposits present value the amount of money you would need to deposit now in order to have a desired amount in the future

Deposit Values Some savers and investors like to make regular deposits into their savings. A series of equal regular deposits is sometimes called an annuity. You can also: ▪ Calculate the present value of a single deposit. ▪ Use present value calculations to determine how much you would need to deposit so you can take a specific amount of money out of your savings account for a certain number of years. You can use these calculations to determine your retirement age. 29


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Section 1.2 Opportunity Costs and Strategies Achieving Your Financial Goals Throughout your life you will have many different financial needs and goals. By learning to use your money wisely now, you will be able to achieve many of those goals. Financial planning involves: ▪ Choosing a career ▪ Learning how to protect and manage the money you earn

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Section 1.2 Opportunity Costs and Strategies Strategies to Achieve Your Financial Goals By using the following eight strategies, you can avoid many common money mistakes: ▪ Obtain ▪ Plan ▪ Spend Wisely ▪ Save ▪ Borrow Wisely ▪ Invest ▪ Manage Risk ▪ Plan for Retirement 32


Section 1.2 Opportunity Costs and Strategies Developing and Using a Financial Plan A good personal financial plan includes: ▪ Assessing your present financial situation ▪ Making a list of your current needs ▪ Deciding how to plan for future needs You can design a plan on your own, hire a financial planner, or use a good moneymanagement software program. Making your financial plan work takes time, effort, and patience, but you will develop habits that will give you a lifetime of satisfaction and security.

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Section 1.2 Opportunity Costs and Strategies Financial Planning When developing and using a financial plan, you can: ▪ Design a plan on your own. ▪ Hire a financial planner. ▪ Use a good money-management software program. Making your financial plan work takes time, effort, and patience, but you will develop habits that will give you a lifetime of satisfaction and security.

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Chapter 1 Personal Financial Planning Reviewing Key Concepts 1.

Explain personal financial planning and its importance.

Personal financial planning is arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals. Planning your personal finances is important because it will help you to reach your goals, no matter what they are. Some of the benefits of planning are: ▪ ▪ ▪ ▪

You have more money and financial security. You know how to use money to achieve your goals. You have less chance of going into debt you cannot handle. You can help your partner and support your children, if you have a family. 35


Chapter 1 Personal Financial Planning Reviewing Key Concepts 2.

Describe the six strategies of financial planning.

The six steps of financial planning are ▪ Determine your current financial situation ▪ Develop your financial goals ▪ Identify your options ▪ Evaluate your alternatives ▪ Create and use your financial plan of action ▪ Review and revise your plan

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Chapter 1 Personal Financial Planning Reviewing Key Concepts 3.

Describe the factors that affect personal financial decisions.

The three most important factors that influence your day-to-day decisions about finances are: ▪ ▪ ▪

Life situations Personal values Economic factors

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Chapter 1 Personal Financial Planning Reviewing Key Concepts 4.

Explain opportunity costs and how they might affect your personal financial decisions.

An opportunity cost is what is given up when making one choice instead of another. Whenever you make a choice, you have to give up, or trade off, some of your other options. You should consider both personal and financial opportunity costs before making your financial decisions and plans.

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Chapter 1 Personal Financial Planning Reviewing Key Concepts 5.

List eight strategies for achieving financial goals.

The following are eight strategies for achieving financial goals: ▪ Obtain ▪ Plan ▪ Spend Wisely ▪ Save ▪ Borrow Wisely ▪ Invest ▪ Manage Risk ▪ Plan for Retirement

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Many factors affect the financial situation of a person. Some of these factors :-Can be controlled (internal) -Cannot be controlled (external)


Economic - change in interest rates, changes in inflation, economic growth and so on  Political - Law or legislation that can affect the ways financial planning professional operate. Example: change in tax rates, political influences (action of pressure groups) 


Social - change in people’s perceptions, opinions, needs and wants. Example: increase in social awareness for green environment, healthy living, animal rights  Technological - Changes in technology can revolutionise the way a financial planning services are offered to clients 


A system that involves the production, distribution and consumption of goods and services between the entities in a particular society In a given economy, it is the systemic means by which problems of economics are addressed, such as the economic problem of scarcity through allocation of finite productive resources


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MARKET ECONOMY National & state government play a minor role. Government only make sure that the market is stable enough to carry out its economic activities properly Market decisions dominated by supply & demand. Consumers and their buying decisions drive the economy E.g. USA, Canada


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PLANNED ECONOMY (command economy) All major decisions related to the production, distribution, commodity and service prices, are all made by the government. It is Govt. directed and market forces have very little say in such an economy Lacks flexibility so reacts slower to changes in consumer needs and fluctuating patterns of supply and demand E.g. Cuba & China


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MIXED ECONOMY Combines elements of both the planned and the market economies in one cohesive system Flexibility in some areas and Govt. control in others E.g. Singapore, Malaysia


Supply and demand is an economic model based on price, utility and quantity in a market In a competitive market, price will function to equalise the quantity demanded by consumers, and the quantity supplied by producers, resulting in an economic equilibrium of price and quantity An increase in the quantity produced or supplied will typically result in a reduction in price and vice versa Concepts of demand and supply are critical to making and implementing financial decisions.


Demand - A term that means the amount of goods that consumers desire and can afford to buy over a range of prices


The price of the product. The higher the price, the lower the quantity demanded Consumer income. The higher the consumer’s income, the more goods the consumer will demand Price and availability of related goods. If attractive substitute products are available at a lower price, less of a product will be in demand


Consumer expectations. If consumers expect product prices to rise, the more of the product they will demand now. Advertising. Effective advertising can promote and expand demand for the product of a company, or advertising can expand the marketplace for an entire industry Demographics. As the population change over the years so do consumer tastes and the products that they consume


Supply of a product is defined as the quantity of the product which producers or manufacturers are willing to produce and sell


A change in the price of the inputs of production such as raw materials, labour, or capital Change in production technology such as the use of additional or more efficient machinery or production methods


Changes in fiscal or monetary policy such as the imposition of taxes or other incentives or disincentives introduced by governments Natural disasters such as fires, floods, ice storms, or tornadoes which reduce the availability of goods on hand and may interrupt production schedules


Equilibrium is the point in a market at which supply and demand intersect thus giving the equilibrium price and quantity


Economic growth is the increase in the amount of the goods and services produced by an economy over time Economic growth is conventionally measured as the percent rate of increase in real gross domestic product (GDP). Growth is usually calculated in real terms, for example, inflation-adjusted terms, in order to net out the effect of inflation on the price of the goods and services produced


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GDP is the most common measure or international standard of national economic performance that is used by governments and economists worldwide; GDP is a function of:  The growth rate of the labour race. The growth rate of the labour force is determined by demographics (birth rate, death rate and immigration) and labour force participation rates (the percentage of the population that chooses to work)


GDP is a function of:  The growth rate of the labour race. The growth rate of the labour force is determined by demographics (birth rate, death rate and immigration) and labour force participation rates (the percentage of the population that chooses to work)


The growth rate in the number of hours worked per worker. The growth rate in the number of hours worked is determined by societal attitudes towards work and leisure


The growth rate of productivity. Productivity growth rate is a function of the technology used, innovation, social attitude, competition, resource utilisation and the skill of the labour force.


Over a period of time, there are changes in the level of economic activity in an economy. In some years economic growth might be quite slow and in other years growth rates tend to be stronger. This is called the Business Cycle



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Expansion (growth) Is the phase of the business cycle when the economy moves from a trough to a peak. It is a period when business activity surges and GDP expands until it reaches a peak. It is also known as an ‘economic recovery’ and last on average about 3 to 4 years but have been known to last anywhere from 12 months to more than 10 years (e.g. in China)


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Recession (contraction) Is the phase of the business cycle where the economy as a whole is in decline. More specifically, contraction occurs after the business cycle peaks, but before it becomes a trough. Recession occurs when there have been two or more consecutive quarters of the year where a country’s real GDP declines. Can be a source of economic hardship because as the economy plunges further into a contraction, people start losing their jobs and spending will slow down


Trough - phase where there is a significant decline in activity spread across the economy, lasting longer than two quarters. - Visible in industrial production, employment, real income and wholesale-retail trade - It is normal though unpleasant. Can last for about six to eighteen months - Interest rates usually fall in recessionary times. Why? – to stimulate the economy by offering cheap rates at which to borrow money 


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Peak (Boom) phase where there transition from expansion to recession took place. In stock market, boom are associated with bull market. Every bull market in history has been followed by bear market


Level of both employment and unemployment can change on the level of economic activity  Economic Unemployment  Unemployment also depends on - level of skills and qualifications - ease of moving from job to job ( job mobility) - geographical mobility 


Unemployment affect both individual and economy INDIVIDUAL - Lower incomes can affect their standard of living - Find it difficult to keep up with the skills required to find new jobs 


INDIVIDUAL - May suffer family and personal problems - May lose their self esteem and self respect - Lower levels of income are also associated with a greater likelihood of ill health


ECONOMY - Opportunity cost of unemployment – all the output that those people could have produced if they were employed - Govt. receives less tax from the unemployed and this can affect the fund for public services e.g. education, health services


ECONOMY - Support for the unemployed will incur cost to the Govt. - Govt. might have to pay further money in dealing with the problems caused by unemployment – more crime, family breakdowns, ill health etc


Inflation is a rise in the general price level over a period of time In any economy, prices are rising and falling all the time – some rise by quite a lot and others will fall. (goods & services) The Consumer Price Index (CPI) is used to measure the rate of inflation A CPI figure of 2% means price on the average rose by 2% compared to the same period a year before. An item priced at RM1.00 (2011), therefore will now be RM1.02


Inflation is the biggest obstacles to investment  Inflation erodes the value of person’s wealth i.e. yearly inflation 3%, every single year the cash value is worth 3% less  Example, if Ali’s investments returns an average of 8% annually, he is actually making only about 5% after accounting for inflation 


Real rate of return (1 + Average yearly investment return) – 1 (1 + Average yearly inflation) 1 + 0.08 – 1 =0.0485 or 4.85% 1 + 0.03


Level of activities in an economy can be influenced by: Change in interest rates  Change in exchange rates  Changes in economic activity –economic growth and the business cycle  Changes in tax rates


 Interest

rate is the cost of money – price you pay to borrow money and the reward you receive when you lend it to someone else.


 

Moderator of inflation Many countries use official interest rates to keep the prices of goods services within a targeted band ( inflation targeting0 In Malaysia, BNM will use monetary policy such as Economy expanding too quickly, raise interest rates Economy is too slow, reduce interest rates


Higher interest rates – monetary authority try to slow economy Not positive sign for future performance of the share market Low interest rates, catalyst for share market growth/market boom


 

Higher rate, more foreign fund coming in Push up the ringgit value


 

Bond is debt security Bond investor lend money to the bond issuer (a company or the Govt.) In return, coupon is paid yearly or periodically. The principal sum can be redeemed at the end of the loan term.


Movement in interest rates are one of the biggest influences on bond prices When interest rate rise, bond prices fall and vice versa Real value of the coupon rate alters relative to the current interest rate


Example

10-year bond has a 5% coupon rate and interest rate rise to 6%, the bond is worth less as its return is less than that now available on the market Principal

Coupon Rate

Interest Rate

Coupon

100

5%

5%

RM5

RM83.33

5%

6%

RM5


Exchange rate is the price of one currency expressed in terms of another. Example USD 1 – RM3.10 RM1 -USD 0.323 The demand and supply of currencies on the foreign exchange (forex) markets is constantly changing Exchange rate changes minute by minute, hour by hour, day by day


Exchange rate affects i. The demand for both imports and exports because they change the apparent price of both imports and exports Exchange rate rise, import cheaper and export become more expensive and vice versa 

ii.

The value of the foreign currency investment


Economic activity can change for a variety of reasons, which include changes in the income levels, how people view the future What are their current debt levels, the general level of confidence about the future of the economy, political events around the world, natural disaster just to name a few.


Not everyone or every business will be affected by changes in economic activity in the same way Example: supermarket tend to be relatively unaffected by changes in economic activity whereas furniture dealers, car dealers and electrical goods retailers tend to be affected far more.


When GDP slows down, businesses will experience a fall in demand for their goods or services. Revenue fall, profit margin down (cut price to try to increase sales) Unemployment may start to creep up.


When GDP rises at a faster rate, businesses find that they sell more goods or services. May try to and increase stock levels, which put pressure on prices. Prices may start to creep up. Unemployment will tend to fall because businesses look to employ new staff to help them cope with the increase in demand.


People are subject to a number of different taxes High tax rates would discourage income, output and the efficiency of resource use Tax rates affect the incentive to earn – tax increases people get to keep less of what they earn


A increase in tax rates -

-

Reduces the payoff people derive from work and from other taxable productive activities Some will take more vacations Others will forgo more risky investment In some cases, high tax rates will even drive highly productive citizen to countries with lower taxes Encourage tax-shelter investments and other forms of tax avoidance


Govt generally tries to manage the economy to provide for positive economic growth, low unemployment and low inflation The Malaysian Govt uses economy policies such as - monetary - fiscal - exchange rate - National development


-

-

Monetary policy is the process by which the Govt, central bank or monetary authority controls The supply of money Availability of money Cost of money or rate of interest


Monetary policy is referred to as either being a. Expansionary policy – increase the money supply in the economy (combat unemployment in recession by lowering interest rate) b. Contractionary policy – raising interest rate in order to combat inflation 


All types of monetary policy involve modifying the amount of base currency in circulation The process of open sales and purchases of debt and credit instruments is called open market operations


Open market operations are the means of implementing monetary policy by which a central bank controls its national money supply by buying and selling Govt securities or other financial instruments Monetary targets, such as reserve requirements, interest rates or exchange rates are used to guide this implementation


 -

-

Reserve requirements Change the proportion of total assets that banks must hold in reserve with the central bank By changing the proportion of total assets to be held as liquid cash, the central bank changes the availability of loanable fund.


 -

-

Discount window lending Many central banks have the authority to lend funds to financial institution within their country. By calling in or extending loan, the authority can directly change the size of the money supply


 -

Interest rates Contraction of the monetary supply can be achieved indirectly by increasing the nominal interest rates


 -

-

Fiscal policy Used by Govt to influence the level of aggregate demand in the economy, in an effort to achieve economic objectives of price stability, full employment and economic growth The two main instruments are government spending and taxation


-

Fiscal policy stances The three possible stances are neutral, expansionary and contractionary Neutral stance A balanced budget Govt spending = Tax revenue Budget outcome – neutral effect


Expansionary stance A net increase in government spending Govt spending > Tax revenue Budget outcome – larger deficit or a smaller budget surplus  Contractionary stance A net reduction in government spending or higher taxation revenue Govt spending < Tax revenue Budget outcome – lower budget deficit or a larger surplus -


Exchange rate regime is the way a country manages its currency in respect to foreign currencies and the foreign exchange market. Closely related to monetary policy and the two are generally dependent on many of the same factors


Types of Exchange Rate 

Floating exchange rate

Pegged float

Fixed exchange rate


  

Floating exchange rate or flexible exchange rate The currency value is allowed to fluctuate according to the foreign exchange market Floating exchange rate are the most common exchange rate regime today e.g. USD, Euro, yen, pound sterling However, when central banks frequently intervened to avoid excessive appreciation/depreciation – managed float or a dirty float


The currency is pegged to some band or value either fixed or periodically adjusted  Types of pegged floats ❖ Crawled bands - the rate is allowed to fluctuate in a band around a central value which is adjusted periodically (followed economic indicators) ❖ Crawling pegs –rate itself is fixed and adjusted as above ❖ Pegged with horizontal bands – currency allowed to fluctuate in a fixed band (>1%) 


Fixed rates are those that have direct convertibility towards another currency. The domestic currency is backed one to one by foreign reserves A pegged currency with very small bands (<1%) and countries that have adopted another country’s currency and abandoned its own also fall under this category


Savings play a crucial role in the growth and development process. It can defined as the excess resources available to the economic agents The most important factor for a country’s investment is indeed its own savings A high savings country like Malaysia has the potential to engender economic growth


A high savings country like Malaysia has the potential to engender economic growth Since the late 1980s, Malaysia gross national savings rate maintained at least 30% of GDP


EPF is a Govt. organisation in charge of social security or retirement planning for legally employed workers in Malaysia Membership to the EPF is mandatory (wajib) for working Malaysian citizens, or nonMalaysian citizens who are permanent residents


Provides retirement benefits for members through management of their savings in an efficient and reliable manner. Contribution are credited to members’ accounts based on the monthly wages of an employee What is current rate of contribution Employee – 11% Employer - 12%


Ensures its member’s savings are secure and receive reasonable dividends It guarantees a minimum of 2.5% dividend annually Members’ contributions are invested in a number of approved financial instruments, including Malaysian


COMPARISON BETWEEN ECONOMIC GROWTH AND BUSINESS CYCLE ECONOMIC GROWTH An increase in the production of economic goods and services, compared from one period of time to

BUSINESS CYCLE DEFINATION

A type of fluctuation found in the aggregate economic activity of nations

another. Expansion, peak, contraction, and trough. STAGES

Traditional society, preconditions to take-off, takeoff, drive to maturity and age of high mass consumption.

Human resource, natural resources, capital formation, technological development and

FACTORS

GDP, interest rates, total employment, and consumer spending

social and political factors If the Central Bank cut interest rates,this would provide an incentive for firms to invest

The business cycle since the year 2000 is a EXAMPLE

classic example. The expansion of activity happened

(borrowing would now be cheaper). This

between 2000 and 2007 was followed by the

investment is a component of Aggregate

great recession from 2007 to 2009. It started

Demand ( AD ) and Aggregate Demand ( AD ) will rise. With

with the easy access to bank loans and mortgages.

higher investment, more people will be

Since new homebuyers could easily afford

employed, and

loans, they


ECONOMIC INDICATORS •

An economic indicator is a metric used to assess, measure, and evaluate the overall state of health of the macroeconomy. Economic indicators are often collected by a government agency or private business intelligence organization in the form of a census or survey, which is then analyzed further to generate an economic indicator.

Include various indices, earnings reports, and economic summaries: for example, the unemployment rate, quits rate, housing starts, consumer price index (a measure for inflation), consumer leverage ratio, industrial production, bankruptcies, gross domestic product.

Government agency that involve in economic indicators : Kementerian Perdagangan Dalam Negeri Dan Hal Ehwal Pengguna.


ROLES OFECONOMIC INDICATORS •

Statistics for economics concerns itself with the collection, processing, and analysis of specific economic data.

It helps government to understand and analyze economic theories and denote correlations between variables such as demand, supply, price, output etc.


INFLATION •

Inflation is a measure of the rate of rising prices of goods and services in an economy. If inflation is occurring, leading to higher prices for basic necessities such as food, it can have a negative impact on society.

• A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product. • Some companies reap the rewards of inflation if they can charge more for their products as a result of the high demand for their goods.


EFFECTS OFINFLATION Raises the cost of borrowing

Weakens or strengthens currency

Reduces unemployment

- With inflation will causes the people to bear too much burden such as less ability to buy necessities. This will encourage people to make loans with more as a result of the price og goods being to expensive

- Inflation is usually associated with a slumping exchange rate, though this is generally a case of the weaker currency leading to inflation, not the other way around. Economies That important significant amounts of Goods and services, which for now is just about every economy must pay more for these imports in local currency terms when their currencies fall against those of their trading partners.

- Due to the occurrence of inflation, this will encourage people to always focus on jobs and will not stop working for the sake of survival. This is to enable them to always earn money to buy daily items.


a. National Savings


National Savings National savings is the total income in the economy that remains after paying for consumption and government purchases. National savings is the GDP that is saved rather than spent in an economy. It is calculated as the difference between a nations income and consumption divided by income.

The value of the remaining income that fails to be spend or consume by the Govt.


b. Exchange Rate Policy


Exchange Rate Policy Exchange rate regime is the way a country manages its currency in respect to foreign currencies and the foreign exchange market. Closely related to monetary policy and the two are generally dependent on many of the same factors.

Types Of Exchange Rate Policy: • Floating exchange rate • Pegged float • Fixed exchange rate


Floating exchange rate or flexible exchange rate.

Floating Exchange Rate

The currency value is allowed to fluctuate according to the foreign exchange market. Floating exchange rate are the most common exchange rate regime today e.g. USD, Euro, yen, pound sterling. However, when central banks frequently intervened to avoid excessive appreciation/depreciation – managed float or a dirty float.


PEGGED EXCHANGE RATE The currency is pegged to some band or value either fixed or periodically adjusted. Types of pegged floats: Crawled bands: The rate is allowed to fluctuate in a band around a central value which is adjusted periodically (followed economic indicators). Crawling pegs: Rate itself is fixed and adjusted as above. Pegged with horizontal bands: Currency allowed to fluctuate in a fixed band (>1%)


FIXED EXCHANGE RATE Fixed rates are those that have direct convertibility towards another currency. The domestic currency is backed one to one by foreign reserves A pegged currency with very small bands (<1%) and countries that have adopted another country’s currency and abandoned its own also fall under this category


c. Fiscal Policy and Taxation


FISCAL POLICY AND Influence the level of aggregate demand in the TAXATION

economy. Possible stances : a. neutral b. expansionary c. contractionary Neutral stances : balanced budget government spending = tax revenue budget outcome - neutral effect Expansionary stances : net increase government spending > tax revenue budget outcome - > deficit / < budget surplus


FISCAL POLICY AND contractionary TAXATION stances : net reduction or higher taxation revenue government spending < tax revenue budget outcome - < budget deficit / > surplus


d. Monetary Policy & I nterest Rates


Monetary policy & rates interest Monetary policy is the process by which the government, central bank or monetary authority controls. - The supply of money - Availability of money - Cost of money or rate of interest Monetary policy is referred to as either being: - Expansionary policy - Contractionary policy Monetary Policy Tools: All types of monetary policy involve modifying the amount of base currency in circulation.


Interest Rate Interest rate is the cost of money. Contraction of the monetary supply can be achieved indirectly by increasing the nominal interest rates.


e. Wages Policy


Wages Policy

The term ‘wage policy’ refers to all systematic efforts of the Government in relation to a national wage and salary system. Principle acting as guidelines for determining a wage structure, legislation or government action calculated to affect the level or structure of wages. Initially as an economic issue it was mainly the concern of the while the state was adopting laissez faire policy. Democratic set up so that it can be enforced by the government alone.

Laissez faire policy is less the government is involved in the economy, the better off business will be, and by extension, society as a whole


TOPIC 3 3.1 FIGURE OUT THE ROLES OF THE FOLLOWING AUTHORITHIES IN REGULATING FINANCIAL PLANNING


3.1 FIGURE OUT THE ROLES OF THE FOLLOWING AUTHORITHIES IN REGULATING FINANCIAL PLANNING

 BANK NEGARA MALAYSIA  SECURITIES COMISSION AND BURSA MALAYSIA

 LOFSA – LABUAN OFFSHORE INVESTMENT  FINANCIAL MEDIATION BEREAU  PIDM


 Promoting Monetary Stability ➢ In their role of promoting monetary stability, the Bank seeks to

implement a monetary policy that maintains a low and predictable pace of increase in the general level of prices of goods and services, taking into consideration economic developments and the outlook.

BANK NEGARA MALAYSIA

Promoting Financial Stability

➢ The Bank is mandated to promote financial stability conducive for

sustainable economic growth. We discharge this mandate by ensuring that the financial system is resilient throughout the economic cycle and able to withstand shocks. ➢ This involves them promoting resilient and well-managed financial

institutions, fostering safe and reliable clearing and settlement systems, and ensuring orderly financial markets.


 Promoting a Progressive and Inclusive Financial System ➢ The Bank is committed to promoting a progressive and

BANK NEGARA MALAYSIA

inclusive financial system that best serves the needs of the Malaysian economy. ▪

Promoting a Progressive and Inclusive Islamic Financial System

➢ The Bank remains committed to advancing Islamic finance

with focused efforts on supporting a sustained economic recovery, building social and climate resilience as well as empowering halal trade.


❖ The Securities Commission being the regulatory oversight body

SECURITIES COMISSION AND BURSA MALAYSIA

supervises and monitors Bursa Malaysia with regards to its listing, trading, clearing, settlement and depository operations to ensure Bursa Malaysia performs its regulatory duties and obligations in an effective manner. ❑ Securities Commission are a self-funded statutory body entrusted

with the responsibility to regulate and develop the Malaysian capital market. ❑ SC mission is "to promote and maintain fair, efficient, secure and

transparent securities and derivatives markets; and facilitate the orderly development of an innovative and competitive capital market".


 The SC’s many regulatory functions include: ➢ Registering authority for prospectuses of corporations other than

unlisted recreational clubs; ➢ Approving authority for corporate bond issues;

SECURITIES COMMISSION AND BURSA MALAYSIA

➢ Regulating all matters relating to securities and futures contracts; ➢ Regulating the take-over and mergers of companies; ➢ Regulating all matters relating to unit trust schemes; ➢ Licensing and supervising all licensed persons; ➢ Supervising exchanges, clearing houses and central depositories;

➢ Encouraging self-regulation; and ➢ Ensuring proper conduct of market institutions and licensed

persons.


➢ LOFSA is responsible for:

LOFSA – LABUAN OFFSHORE INVESTMENT

✓ developing national objectives, policies and sets priorities ✓ developing and promoting offshore business in Labuan ✓ administering and enforcing legislations ✓ incorporating and registering companies


FINANCIAL MEDIATION BEREAU

 The Financial Mediation Bureau (FMB) is an independent body set

up to help settle disputes between financial services providers such as banks or insurance companies with their customers. For insurance disputes such as claim settlement, or refusal to accept your claim etc, you may seek the service of FMB.


 PIDM’s role under Akta PIDM is to administer the Deposit

PIDM

Insurance System (DIS) and the Takaful and Insurance Benefits Protection System (TIPS) to protect bank depositors and owners of takaful certificates and insurance policies in the event of a member institution failure.


CHAPTER 3 LEGISLATION & REGULATORY CONTROL AFFECTING FINANCIAL PLANNING

3.2 DETERMINE THE LEGISLATION

APPLICABLE IN FINANCIAL PLANNING


TABLE OF CONTENT

3.2.1 State the importance of the Acts with regards to financial planning

01.

02.

FINANCIAL SERVICES ACT, 2013

03. PERSONAL DATA PROTECTION ACT, 2010

ISLAMIC FINANCIAL ACT, 2013

04. ANTI-MONEY LAUNDERING ACT, 2001

05. EMPLOYEES PROVIDENT FUND ACT, 1991


WHY REGULATION OF ACTS ARE IMPORTANT ? ✓ To maintain the integrity of the financial system ✓ Aims to enforce applicable laws, prosecute cases of market misconduct, license providers of financial services, protect clients, investigate complaint, and maintain confidence in the financial system. ✓ Prudential regulation: ensuring that firms have the funding necessary to trade safely and have the appropriate risk control in place and are properly governed. ✓ Consumer protection: enduring that firms treat customers fairly from the sales process to how complaints are managed.


FINANCIAL SERVICES ACT, 2013 A Malaysian laws which enacted to provide for the regulation and supervision of financial institutions, payment systems and other relevant entities and the oversight of the money market and foreign exchange market to promote financial stability and for related, consequential or incidental matters.


ABOUT FINANCIAL SERVICES ACT (FSA), 2013 HOW THIS ACT CAME TO AN EFFECT? It replaced the Banking and Financial Services Act 1989, the Insurance Act 1996, the Payment Systems Act 2003 and the Exchange Control Act 1953.

OBJECTIVES •

PURPOSE Empowers Bank Negara Malaysia (BNM), to exercise oversight over financial groups by introducing the concept of a Financial Holding Company (FHC).

Greater powers to counter future risks to financial stability in the financial sector

Increase consumer protection Promote competition in the broader financial services sector

step forwards towards global trends in financial regulations.


IMPORTANCE OF FINANCIAL SERVICES ACT (FSA), 2013 CONSUMER PROTECTION AND PROPER BUSINESS CONDUCT The FSA grants BNM the authority to undertake various actions to ensure that financial services providers are fair, responsible and professional when dealing with financial customers.

BANKING SECRECY Prohibits the bank or their officers from disclosing any document or information relating to the affairs or account of any customer to another person.

PAYMENT SYSTEM

EXCHANGE CONTROL

Any application to carry on payment systems business would be assessed similarly as an application to carry on licensed business.

According to the Acts, no person shall undertake or engage in any transaction unless he has obtained a written approval from BNM.


VIDEO 1 https://drive.google.com/file/d/1PuczDWQfrLevtt8i7I7RPhbQkokF1J 5t/view?usp=sharing


ISLAMIC FINANCIAL SERVICE ACT 2013 (IFSA 2013)


FEATURES OF IFSA 2013

To focus on Shari’ah compliance and governance in the Islamic financial sector. To provides for a comprehensive legal framework that is fully consistent with Shari’ah in all aspects of regulation and supervision from licensing to the winding up of an institution. Promoting financial stability and protect the rights and interest of consumers of financial services and products based on Shari’ah compliance.


SHARI’AH REQUIREMENT DIVISION 1 : SHARI’AH COMPLIANCE

01

DIVISION 3 : AUDIT ON SHARI’AH COMPLIANCE

02

03

DIVISION 2 : SHARI’AH GOVERNANCE


PURPOSE OF IFSA 2013 PROMOTE FINANCIAL STABILITY AND COMPLIANCE WITH SHARI’AH

TO STRENGTHEN REGULATION OF FINANCIAL INSTITUTIONS TO IMPLEMENT RECOMMENDATIONS UNDER FINANCIAL SECTOR ASSESSMENT PROGRAM (FSAP)


VIDEO 2 https://drive.google.com/file/d/1dEOQEso0WZWF_tM74k4jR_WyAJvIjG58/ view?usp=sharing


PERSONAL DATA PROTECTION ACT 2010


WHAT IS PERSONAL DATA?

Any data which can identify a person is considered personal data. There are 2 categories of personal data as follows :

SENSITIVE PERSONAL DATA

PERSONAL DATA 

Name

Physical health or condition

Address

Mental health or condition

Tel No

Political views

Email

Religious or other similar beliefs

Gender

Criminal records

Date of birth

Photos

Videos,etc

Any other information deemed by the Minister to be sensitive personal data


DIFFERENCE BETWEEN PERSONAL DATA AND SENSITIVE PERSONAL DATA

All personal data must be processed in accordance with the principles set out in the PDPA

Sensitive personal data can only be processed if explicit consent is given under section 40 PDPA


VIDEO 3 https://drive.google.com/file/d/134QGmnWFWctkoRIxF40MOP Oj1ZcbIgQd/view?usp=sharing


ANTI-MONEY LAUNDERING ACT 2001 (AMLA 2001) An act to provide for the offence of money laundering, the measures to be taken for the prevention of money laundering and to provide for forfeiture of property derived from, or involved in, money laundering, and for matters incidental thereto or connected therewith. ●


WHAT IS MONEY LAUNDERING ? Money laundering is a process of converting cash or property derived from criminal activities to give it a legitimate appearance. It is a process to clean ‘dirty’ money in order to disguise its criminal origin.


5 BASIC MONEY LAUNDERING OFFENCES 

Tax evasion

Theft

Fraud

Bribery

Terrorist Financing


IMPACT OF MONEY LAUNDERING ON COUNTRY

01. Increase in the overall rate of crime that could threaten national security.

02. Inhibit the growth and competitiveness of the economy

03. Taint the integrity and reputation of the business and financial sector.

04. Increase cost of doing business and operations of various sectors of the economy.


VIDEO 4 https://drive.google.com/file/d/1mjL7JVYuH8MPEGv6K4DacHpq nE1h7a2T/view?usp=sharing


EMPLOYEES PROVIDENT FUND ACT 1991 (EPF ACT 1991) An Act to provide for the law relating to a scheme of savings for employees' retirement and the management of the savings for the retirement purposes and for matters incidental thereto.


WHAT IS EMPLOYEES PROVIDENT FUND ?

 Employees Provident Fund is a compulsory savings scheme in Malaysia. Its

primary aim is to provide a measure of security for old age retirement to its members. It also provides supplementary benefits to members to utilize part of their savings for house ownership and other withdrawal schemes.

 Employees Provident Fund is commonly known in the Malay term as KWSP

or Kumpulan Wang Simpanan Pekerja.


OBJECTIVES OF EPF To manage the provident fund of the government, public and private sector employees and to help them financially on retirement or separation from their jobs.

To mobilize the savings received through the compulsory provident fund contributions on the part of employees and employer.

To undertake activities that can provide social security to the members.

To extend the coverage so that a larger section of the organized sector employees, who have yet not been covered, can be brought under the EPFO umbrella with a view to benefit them.

To generate maximum return on the investment for the benefits of the members.

To conduct research activities and to explore welfare schemes which can benefit the members at large.


VIDEO 5 https://drive.google.com/file/d/1B7JLODY6_YBsEtVimORhhetiLq CV-hQ9/view?usp=sharing


TOPIC 3: INTRODUCTION TO FINANCIAL PLANNING 3.3 CODE OF ETHICS AND RULES IN FINANCIAL PLANNING

This Photo by Unknown author is licensed under CC BY-SA.


WHAT IS PERSONAL DATA PROTECTION ACT 2010 (PDPA)  The Personal Data Protection Act 2010 (“PDPA”) is an Act that regulates the processing of personal data in regards

to commercial transactions. It was gazetted in June 2010.  The penalty for non-compliance is between RM100k – 500k and/or between 1 – 3 years imprisonment.


PERSONAL DATA PROTECTION ACT 2010 (PDPA)  Personal data relates directly or indirectly to a data subject, who is identified or identifiable from that

information, or from that and other information in the possession of a data user, including any sensitive personal data and expression of opinion about the data subject. For example: name, identity card number, date of birth, mobile number and etc.  In the case where personal data processing is outsourced to a third party, known as the data processor, it

is the responsibility of the data user to ensure that the data processor provides sufficient guarantee to protect the personal data from any loss, misuse, modification, unauthorized or accidental access or disclosure, alteration or destruction


THE PERSONAL DATA PROTECTION ACT 2010 (“THE ACT”)  This Act affects the personal data life cycle management process from the point personal data is

collected, used, stored and destroyed.  This Act applies to customers, employees and third party service providers’ personal data.  A company's way of doing business will definitely be affected as business processes are required to be

refined to comply with the PDPA requirements.  Most importantly, a central repository may be required for consent management. The process becomes

more complex when cross border personal data transfer is involved.


THE ACT APPLIES TO ANY PERSON WHO COLLECT COLLECTS AND PROCESSES PERSONAL DATA IN REGARDS TO COMMERCIAL TRANSACTIONS.  For example the 7 principle of the act :

1.

General

2.

Notice and choice

3.

Disclosure

4.

Retention

5.

Security

6.

Access

7.

Data integrity principle


WHAT IS CODE OF PRACTICE ?  This Code of Practice is specific to the persons/parties that hold licences under the Communications and

Multimedia Act 1998, and has been developed by the Personal Data User Forum for Communications and Multimedia Act Licensees (“CMA Data User Forum”). For the avoidance of doubt, this Code applies to both individual and class licensees under the Communications and Multimedia Act 1998, but does not extend to those parties that have been exempted from holding a licence under the Communications and Multimedia Act 1998 and its regulations.


OBJECTIVE OF THE CODE  set standards of conduct in respect of personal data that are expected of a particular class of Data Users (as

defined in Part 2), namely individual and class licensees under the Communications and Multimedia Act 1998  serve as a guide to Data Users in order to ensure that the processing of personal data does not infringe a Data

Subject’s (as defined in Part 2) rights under the Act  serve as a guide to Data Users to set effective standards and measures in relation to the processing of a Data

Subject’s personal data.


THE CODE OF ETHICS There are 3 code of ethics. They are:  Relationship between data user and individuals  Relationship between data users and third party service provider  Relationship between data user and personnel


RELATIONSHIP BETWEEN DATA USER AND INDIVIDUALS This Code shall apply to the relationship between Data Users and individuals, including but not limited to:  Individuals who are (or were) customers of Data Users  Individuals that represent customers of Data Users (e.g. parents of minors, trustees and authorized

representatives)  Individuals that have been identified as potential customers of Data Users

 Individuals that have applied to be customers of a Data User, whether successfully or otherwise; and  Individuals that have entered into ancillary arrangements with a Data User (e.g. guarantors and/or third party

security providers) on behalf of another individual or entity.


• RELATIONSHIP BETWEEN DATA USERS AND THIRD PARTY SERVICE PROVIDER  This Code shall apply to the relationship between Data Users and third party service providers (“data

processors”), for example, where the Data User outsources certain functions (e.g. marketing, debt collection) to third parties and provides the said third parties with the relevant personal data of customers (Data Subjects inclusive).


RELATIONSHIP BETWEEN DATA USER AND PERSONEL  This Code shall apply to the relationship between Data Users and their personnel, but only to the extent that it

involves the processing of personal data of Data Subjects by the personnel of the Data Users.


RULES IN FINANCIAL PLANNING  Rule #1: Keep Debt Under Control  Most financial planning experts agree that your total monthly debt payments shouldn’t exceed 36% of your gross

monthly income.  Consolidating or refinancing student loans, for example, could reduce your interest rate and allow more of your

monthly payment to go toward the principal. You could also use a 0% balance transfer offer to combine your credit card balances and minimize interest charges


RULES IN FINANCIAL PLANNING

 Rule #2: Avoid Being House-Poor  Figuring out how much to spend on a home is another important financial planning rule to follow. To do that, start by

calculating your debt-to-income ratio using the 36% guideline for the sum of your monthly debts. Then, consider how much you could spend on a mortgage payment without exceeding that 36% cap.  Another rule of thumb for housing is that you should buy a house that costs no more than two and a half to three

times your annual income. For example, if you and your spouse together earn $100,000 per year, you shouldn’t spend more than $250,000-$300,000 on a home. This is a rough guideline but it can give you an idea of what you can afford for a mortgage to avoid becoming house-poor.


RULES OF FINANCIAL PLANNING  Rule #3: Aim to Save at Least 10% of Income  One of the most widely used rules for saving is that you should save at least 10% of your income. Keep in mind, this

is typically assuming you are saving additional money into a retirement plan as well. This 10% rule applies to your creating a savings cushion for unexpected expenses, a college education, or other goals.


RULES OF FINANCIAL PLANNING  Rule #4: Don't Overlook Emergency Savings  Most experts suggest a household have between three and six months' worth of expenses available in the event of

an emergency. 

So, if your monthly obligations total $2,500, you should try and keep between $7,500 and $15,000 in your emergency fund.


RULES OF FINANCIAL PLANNING  Rule #5: Be Realistic About Retirement  Many experts use the assumption that you will need to replace your pre-retirement income by 75-80%. So, if you

make $80,000 the year before you retire, you should expect to have a little over $60,000 in income during retirement. But, that number may be higher or lower, depending on the type of lifestyle you plan to live in retirement, how much debt you're still carrying, and your overall health. Health care expenses can eat a significant portion of your retirement budget if you don't have Medicare or sufficient health insurance to handle those costs.


CODE OF ETHIC IN PIAM  Attention to observing the law that guides all of PIAM’s entrepreneurial choices has led the company to adopt its own Code of

Ethics, especially in order to focus business activity on a preventative approach to offences. The function of the Code of Ethics is to represent a true and proper ‘table of values’ that crystallises the principles which must underpin the company’s activities and to which the behaviour of employees and partners of PIAM must conform to. Recipients of the Code are the company, in primis, so shareholders and all who act in the name and on behalf of it, but also external partners in their contractual relations with PIAM (the "Recipients"). For the company, therefore, the Code is a tool geared towards breading down the business culture, basing this on respect of ethics and legality when conducting business, also for the purpose of preventing illegal acts. To do this, it naturally falls within the Organisation, Management and Control Model referred to in Legislative Decree No. 231/2001, which constitutes the foundations. In the drafting of the Code, the company was inspired both by the Farmindustria Code of Ethics, and the codes of conduct of the European pharmaceutical (EFPIA) and international (IFPMA) federations, especially on the subject of publicity and information, relations with the world of health and with patients. Ultimately, the Code represents the formalisation of a real and ambitious effort by PIAM to find a balance between focusing on the company’s profitability and social responsibility, operating according to transparent behavioural rules and implementing targeted and appropriate preventive measures of risks of offences.


RULES IN FINANCIAL PLANNING FOR PIAM  These Regulations may be cited as the General Insurance Agents Registration and Regulations ("GIARR").  These Regulations shall apply to all intermediaries appointed by insurance companies to obtain general

insurance business.  For the purposes of these Regulations, a Corporate Agency means any body corporate formed or incorporated or

existing within Malaysia and includes:1.

a company incorporated under the Companies Act, 1965;

2.

a sole-proprietor/partnership of persons carrying on business collectively as a firm;

3.

any society, club or organisation whether registered under the Societies Act, 1966 or otherwise;

4.

any society registered under any written law relating to cooperative societies;


CODE OF ETHIC IN LIAM  The Life Insurance Business is based on the philosophy of risk sharing. It is ubiquitous that such

business be operated and administered with the highest degree of integrity and ethics.  It is a business based on trust and honesty, requiring a high degree of responsibility and

professionalism.  The confidence of policy owners and members of the public in the integrity and honesty of life insurers

shall be safeguarded and enhanced.  Life insurers shall at all times see that their business is soundly managed to ensure the safety of policy

owners’ savings and the credibility of their companies  Life insurers shall maintain a policy of efficient and prompt service to policy owners and, to assist and

advise them where necessary, with the aim of promoting goodwill.


RULES IN FINANCIAL PLANNING FOR LIAM 1.

Coverage

 To foster high standards of insurance operations in Malaysia, the following guidelines are established, setting out the

minimum standards of conduct expected of employees of life insurance companies in Malaysia. 1.

Monitoring devices

 To ensure adherence to the guidelines, the management of a life insurance company must establish some effective

monitoring device 1.

Underlying 7 principles

 To avoid conflict of interest,To avoid misuse of position,To prevent misuse of information,To ensure completeness and

accuracy of relevant records,To ensure confidentiality of communication and transactions between the life insurance company and its policy owners and clients,To ensure fair and equitable treatment of all policy owners and others who rely on or who are associated with the life insurance company, and to conduct business with the utmost good faith and integrity


CODE AND ETHIC IN MALAYSIAN TAKAFUL ASSOCIATION MTA Takaful intermedieries must:  Sign a declaration of compliance that they shall be bound by this Code or any guidelines issued from time to time;  When dealing with any prospective participant the public, to inform them that their latest status can be viewed via the MTA

website;  Ensure that the proposed plan or scheme meets with the participants’ needs and requirements;  Provide consultation services based on their expertise and must refer to the Takaful Operator as and when necessary;

 Ensure all information given by a prospective participant to the Takaful Operator is confidential in accordance to the Code of

Practice on Personal Data Protection for the Insurance and Takaful Industry in Malaysia regardless whether they are still Takaful Intermediary or have ceased their representation with the Takaful Operator  Not to disclose or utilise personal information, trademark, correspondence and member companies’ accounts or business


FINANCIAL REGULATION IN MALAYSIAN TAKAFUL ASSOCIATION (MTA)  All Takaful Intermediaries must at all times comply with every guideline and rule in this Code;  The Takaful Intermediaries must comply with and observe to all policies and procedures as prescribed by the Takaful

Operator in which the Takaful Intermediaries are duly registered with.  Each Takaful Intermediary must conduct and carry out all Takaful transactions, business, operations and activities

according to the IFSA 2013 and observe any existing laws or guidelines.


ETHIC AND CODE IN FEDERATION OF INVESTMENT MANAGERS MALAYSIA (FIMM)  Ordinary Members, IUTA and CUTA should, at all times 1.

act with honesty, dignity and integrity;

2.

deal in a fair and equitable manner, and avoid aggressive and offensive sale practices;

3.

deal in good faith and with best of intentions of investors

4.

treat investors with respect and disclose fully all information pertinent for investors to make informed investment decisions.


RULES IN FINANCIAL PLANNING FOR FIMM  The Code is issued by FIMM pursuant to Article 58(g) of the Articles of Association of FIMM and approved by SC in accordance

with Section 325 of the CMSA  The Code sets out the ethical and professional requirements and rules that Ordinary Members, IUTA, CUTA and UTC must

comply for purposes of marketing and distributing units of unit trust funds in Malaysia and aims to provide a regulatory environment that protects the interests of the investing public.  In order to ensure compliance with the Code, FIMM may take action against any Ordinary Member, IUTA, CUTA or UTC who fails

to comply with any provision of the Code.  The provisions of the Code are non-exhaustive and FIMM may review the Code as and when necessary and subject to SC’s

approval as provided under Section 325 of CMSA. Any amendment to the Code shall become effective after it has been approved b y SC.  The FIMM may from time to time, issue directives, standards and/or circulars to provide further clarity and guidance. The

directives, standards and circulars must be complied with in the same manner as the Code.  The Code comes into effect on 22 January 2013 and shall supersede the Code of Ethics and Standards of Professional Conduct

for the Unit Trust Industry issued on 1 September 2001.



,


➢ Risk management is the process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions. ➢ Risk is the possibility of something bad happening. ➢ Must make decision for which the outcome is not known with certainty ➢ Investment



Avoidance takes the risk to zero but often has a high cost associated with it You discover the use of product is hazardous, then do not manufacture or sell it.



❑ ❑


❑ ❑ ❑



❑ ❑

Example of loss prevention • • •

Handle cash carefully and automate processes Keep your building and products secure. Obtain staff buy-in through proper training and motivational tactics.





Several factors Should be Considered When Purchasing an Insurance Policy

FRANCHISE A plan whereby the insurer only pay the entire loss claim if the claim amount exceed the

DEDUCTIBLE specified amount decided by firm subject to the policy limit. A deductible is the amount of loss that must be paid out of pocket

EXCESS before an insurer will pay any loss claim. An excess is the amount of loss that must be paid out of pocket before an insurer will pay any loss claim


01 Avoidence -Avoidance is a method for mitigating risk by not participating in activities that may incur injury, sickness, or death. Smoking cigarettes is an example of one such activity because avoiding it may lessen both health and financial risks.

4.2 THE INSURANCE COVERAGE AVAILABLE TO MANAGE RISK

02 Retention -Retention is the acknowledgment and acceptance of a risk given. -The initial risk is the cost of having to pay more out-of-pocket medical expenses if health issues arise. -If the issue becomes more serious or life-threatening, then the health insurance benefits are available to cover most of the costs beyond the deductible. If the individual has no serious health issues warranting any additional medical expenses for the year, then they avoid the out-of-pocket payments, mitigating the larger risk altogether.












TOPIC 5 INVESTMENT PLANNING


FINANCIAL PLANNING IN ISLAM


Definition The development and implementation of a systematic and comprehensive financial plan with the objective of achieving one’s personal & financial goals Generally, financial planning involves taking a broad view of one’s financial affairs covering many areas of wealth management, and then going through a step-by-step process to solve financial problems and achieve financial goals


Sources : Developing IFP 1. Conventional financial planning model 2. Primary sources Al-Quran Sunnah /Hadith 3. Secondary sources Ijtihad – evaluation of existing financial instruments Ijma - consensus of the Muslim scholars on Islamic laws Qiyas - analogical deduction Uruf – custom or usages that are not contradicting with Syariah


Why Financial Planning? – Islamic View Islam as a comprehensive religion – emphasizes worldly life and hereafter.

Concept of Allah’s bounty – very important in Islam as a good Muslim is required to have a proper balance between the fulfillment of his spiritual and worldly obligations. Muslims are encouraged to plan their life and put effort to achieve the goal setting before proceeding to “tawakal”. A Muslim still has to commit to financial planning because either he would leaves debt or children to the trusted one.


Financial Planning – Islamic View The Prophet stated;

“A Muslim should prepare himself for the next world as if he is going to die tomorrow, but at the same time work hard to improve all his worldly comforts as if he is going to live forever” (narrated by Al-Dailani) ~ As Muslims, we are not discourage from acquiring wealth, but we must know how to earn and spend it in accordance with the Islamic principles. ~ A Muslim should not forgo wealth, neither should he be greedy or avaricious in the pursuit of wealth. Islam encourages reasonableness and moderation.


Financial Planning – Islamic View In Islam, Muslims are discouraged to be in debt. Greatest sin is to die in a state of debt and no asset to pay it off. Therefore in Islam, financial planning can be used as a tool in managing one’s wealth.

In this perspective, financial planning is therefore a must and is not only for the high-income earner and rich but applies to all.


Pillars of Financial Planning Wealth protection Wealth accumulation Wealth preservation

Wealth distribution Wealth Purification


Wealth Protection Concept of protection in Islam – TAKAFUL Takaful means joint guarantee, whereby a group of participants agree to jointly guarantee among themselves against a defined loss.

Based on the principle of “Ta-awun” (mutual assistance) and Tabarru (donation, gift or contribution) where the risk is shared collectively by the group voluntarily. Takaful provides guarantee against loss or damage & with Takaful, Muslims can plan ahead for any unwanted/unfortunate events. E.g. – General Takaful & Family Takaful


Accumulation of Wealth Achieving a reasonable capital growth with the objective of preserving accumulated wealth. Involves asset allocation strategies, investment policy and others. Channels of investment must be Syariah compliant – free from elements of gharar (uncertainty), Riba (usury), maisir (gambling) and free from haram products such as pork, alcohol etc. Can be done through - Family Takaful plans, Shares, Sukuks, Property, Wadiah & Mudarabah Saving Plans etc.


Wealth Preservation Protecting wealth against every conceivable financial risks and treats through sound wealth management – quality investment etc. No one should suffer unnecessary losses due to the quality of investment advice they receive or to a failure to protect one’s assets.

Islamic view – wealth as a trial and man are responsible as the trustee to the wealth that ALLAH has given to him. Man are required to work hard if he wants to acquire wealth. Examples of Islamic products that can help to preserve wealth : Family Takaful, Wadiah & Mudarabah Savings, Islamic shares.


Wealth Distribution Important discipline in IFP – proper wealth distribution after death. Death is inevitable, but many tend to ignore. Danger of leaving a mess to family members –disputes etc. Instruments of estate distribution - Faraid, Wasiyah and Hibah.


Faraid, Wasiyah & Hibah Faraid - Distribution of estate after one’s death according to the Quran. Guidelines of estate distribution can be referred in verses 12 and 176 surah An-Nisa. Wasiyah - basically means giving a gift to others in term of wealth, debt and beneficence of one’s property after his death. However, not for legal heirs & allowable at maximum of 1/3 of total assets. Hibah - Giving one’s wealth to others without the expectation of any replacement or exchange with the transferring effect on the ownership during lifetime or executed upon death. Applicable either to family members (legal heirs) or members who are not entitled to inheritance.


Wealth Purification Fundamental concept in IFP. Spending on those in need is a highly commendable form of ibada or worship. The Prophet declared:

“A generous person is close to Allah, close to Paradise, close to people, and far from Hell. However, a miserly person is far from Allah, far from Paradise, far from people, but close to Hell. Allah loves more an ignorant man who is generous than a worshipper who is miserly. (Narrated by At Tarmizi)” Sadaqa (almsgiving) and Infaq (spending in the service of God) are voluntary wheras Zakat is obligatory.


Zakat The third pillar of Islam.

Compulsory in Islamic jurisprudence. Have the capability to purify our wealth, protects our soul from miserliness, selfishness and greed. Acts as an instrument to clean poverty in the society. Can be performed easily through most Islamic Banks’ counters or at Zakat counters.


Islamic Products & Services For IFP Protection

Family Takaful

Accumulation & Preservation

Takaful Plans for: Haji & Umrah

Takaful Plans for:

Education

Medical needs

Marriage

Motor Vehicle

Housing

Fire

Family Takaful

Financing / Mortgage plan Etc.

Shares

Sukuks

Al-Wadiah Savings

Distribution

Purification

Refer to

Unit Kutipan & Agihan Zakat Majlis Ugama Islam Brunei

BBA Investment

Amil-amil nominated by MUIB Property

Etc.

Counters at all Islamic Banks Waqaf plan offered by Islamic Insurance companies


The Rule of 72 The most important and simple rule to financial success.

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Rule of 72 

The answers can be easily discovered by knowing the Rule of 72 ◼

The time it will take an investment (or debt) to double in value at a given interest rate using compounding interest. 72 Interest Rate

= Years to double investment (or debt)

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Albert Einstein Credited for discovering the mathematical equation for compounding interest, thus the “Rule of 72” “It is the greatest mathematical discovery of all time.”

T=P(I+I/N)YN

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


What the “Rule of 72” can determine

1.14.3.G1

How many years it will take an investment to double at a given interest rate using compounding interest.  How long it will take debt to double if no payments are made.  The interest rate an investment must earn to double within a specific time period.  How many times money (or debt) will double in a specific time period. 

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Things to Know about the “Rule of 72” The “Rule of 72”  Is only an approximation  The interest rate must remain constant  The equation does not allow for additional payments to be made to the original amount  Interest earned is reinvested  Tax deductions are not included within the equation

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


Doug’s Certificate of Deposit

1.14.3.G1

Doug invested $2,500 into a Certificate of Deposit earning a 6.5% interest rate. How long will it take Doug’s investment to double?  Invested $2,500  Interest Rate is 6.5% 72

= 11 years to double investment

6.5% © Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Another Example The average stock market return since 1926 has been 11% 72

= 6.5 years to double investment

11%

Therefore, every 6.5 years an individual’s investment in the stock market has doubled © Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Jessica’s Credit Card Debt Jessica has a $2,200 balance on her credit card with an 18% interest rate. If Jessica chooses to not make any payments and does not receive late charges, how long will it take for her balance to double? $2,200 balance on credit card  18% interest rate 

72 18%

= 4 years to double debt

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Another Example $6,000 balance on credit card  22% interest rate 

72 22%

= 3.3 years to double debt

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Jacob’s Car Jacob currently has $5,000 to invest in a car after graduation in 4 years. What interest rate is required for him to double his investment? $5,000 to invest  Wants investment to double in 4 years 

72 4 years

= 18% interest rate

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Another Example $3,000 to invest  Wants investment to double in 10 years 

72 10 years

= 7.2% interest rate

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Rhonda’s Treasury Note Rhonda is 22 years old and would like to invest $2,500 into a U.S. Treasury Note earning 7.5% interest. How many times will Rhonda’s investment double before she withdraws it at age 70?

72 = 9.6 years 7.5% to double investment

Age 22

Investment $2,500

31.6 41.2 50.8

$5,000 $10,000 $20,000

60.4 70

$40,000 $80,000

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Another Example 

 

$500 invested at age 18 7% interest How many times will investment double before age 65? 72 7%

= 10.2 years to double investment

Age 18

Investment $500

28.2 38.4 48.6

$1,000 $2,000 $4,000

58.8 69

$8,000 $16,000

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Taxes A person can choose to invest into two types of accounts:  Taxable Account – taxes charged to earned interest  Tax Deferred Account – taxes are not paid until the individual withdraws the money from the investment

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Taxes Example George is in the 33% tax bracket. He would like to invest $100,000. George is comparing two accounts that have a 6% interest rate. The first is a taxable account charging interest earned. The second account is tax deferred until he withdraws the money. Which account should George invest his money into?

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Effects of taxes Taxable Account Earning 4% after taxes 72 = 18 years

Tax Deferred Account 72 = 12 years 6% to double investment

4%

Years

Taxable

12 18 24

$200,000

36

$400,000 $800,000

to double investment

Tax Deferred $200,000 $400,000

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Conclusion 

The Rule of 72 can tell a person: ◼ ◼ ◼ ◼

How many years it will take an investment to double at a given interest rate using compounding interest; How long it will take debt to double if no payments are made; The interest rate an investment must earn to double within a specific time period; How many times money (or debt) will double in a specific time period.

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


1.14.3.G1

Conclusion continued 

Things individuals must remember about the Rule of 72 include: ◼ ◼

◼ ◼ ◼

Is only an approximation The interest rate must remain constant The equation does not allow for additional payments to be made to the original amount Interest earned is reinvested Tax deductions are not included within the equation

© Family Economics & Financial Education – Revised November 2004 – Saving Unit – Rule of 72 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona


DPN50113 INTRODUCTION TO FINANCIAL PLANNING


ANALYZE ON THE PRIMARY INVESTMENT MARKET


EQUITY MARKET

An equity market is a market in which shares of companies are issued and traded, either through exchanges or over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy. It gives companies access to capital to grow their business, and investors a piece of ownership in a company with the potential to realize gains in their investment based on the company's future performance.


TYPES

OF EQUITY MARKET

The equity market is of two types:

• Primary Market • -It is also known as the issue market where the companies get their securities listed and approach the public to subscribe to it for the first time. Issue of securities in this market could be of four types: • Public Issue Rights • Issue Private • Placements Bonus • Issue: • Secondary Market • It is a place where securities change hands amongst investors — the securities of entities such as public Undertakings, semi-government bodies, government


DEBT MARKET • The debt market is the market where debt instruments are traded. Debt instruments are assets that require a fixed payment to the holder, usually with interest. Examples of debt instruments include bonds (government or corporate) and mortgages.


TYPES OF DEBT MARKET • Corporate Bonds • Government Bonds • Municipal Bonds • Mortgage-Backed Bonds • Emerging Market Bonds


FOREIGN EXCHANGE MARKET

• Foreign exchange market is Investing in currency involves buying the currency of one country while selling that of another. This is done through the foreign exchange market, or “forex.” Forex trading always happens in pairs. For a transaction to be complete, one currency has to be exchanged for another.


TYPES OF FOREIGN EXCHANGE MARKET • Spot Markets • Forward Markets • Future Markets • Option Markets • Swaps Markets


ISLAMIC FINANCIAL PRODUCT


BANKING

• Islamic banking refers to a system of banking that complies with Islamic law also known as Shariah law. The underlying principles that govern Islamic banking are mutual risk and profit sharing between parties, the assurance of fairness for all and that transactions are based on an underlying business activity or asset.


TAKAFUL

• Takaful is a type of Islamic insurance wherein members contribute money into a pool system to guarantee each other. Takafulbranded insurance is based on sharia or Islamic religious law and covers health, life, and general insurance needs. Any claims made by participants are paid out of the takaful • Takaful insurance companies were introduced as an alternative to those in the commercial insurance industry, which are believed to go against Islamic restrictions on riba (interest), al-maisir (gambling), and al-gharar (uncertainty) principles—all of which are outlawed in sharia.


INVESTMENT LINKED

PRODUCT

• An investment-linked product is a family takaful plan that combines investment and takaful cover. Your contribution will provide takaful cover, which includes death and disability benefits, and part of the contributions will be invested in a variety of Shariah-approved investment funds of your choice.


SUKUK

• Islamic securities (Sukuk) are hybrid securities bearing features of stocks and bonds, altogether. Similar to stocks, they indicate a type of partner- ship and holders of Sukuk will be considered as the owners of underlying asset or project for finance of which, Sukuk have been issued.


PROPERTY MARKET

Property market is the land along with any permanent improvements attached to the land, whether natural or man-made— including water, trees, minerals, buildings, homes, fences, and bridges. Property market is a form of real property It differs from personal property, which are things not permanently attached to the land, such as vehicles, boats, jewelry, furniture, and farm equipment.


TYPES

• Residential property • Commercial property • Industrial property • Land • Special purpose

OF PROPERTY MARKET


FACTORS TAKEN INTO CONSIDERATION WHEN COMPARING PRIMARY INVESTMENT Value • Value aims to capture excess returns from stocks that have low prices relative to their fundamental value. This is commonly tracked by price to book, price to earnings, dividends, and free cash flow. Size • Historically, portfolios consisting of small-cap stocks exhibit greater returns than portfolios with just large-cap stocks. Investors can capture size by looking at the market capitalization of a stock. Momentum • Stocks that have outperformed in the past tend to exhibit strong returns going forward. A momentum strategy is grounded in relative returns from three months to a one-year time frame. Quality • Quality is defined by low debt, stable earnings, consistent asset growth, and strong corporate governance. Investors can identify quality stocks by using common financial metrics like a return to equity, debt to equity and earnings variability. Volatility • Empirical research suggests that stocks with low volatility earn greater risk-adjusted returns than highly volatile assets. Measuring standard deviation from a one- to three-year time frame is a common method of capturing beta.


INTRODUCTION TO FINANCIAL PLANNING


THE MANAGED INVESTMENT Investment management refers to the handling of financial assets and other investments—not only buying and selling them. Management includes devising a short- or long-term strategy for acquiring and disposing of portfolio holdings. It can also include banking, budgeting, and tax services and duties, as well. The term most often refers to managing the holdings within an investment portfolio, and the trading of them to achieve a specific investment objective. Investment management is also known as money management, portfolio management, or wealth management.


THE TYPES OF MANAGED INVESTMENT .


UNIT TRUST  A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. 

Unit trusts offer access to a wide range of investments, and depending on the trust, it may invest in securities such as shares, bonds, gilts, and also properties, mortgage and cash equivalents.

 Those investing in the trust own "units" whose price is called the "net asset value" (NAV). The number of these units is not fixed and when more is invested in a unit trust (by investors opening accounts or adding to their accounts), more units are created.


PROPERTY TRUST  Trust property refers to assets that have been placed into a fiduciary relationship between a trustor and trustee for a designated beneficiary.  Trust property may include any type of asset, including cash, securities, real estate, or life insurance policies. Trust property is also referred to as "trust assets" or "trust corpus.“  A professionally managed property trust provides investors with an opportunity to invest in or hold part ownership of property that may not necessarily be available as an individual. Property trusts are also commonly known as property funds or property syndicates


EQUITY TRUST  Equity trusts (also known as share trusts) allow you to invest in a wide range of shares listed on a stock exchange by pooling your money with other peoples' money.  The aim of an equity trust is usually to provide a medium level of income and long term growth.  A wide variety of equity trusts are available. In some cases their names indicate the types of shares purchased by that trust, eg. Dividend Imputation Trust, Gold Trust, Resources Trust etc.


MORTGAGE TRUST  Mortgage trusts, also commonly known as mortgage funds, are an investment vehicle that provides loans to commercial borrowers to finance land subdivision, property development or construction. These loans are generally secured by mortgages over property as the primary security.  Mortgage trusts are legal constructs are used for many purposes. The two primary uses associated with mortgage are as a form of investment and a form of loan security.  The investment form of a mortgage trust helps investors not directly associated with the loan make money, while the security form of a mortgage trustee makes it easier for a borrower to purchase a home.  Both have different advantages and dangers, but the investment is primarily an investor choice, while the security version tends to be required by state laws.


LIFE INSURANCE  An investment-linked plan is a life insurance plan that combines investment and protection.  The premiums that you pay provide you not only with life insurance cover but part of the premiums will also be invested in specific investment funds of your choice. 

As a policyholder, you can choose how to allocate your insurance premiums towards protection and investment.

 The investment fund is divided into units of equal value. The prices of these units are published daily in the newspapers for you to track the value of your investments.


MANAGED INVESTMENTS AS COMPARED TO PRIMARY INVESTMENT MANAGED INVESTMENT Advantages : • can access a greater mix of investments • no need much money to get started • can access global investment opportunities

Disadvantages: • Have Hidden Fees • Have High Sales Charges

PRIMARY INVESTMENT Advantages : • Companies can raise capital at relatively low cost, and the securities so issued in the primary market provide high liquidity as the same can be sold in the secondary market almost immediately.

Disadvantages: • Each stock is exposed to varying degrees of risk, but there is no historical trading data in a primary market for analysing IPO shares because the company is offering its shares to the public for the first time through an initial public offering.


THANK YOU


CHAPTER 6 INCOME TAX PLANNING


6.1 Determine the Basic Tax Concept • A tax base is defined as the total value of assets, properties, or income in a certain area or jurisdiction. To calculate the total tax liability, you must multiply the tax base by the tax rate: Tax Liability = Tax Base x Tax Rate


What is basis of assessment in taxation? • The individual rules for each income-tax schedule identify the profits or income to be assessed in that year. These rules are complex and the advice of a tax expert should be sought. The basis of assessment does not necessarily equate to the actual tax year.

• Basis period is simply time within which an assessment is raised/computed on a taxpayer for the purpose of establishing the correct amount of tax liability in a particular period. Basis period can also be seen as the basis upon which tax liabilities would be computed.


Tax residence • The criteria for residence for tax purposes vary considerably from jurisdiction to jurisdiction, and "residence" can be different for other, non-tax purposes. For individuals, physical presence in a jurisdiction is the main test. Some jurisdictions also determine residency of an individual by reference to a variety of other factors, such as the ownership of a home or availability of accommodation, family, and financial interests.

• For companies, some jurisdictions determine the residence of a corporation based on its place of incorporation. Other jurisdictions determine the residence of a corporation by reference to its place of management. Some jurisdictions use both a place-of-incorporation test and a place-of-management test.


Calculation of gross income • Gross income refers to the total income earned by an individual on a paycheck before taxes and other deductions. It comprises all incomes received by an individual from all sources – including wages, rental income, interest income, and dividents.

• How to Calculate Gross Income -The gross income of an individual is often a figure required by lenders when deciding whether or not to advance credit to an individual. The same applies to landlords when determining whether a potential tenant will be able to pay the rent on time. It is also the starting point when calculating taxes due to the government.

• The formula for calculating the gross income, or gross profit, of a business is as follows: -Gross Income = Gross Revenue – Cost of Goods Sold


Deductions • A tax deduction is a deduction that lowers a person's or an organization's tax liability by lowering their taxable income. Deductions are typically expenses that the taxpayer incurs during the year that can be applied against or subtracted from their gross income to figure out how much tax is owed • Examples of deductions is; -For example, if you earn $50,000 in a year and make a $1,000 donation to charity during that year, you are eligible to claim a deduction for that donation, reducing your taxable income to $49,000. The Internal Revenue Service (IRS) often refers to a deduction as an allowable deduction.


Reliefs • Tax relief is any government program or policy initiative designed to reduce the amount of taxes paid by individuals or businesses. It may be a universal tax cut or a targeted program that benefits a specific group of taxpayers or bolsters a particular goal of the government.


How does tax relief work in Malaysia • Tax reliefs are set by LHDN, where a taxpayer is able to deduct a certain amount for money expended in that assessment year, from the total annual income. For income tax Malaysia, tax reliefs can help reduce your chargeable income, and thus your taxes. If planned properly, you can save a significant amount of taxes.


Example tax reliefs • For example, let’s say your annual taxable income is RM40,000. Based on this amount, the income tax you should be paying is RM1,000 (at a rate of 8%). However, if you claimed a total of RM11,600 in tax relief, your chargeable income would reduce to RM28,400. This would allow you to drop down a tax bracket, lower your tax rate to 3%, and reduce the amount of taxes you owe to RM402. That’s a difference of RM598


Tax Computation • A tax computation is a statement showing the tax adjustments to the accounting profit to arrive at the income that is chargeable to tax. Tax adjustments include non-deductible expenses, non-taxable receipts, further deductions and capital allowances


Real property gains tax • Real Property Gains Tax (RPGT) is a tax levied by the Inland Revenue Board (IRB) on chargeable gains derived from the disposal of real property.The tax is levied on the gains made from the difference between the disposal price and acquisition price

• https://loanstreet.com.my/learning-centre/rpgt-in-malaysia


Example • Let’s say you puíchased a house 12 yeaís ago foí RM500,000, now you want to sell it. ľ h e maíket píice of the house is now RM700,000. ľ o calculate the chaígeable gain we minus the píice RM700,000 by the oíiginal puíchase píice RM500,000 and any miscellaneous cost, let's say we incuííed a miscellaneous cost of RM10,000 fíom lawyeí fees. ľ h e calculation goes as follows:

Chargeable Gain = Disposal Price - Purchased Price - Miscellaneous Costs = RM700,000 - RM500,000 - RM10,000 = RM190,000

Net Chargeable Gain = Chargeable Gain - Exemption Waiver (RM10,000 or 10% of Chargeable Gain, whichever is higher) = RM190,000 - (RM190,000 X 10%) = RM171,000

Tax payable = Net Chargeble Gain X RPGT Rate (based on holding period) = RM171,000 X 5% = RM8,550


VIDEO • https://youtu.be/i1DmerBehRk


6.2 DETERMINE THE FUNCTION OF INCOME TAX PLANNING

1.DISTINGUISH THE VARIOUS FACTORS IN CONSIDERATION IN INCOME TAX PLANNING: a. Income Splitting b. Income Deferment c.Acceleration of deductible claims


What is Income Tax Planning ? Income Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to allow you to pay the lowest taxes possible. A plan that minimizes how much you pay in taxes is referred to as tax efficient.


Objectives of Income Tax Planning Income Tax Planning is a focal part of financial planning. It ensures savings on taxes while simultaneously conforming to the legal obligations and requirements of the Income Tax Act, 1961. The primary concept of tax planning is to save money and mitigate one’s tax burden.


The functions of Income Tax Planning • Income tax planning diminishes tax liability by saving the assessed the maximum amount of tax by arranging their financial operations according to tax decisions. • Conforms to the provisions under taxation laws, thereby minimizing any litigation. • The returns can be directed to investments.


Advantages of Income Tax Planning 

To minimize litigation: To litigate is to resolve tax disputes with local, federal, state, or foreign tax authorities. To reduce tax liabilities: Taxpayer can reduce the payable tax by arranging their investments within the various benefits offered under the Income Tax Act, 1961. The Act offers many tax planning investment schemes that can significantly reduce the tax liability.


Advantages of Income Tax Planning 

To ensure economic stability: Effective tax planning and management provide a healthy inflow of money that results in the sound progress of the economy. This benefits both the citizens and the

economy. 

To leverage productivity: One of the core tax planning objectives is channelizing funds from taxable sources to different income-generating

plans. This ensures optimal utilization of funds for productive causes.


Types of Income Tax Planning 1. Short-range tax planning

4. Purposive tax planning

2. Long-term tax planning

3. Permissive tax planning


Types of Income Tax Planning 1.Short-range tax planning: Under this method, tax planning is thought of and executed at the end of the fiscal year. Investors resort to this planning in an

attempt to search for ways to limit their tax liability legally when the financial year comes to an end. This method does not partake long-term commitments. However, it can still promote substantial tax savings.

2.Long-term tax planning: This plan is chalked out at the beginning of the fiscal and the taxpayer follows this plan throughout the year. Unlike short-range tax planning, you might not be offered with immediate tax benefits but it can prove useful in the long run.


Types of Income Tax Planning

4.Permissive tax planning: This method involves planning under various provisions of the Indian taxation laws. Tax planning in India offers several provisions such as deductions, exemptions, contributions, and incentives. For instance, Section 80C of the Income Tax Act, 1961, offers several types of deductions on various taxsaving instruments.

5.Purposive tax planning: Purposive tax planning involves using tax-saver instruments with a specific purpose in mind. This ensures that you obtain optimal benefits from your investments. This includes accurately selecting the appropriate investments and diversification of business and income assets based on your residential status


a. Income Splitting Income splitting is a tax reduction strategy employed by families living in areas that are subject to bracketed tax regulations. The goal of using an income-splitting strategy is to reduce the family's gross tax level, at the expense of some family members paying higher taxes than they otherwise would.


The pros and cons of income splitting Pros:

Cons:

• Cut taxes by moving some income to a lower-earning spouse

•Benefits wealthier families, who would get most of the tax break.

• Makes taxes for similar family incomes fairer • May help families qualify for child-care deduction

Helps where spouse cares for an infirm parent or relative

•Doesn't always help: One income family may pay more tax, but two earners face child-care costs. •A couple's relationship does not always mean income is shared equally. •May reduce incentive for spouse to work, as the income cuts tax savings.


Example : Income splitting is a higher income family member transferring a portion of his or her income to a lower income family member through some legal means, such as hiring the lower income family member and deducting the cost of the labor as a legitimate business expense. Although the family still earns the same amount of money, the overall amount of tax it must pay is reduced



b. Income Deferment Deferred income is, in accrual accounting, money received for goods or services which has not yet been earned. According to the revenue recognition principle, it is recorded as a liability until delivery is made, at which time it is converted into revenue.


Example : A company receives an annual software license fee paid out by a customer upfront on January 1. However, the company's fiscal year ends on May 31. So, the company using accrual accounting adds only five months' worth (5/12) of the fee to its revenues in profit and loss for the fiscal year the fee was received. The rest is added to deferred income (liability) on the balance sheet for that year.


c. Acceleration Of Deductible Claims

• Tax Acceleration —taking a tax deduction in the period an expense is incurred, rather than when it is paid in a subsequent period, resulting in an immediate temporary decrease in tax expense and a permanent increase in after-tax income, on a net present value basis, by an amount determined by the length of the acceleration period. • Accelerating deductions means spending money on expenses that will generate a tax deduction now rather than next year


Popular tax deductions include : • The student loan • Interest deduction

• The medical expenses deduction •

The IRA contributions deduction •

The self-employment expenses deduction


DPN50113 INTRODUCTION TO FINANCIAL PLANNING

TITLE: 7.1 Determine The Retirement Planning


RETIREMENT PLANNING Retirement planning refers to financial strategies of saving, investments and ultimately distributing money meant to sustain oneself during retirement.


7.1.1 Methods to Calculate Retirement Planning


Calculate your retirement income needs -There are two ways to estimate the funds needed for a comfortable retirement: Income Replacement Ratio Method Adjusted Expense Method


Replacement Ratio Method This method recognises that most people will be spending less on certain expenses during retirement. As a guide, aim for two-thirds to three-quarters of your income to live comfortably.


Example: Say you want to replace 75% of your current income. If you currently earn RM60,000 per year, and your desired retirement age is 62. Sources: https://www.moneysense.gov.sg/articles/2018/10/determine-yourretirement-needs Annual retirement income needed

Years in retirement (life expectancy - retirement age) Total retirement income needed

75% x RM60,000 = RM45,000

Men: 83-62 = 21 Women: 88-62 = 26 Men: RM45,000 x 21 = RM945,000 Women: RM45,000 x 26 = RM1,170,000


Expense Method You can estimate what you will need to retire comfortably by using your current level of expenses, compounded yearly to the retirement age with an appropriate inflation rate. With this method, you need to examine your spending habits. Certain expenses may increase, some decrease, while others vary as you grow older. So, it is important to review your expenses before and during retirement.


Example: If you need RM3,000 per month at retirement, and your desired retirement age is 62.

Annual retirement income needed

RM3,000 x 12 = RM36,000

Years in retirement (life expectancy - retirement age)

Men: 83-62 = 21 Women: 88-62 = 26

Total retirement income needed

Men: RM36,000 x 21 = RM756,000 Women: RM36,000 x 26 = RM936,000


7.1.2 The Amount of Income Needed During Retirement


The general rule of thumb is that you'll need two-thirds of your last drawn income to maintain the same standard of living you have pre-retirement. Meaning if you earn RM7,500 a month during your last year of work, you'll need RM5,000 a month when you retire otherwise, you'll have to downsize your lifestyle.


7.1.3 Identify The Current Income Resources


Employees Provident Funds (EPF) Savings The Employees Provident Fund (EPF) recorded RM34.05 billion of total investment income for the first half of the year ended 30 June 2021 (1H 2021), an increase of RM6.79 billion, or 25% compared to RM27.26 billion in the corresponding period in 2020. Total gross investment income for the second quarter (Q2 2021) was RM14.77 billion, RM0.35 billion lower than RM15.12 billion recorded in the same quarter last year. Equities continued to be the main contributor of income for Q2 2021 at RM7.89 billion, accounting for 53% of total gross investment income.


Non-EPF Savings The payments below are not considered "wages" by the EPF and are not subject to EPF deduction. Service charges (tips, etc) Overtime payments Gratuity (payment to employee payable at the end of a service period or upon voluntary resignation) Retirement benefits Termination benefits Travel allowances Payment in lieu of notice of termination of service Director's fee Gifts (includes Cash Payments for holidays like Hari Raya, Christmas etc)


7.1.4 Strategies For Filling Retirement Income Deficit


1. Start saving, keep saving and stick to your goals 2. Know your retirement needs 3. Contribute to your employer's retirement savings plan 4. Learn about your employer's pension plan 5. Consider basic investment principles 6. Don't touch your retirement savings 7. Ask your employer to start a plan 8. Put your money into an individual Retirement Account 9. Find out about your Social Security benefits 10. Ask questions


DPN50113

INTRODUCTION TO FINANCIAL PLANNING LECTURE: AHMAD YUSRI BIN ABD NASIR

Noor Ashikin Nassafeah Binti Jailani (08DIN19F1027)

SLIDESMANIA.COM

Mathumathi A/P Rames (08DIN19F1010)


TABLE OF CONTENT 7.2 Determine the estate planning process 7 . 2 . 1 – Define the function of estate planning

7 . 2 . 2 - Identify the role played by an estate planner 7 . 2 . 3 - Describe the techniques for preserving wealth

7 . 2 . 4 – Explain the role of life insurance of estate planning SLIDESMANIA.COM


7 . 2 . 5 - Describe the types of trust a) assets protection trust b) insurance trust c) maintenance / educational trust 7 . 2 . 6 – Explain the roles of various parties in will writing : a) attorney b) professional will writing company c) Amanah Raya Berhad d) Islamic will writing SLIDESMANIA.COM


7.2.1

Define the function of estate planning The preparation of tasks that serve to manage an individual's asset base in the event of their incapacitation or death. The planning includes the bequest of assets to heirs and the settlement of estate taxes. Most estate plans are set up with the help of an attorney experienced in estate law.

SLIDESMANIA.COM


7.2.2

Identify the role played by an estate planner

1 . Executor - An Executor is someone who carries out the directions in the will. 2 . Guardian - A Guardian needs to be appointed to raise the child in the event both parents die before the child becomes an adult. 3 . Agent (DPOA) 7. - A durable power of attorney (DPOA), you give authorization to a certain person, or people, to make decisions on your behalf when you are not physically or mentally capable.

4 . Agent (Health Care) - The health care agent receives a durable power of attorney for health care, which gives your agent the power to make medical decisions if you are incapacitated or unable to make medical decisions. SLIDESMANIA.COM

5 . Trustee - If you create a revocable living trust, you will name a trustee, or co-trustees, to manage your assets.


7 . 2 . 3 - Describe the techniques for preserving wealth 1)

Prepare a will

2) Use your estate tax exclusion 3) Title your assets to avoid probate 4) Monitor your retirement plan assets 5)

Gift assets that you do not need to family members

6)

Keep enough assets liquid to satisfy your estate taxes

7) Refrain from naming your estate as the beneficiary for life insurance SLIDESMANIA.COM

8) Know what assets you have and where you have them 9) Meet with a financial advisor


7.2.4

Explain the role of life insurance of estate planning 1 . To provide liquidity in an estate to pay off liabilities such as taxes or mortgages. This will ensure that non-liquid assets, such as a cottage or business, do not have to be sold, but can be left to your beneficiaries. 2 . To establish a fund to provide income for an individual you wish to support.

3 . To make a donation to charity. SLIDESMANIA.COM


7.2.5

Describe the types of trust

a) assets protection trust (APT)

b) insurance trust

c) HEMS Trust

Type of APT :

SLIDESMANIA.COM

a.

Domestic Asset Protection Trust

b.

Foreign Asset Protection Trust

c.

Medicaid Asset Protection Trust

An insurance trust is an irrevocable trust set up with a life insurance policy as the asset, allowing the grantor of the policy to exempt assets away from his or her taxable estate.

HEMS stands for: health, education, maintenance, and support. Including a HEMS Trust standard is yet another way a Trust can help you facilitate and control the distribution of your estate to your beneficiaries over a longer period. A HEMS standard can ensure you’re setting up a distribution plan that’s best for your beneficiaries.


a) Attorney Making a Basic Will

7.2.6 Explain the roles of various parties in will writing

- The will attorney takes care of the complicated legal rules, to ensure that your spouse retains a certain amount of property after your death. After drafting a will, the attorney needs your sign and then acknowledges it in front of two witnesses.

c) Amanah Raya Berhad

b) Professional will writing company -

what your will says, so that your estate goes where you want it to

-

the things that need to happen to make sure your will is put into effect after your death

-

Other: such as where to store your will, who should be responsible for it, and who the executors of the will are.

d) Islamic will writing

SLIDESMANIA.COM

If you die without leaving a valid Will (die ‘intestate’), your estate may not be distributed to your intended beneficiaries

-

To fulfil an important religious duty

-

It gives you peace of mind

Your estate encompasses assets such as immoveable property (house, buildings) and moveable assets (car, shares, investments etc).

-

It makes financial sense

-

It gives you the opportunity to help those less fortunate


DATA GATHERING


WHAT IS DATA GATHERING DATA GATHERING IS THE PROCESS WHERE YOU GATHER ALL OF YOUR FINANCIAL STATEMENTS AND PERSONAL DOCUMENTS THAT WILL, TOGETHER, FORM THE BASIS OF YOUR PERSONALIZED FINANCIAL PLAN.


RELATIONSHIP

ADDITIONAL IN FINANCIAL PAPERWORK

ASSETS

LIABILITIES


WHY DATA GATHERING IS IMPORTANT

SHORT TERM

LONG TERM


TYPES OF ANALYSIS FINANCIAL SCENARIO AND SENSIVITY

VALUTION

VERTICAL

LIQUIDIDTY

HORIZONTOL

EFFICIENCY

COMMON TYPES OF FINANCIAL ANALYSIS LEVERAGE

CASH FLOW

PROFITABILITY

RATE OF RETURN

VARIANCE


TECHNIQUE OF FINANCIAL PLANNING

VERTICAL

HORIZONTOL

LEVERAGE

GROWTH RATES


TECHNIQUE FINANCIAL PLANNING

INCOME STATEMENT ANALYSIS

BALANCE SHEET AND LEVERAGE RATIOS

CASH FLOW STATEMENT ANALYSIS

RATES OF RETURN AND PROFITABILITY ANALYSIS


Understanding strategies to meet needs 5 Steps :

01

Figure out where you are

02

Focus on what’s important.

03

Define your objectives.

04

Put people in charge.

05

Circle back.


01

Use your resources to conduct internal and external audits to help better understand the marketplace. Are you at the top of your industry or floating somewhere in the middle? Maybe you are at the bottom, and that is ok too, so long as you know where your business stands currently. This process can help you reach the next step. Have a clear understanding of what you are great at and what your competitors are doing too.

02

Step by step

What is it about the business that will get you to the next rung on the ladder? What do your customers come to you for and praise you for doing? What is your company’s mission? Once you identify these main points, you will understand what your team and financial business plan should ultimately be focusing on right now.


03 Now that you know what you should be focusing on, also consider areas that your company has been “distracted.” What teams or committees are taking away from the main objectives? Zero in your attention on what is most important and focus all your efforts there.

04

Step by step

How many times has a project fell through because no one was championing it? Use your team to your advantage and make people accountable for their projects that focus on your company’s objectives. Accountability is a true key to success in your company reaching its goals.


05

Step by step

This plan, if done correctly, will work for now, but not forever. It is vital to set up a timeline to check back in with your team on their projects to ensure your company is hitting its goals and objectives. Maybe a quarterly check-in is what is best for your business or, perhaps, it’s yearly. Whatever cadence you set up is based on your companies needs; just don’t forget to review the strategic plan every so often.


1

Setting financial goals.

3

Track money and redirect it towards goals Get employer match

4

Make sure emergencies don't become disasters

2

5

Tackle high-interest debt

8.1.1 e. Preparation of plan


6

Invest to build savings

7

Building a moat to protect and grow financial well-being

8.1.1 e. Preparation of plan


8.1.1 f. Implementation of plan 1.Defining and agreeing your financial objectives and goals

3. Analysing your financial and personal information

2. Gathering your financial and personal information

4. Development and presentation of the financial plan


8.1.1 f. Implementation of plan 5. Implementation and review of the financial plan


WHAT TO

VIEW PRE

R E I N D I Y S O N U O R C

* * * * *

GOALS ASSUMPTIONS INCOME EXPENDITURE ASSETS


WHATTO CONSIDER IN YOUR PREVIEW LIABILITIES

CASHFLOW PLANNING

EMERGENCY PLANNING

FINANCIAL PROTECTION

PAYING OFF DEBT

SAVING FOR YOUR FUTURE


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