Father Sez

From and to parents - parental advice to our children on personal financial management and life.
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Archive for the ‘Documentation’ Category

A part of whatever you earneth, the taxman taketh

Wednesday, April 15th, 2009

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This lesson has just been reinforced upon my second girl, Azah. 

She is an accounting graduate, so she is well aware of the need to pay taxes etc. Still there is no better teacher that the act of having to pay taxes herself.  

She started work with an accounting firm in July last year. As is required under our Malaysian tax laws, her employer prepared a certificate of her earnings and sent one copy to the Lembaga Hasil Dalam Negeri, (as we call our Inland Revenue Service) and gave another copy to my daughter. 

In the old days, the next step would be to fill up and file a stack of forms that the IRS sends to every taxpayer early each year.  Now it’s all online. The deadline for filing is 30 April.  

As she was a first time tax filer, she needed a PIN for her account. I took her particulars to the local LHDN office and got her PIN. I suppose, strictly speaking, they should have insisted that the number be given only to the tax payer. But then, I am the father and I had the documents to prove it.  

Her earnings for the year are below the taxable threshold, so she should not be paying any taxes. In any event, Malaysian employees are all put into a PAYE system where the estimated taxes for the year are calculated upfront and deducted from the wages monthly.  

Last Sunday we did her first filing together. I did the logging in etc., whilst she sat beside me. We went through the process of filling up her personal info, her earnings, the deductions allowed for her and the net results. The process took only about 15 – 20 minutes.

The lessons learnt were deep. Azah realized the need to keep proper documents and receipts, and that there were allowances for her insurances, books and computer purchased. 

This year, she managed to file her taxes well before the deadline. I wonder how her next year’s tax filing experience would be. 

What I have learned about the morals or the honour of borrowing

Wednesday, March 11th, 2009

My very first experience with “debt” was when my eldest brother helped me take a study loan to fund my University studies. I cannot remember the details of how we went about this, though my signature must have been required every step of the way. I suppose my brother must have wondered how on earth I would ever make it in life, much like I now wonder sometimes about my children…..hehe. 

When I graduated and started working, my brother would every month, without fail and like clockwork, take a bus, go to the office of the lending agency and pay the instalment. This was for a period of two years (tertiary education in Malaysia those days was cheap!) I can still remember him mentioning that almost all the staff there knew him because he was amongst the few (very few??) paying regularly. 

The point is, not paying or postponing an instalment never ever entered our minds. This mindset was something that somehow my parents had hammered into us from very young. 

I started working and my third job was with one fairly large group which was mired in debt. And one of my job functions was the so called restructuring of debt. You know, the normal formula, sell some assets, pay down some debt, conversion of bonds into equity, seek new repayment schedules on the other loans so that they could be met etc. 

One of my perks when I joined the company was a housing loan. The company took over a housing loan that I had with my previous employers. This was also during a period when our country was going through a tough time and basically my loan was under water. 

I got into the job with real gusto and soon realised that not everyone had the same mindset on the obligations taking on debt entailed. I was introduced into the world of using legal methods of holding creditors at bay and just dragging them along. And, boy, you could hold them off for quite a number of years. 

Then another transaction which the company had entered into about 3 months before I had joined exploded. In my view that transaction had been done to sort of screw some of the creditors but unfortunately the counter party screwed the company instead. Another legal front opened, alongside the many we already had with banks and other creditors.

As one can imagine, this “culture” clashed violently with all that I that held dear. I lasted about 5 months at that job. I left with a very sour taste in my mouth and a deep dislike for that company and its senior management. 

When I left, I was requested to repay the housing loan. As the loan was underwater, no way I could have refinanced the loan. But unfortunately for them the mortgage documents had gone missing! With God as my witness, I was never the custodian of the documents and I had nothing to do with their disappearance.

But I flatly refused to do anything to legitimise the loss and as a result they could do nothing. I just stayed in the house for 2 years without paying rental or loan instalments.  

About two years later, a new management took over that company. A representative came to see me to negotiate on the loan settlement. It took him about a minute to get me to agree to pay! All he did was to ask me, “Did I take the loan?” My answer was “Yes”. Then he replied “Then you must repay”. End of discussion.

It helped that this guy was a person I respected and he had nothing to do with the shady characters of the past management.  Still I could have just ignored him and this unfairly favourable state of affairs could have gone on for quite a while longer. I suppose they would need a court order to compel me to sign the documents allowing them to obtain a replacement copy of the title. And I had learned quite a bit about legal kung fu in my 5 months with them to delay this by another year or so. 

But in the end, what my parents had hammered into me prevailed, and I refinaced and repaid the loan.  

These events, which happened almost 2 decades ago, went through my mind when I read Brip Blap’s “Produce the Note”, and in particular this sentence…… We throw any concept of honor (i.e. paying one’s debts) out the window due to legalese, of course.  

Well, I am happy that I climbed out of the window and picked back my concept of honour. Though it was two years later!

   

My final letter – its still in draft form

Monday, December 1st, 2008

My wife and I did our wills a couple of years ago. We have appointed our executors and have also in a family meeting informed the children the identity of our chosen administrators. We used the services of an Islamic Estate Planning firm in drawing up our will, As Salihin Trustee Berhad. The firm is also storing our wills and has given us bar coded cards which uniquely identify our wills. My wife and I and our two chosen executors have one card each. 

Still, I have sometimes felt that the wills would not allow our children to have complete access to the details of our affairs, especially financial. I keep most of our information in my computer (backed up every fortnightly). There are passwords and one has to understand the manner of my filing to easily unlock the information. Hence an urge to write another letter to my children to explain this.  

Ever since I read Madison of the Dollar Plan’s “Dear Husband, what to do if I die?”, the urge has grown stronger. Madison’s post was way back on the 28 February 2008.

Mrs. Micah came up with an “alien abduction package”. As she is the more engaged of the Mr and Mrs. Micah duo in the finances of the family, she has worked out a manual to walk Mr. Micah through the intricacies of the family finances in the event she gets abducted by aliens.  

I started on my first draft of my version of the final letter on the 30th October 2008. I want to take a little time to prepare this letter as I want it to be as complete as possible. I have prepared the various headings and am slowly completing the various blank sections.  

Details such as our bank account numbers (though listed in our wills, this is a dynamic issue and the computer records are more updated), insurance policies – types, and policy   numbers, passwords etc. 

A major item would be the issue of “side promises” if any, I make with any business partners. Though this is never done without consulting the “boss” of the household, my wife, the children might not be aware of all of them. 

Then there is the issue of passwords and user IDs.  I don’t do too much of internet banking, though we do have automated payment of most of our bills. I don’t want to disclose the passwords now, as our information might be compromised. Madison mentioned the creation and use of a “Masterkey for passwords and user IDs”. This is something that I am totally blank about. I am not sure if anyone has written any posts on “Masterkeys for Dummies”. I have to do some research on this. 

This final letter is going to be one of the goals for 2009. Not a major one though as the outline is already there.

How should I choose my web designer?

Wednesday, May 7th, 2008

So far I have not done anything on monetizing or commercializing my blog. The main reasons being that my traffic figures would not exactly make any advertiser drool, and secondly I am still not comfortable with the technical skills that go along with placing ads etc.  

But getting involved with this blog has however, opened my mind wide open, on online businesses in general.  

Now my wife and I have decided to set up an online shop. Selling a product that we think has a market. Some of the market research work is going on at the moment. But this is not the reason for this post. 

We want a web site done. We know how the end product should look like. We know what features we want on the site.  What we are not that sure about is whether this knowledge is sufficient to commission a web designer?   

                                                     

To be able to commission a web designer, I have to be able to give clear and mutually agreeable specifications. How on earth do I do this, when I can’t recognize CSS even if it fell on my head? What if I miss a key requirement and realize only, say, 6 months later? And how do I test the web site to make sure it meets my requirements, when the content is going to be built up over time.  

What about modifications that may have to be made later? Do I have to go back to the same person or can I do it with someone closer to home. 

It may be a little easier when it comes to things that we can see, like say, a garden retaining wall. Even then, we are warned to define clearly what the contractor is expected to be doing for us, making sure it covers all the things we want completed. We should spell out any preparation work, protection of surrounding areas, clean up, etc.  

I have listed the requirements as I understand them on Elance, and so far some bids have come. I have time to “evaluate” them before I make a decision.  

Some great guidance has been obtained from the Web, here and here. 

I am thinking of just listing all my concerns, plus the suggestions that I got from the Web and asking the short listed bidders to address them. Then just go with my instinct.  

Is this how it is supposed to be? Is there a better way? I would appreciate some pointers.

How I intend to help my daughters secure jobs they would like – Part 5 – Preparing a Killer Resume

Sunday, April 27th, 2008

My two elder girls are almost ready to join the rat race. I am discussing with them the things they could do to better position themselves to get the job of their choice from the employer of their choice. And not to repeat the major mistake I have made of not managing my career.  

In Part 1, we covered an overview of the process. 

In Part 2, we covered the additional employability skills they would have to familiarize themselves with.

In Part 3, we looked at the realities of life as an employee as compared their past years as students. 

In Part 4, we looked at how to look for and understand the career options available to them.

Now in this Part 5, we talk about the all important resume.

Wikipedia defines a résumé as a document that contains a summary or listing of relevant job experience and education usually for the purpose of obtaining an interview when   seeking employment. Often the résumé or CV is the first item that a potential employer encounters regarding the job seeker, and therefore a large amount of importance is often ascribed to it.

You know what they say about first impressions. As the resume is the first thing a potential employer sees about the applicant, we have to make our resume jump and stand out from the pile of other resumes that the employer would receive.

There are two parts of the resume:

a)    The Content and

b)    The design or style or format, i.e. how the final document looks like.

A) Content

i) The grand daddy rule of the content part should be “Do not lie”.

ii) The second rule is from my favorite career counselor, Free Money Finance and I paraphrase from his very useful “How to write a winning resume””“The way to sell yourself in a resume is to cite specific strengths and abilities that companies need from someone in the job you want and support them with your accomplishments.“

In my daughters’ case, there will be some slight twists. As this is their entry into the working world, the instances they have to quote would be work related or applicable achievements in their extra curricular activities in school and college. Like the instance when my daughter was part of the fund raising committee of the Leo Club in her college and they raised RM200, by drawing tattoos for fellow students and selling herbal eggs.

Another step would be to understand and anticipate the requirements of the job applied for and state our readiness to be able to comply. For example, audit trainees generally have to work quite long hours since the audits usually carry tight deadlines and are bunched up during certain times of the year.

Being comfortable in making presentations to a group of people would be a plus if the job involved marketing or training.

FMF also says that we should do some creative writing so as to make our resume sparkle with accomplishments. This would force recruiters to invite us for an interview. This makes absolute sense.

Yahoo Finance reminds us to keep the resume short and to quality check to eliminate misspellings and other obvious gaffes. I could also do with this advice. I blush with embarrassment whenever I read a post of mine and detect such obvious grammar and spelling errors.

These days lots of resumes are submitted online. Yahoo Finance also talks about the differences between a paper version and its online cousin. The writing of an online resume would be akin to SEO optimization, as it seems that the filters might reject submissions without the required minimum number of keywords corresponding to the skill set of the available position.

“The purpose is not to look like an individual, it’s to look like a match,” says Pat Kendall, a career coach in Tigard, Ore., who optimizes clients’ résumés for online submission.

B) Design 

I am quite hopeless at this. However I ran into 2 very useful guides.  Life Clever’s excellent step by step face lift he did on a typical run of the mill resume. And in about 4 steps he (she??) managed to “Cinderallise” the resume. 

And for even more design options, look at JobMob’s Beautiful Resume Ideas that Work. 

I thank them sincerely for their selfless sharing.

I have sat at both sides of the interviewing table in my career. I know how easy it is to toss out a lousy, insipid resume. I also know that just by reading a resume, you can come to a conclusion that this candidate is the one who would be solving all our problems.  

The resume is the door opener. We have to make sure our resume not only gets the door open, but also get us invited for the interview. 

Actually the resource links that I have used in writing this post were given to my girl just before I left to India to attend what turned out to be my mother’s funeral. My daughter has done justice to these resources and come up with a resume, which I think, I would have opened a door for. 

Her resume is being used now to actively seek interviews. I’ll post on this process in the next installment of this series.

Picture Credit: Google Images

Tax filing for Malaysians – it’s a little less taxing now

Tuesday, April 22nd, 2008

We have to file our personal tax returns by the 30th of April each year.  

Our IRS used to ask us to submit a stack of forms yearly. With chunks of repetitive information, like, addresses, identity card numbers, birth dates, Employment Provident Fund Membership numbers, names of children, wedding date etc.  

I used to mumble unhappily each year as I did the taxes for my wife and myself. But we had no other options available.   

A couple of years ago, our IRS allowed online filings.  The first year, the system rejected me as being too young for e filing!!!! So I had to go back to manual filing. Last year, the IRS office in my town set up a number of computers in their office lobby to guide the people to do their filings online. My wife and I took advantage of this and after a few computer “dead ends and run arounds” (which were resolved with the help of the IRS people in attendance), managed to file our returns. 

This year it turned out to be a piece of cake. It took about 15 minutes or so to complete and submit the returns for my wife and myself.  Of course the fact that we are pretty well organized with our documentation helped. 

Still, I must pay tribute to the IRS for the improvements made in the system. The fact that the system “remembered” the repetitive information made the whole process a lot easier. 

And like every other tax payer before me and I am sure, every other tax payer after me, I tried my best to look for deductions that would reduce my taxes. But I am still figuring out how buying 700 cars may help reduce my taxes.   

When I complained about my taxes, the IRS told me I should appreciate the facilities my taxes are used to pay for. Hence I should pay my taxes with a smile, they said. I did that and they told me they preferred cash!

                                                                                                                              Anon

How I keep track of my financial progress

Sunday, January 13th, 2008

Brip Blap recently wrote an interesting piece on why he thinks net worth is not an awfully important metric to know. This article created an active discussion thread with some people disagreeing.  

My thoughts on this. The principal metrics we should have are:- 

Knowing where we are financially at any one time. 

No matter what our financial goals are, this is an important piece of information to have. Without knowing where we are, it would be next to impossible to get to where we want to go. 

A good indicator is the balance sheet, or our net worth statement. This has to be consistent. For example, whether you want to include or not include your house and mortgage, whether you want to take your house at market value, whether you want to include your vested pension, etc.  

Our financial progress 

The two tracking statements for these are our cash flow statements (how much net cash flow we generate, whether positive or negative) and our profit and loss statements (how much do we spend from what we make). Good indicators of these would be our yearly spending statements, if we have one. 

What I use 

I refer to 2 statements:- 

a)  My net worth statement 

This is a list of all my assets less all my liabilities. (We include the house). Yearly I track the increases / decreases against the previous year’s total. (In 2006 and 2007, my NW decreased by 3.60% and 7.75% respectively. This was basically the costs of university education for our 2 elder girls. Hopefully, we can start building it up now that the kids should be completing their studies). 

Whilst I keep myself aware of the various rules of thumb that suggest the amounts for retirement, I really do not have a target for my NW. For the time being….just more is better… 

b)  Yearly Income Statement 

I classify my yearly income into 5 headings,  

i)                  Employment Income, 

ii)                Trading gains and losses and dividends etc from stocks and shares, (This information is easily available for us.)  

iii)             Property Income. (This is rental from the one property that we have). 

iv)              Business Income. This is from investments in small businesses that I have. Presently income is zero! These businesses are structured in such a way that I have little active participation.

v)                Extraordinary income. This is unplanned, unexpected income that I had not spent any energy on.  

On income our goal is to ensure that (ii) + (iii) + (iv) is equal or more than our estimated expenditure. (Incidentally, I am quite far from reaching this goal.) 

My wife and I have only recently done our first budget. All these while, I have used an estimated amount as our expenses. This year we should be able to get a better comparison.

Ultimately, we have to have some sort of measurable factors to track our financial progress. This is an issue where there may be no exactly right or wrong answers.  The only thing that is right is that you must design one that feels good for you and includes the relevant assets, liabilities, income and expenses.  

Keeping accurate investment records and its impact on investment “luck”

Friday, November 30th, 2007

I have been losing money in stocks and shares ever since I started “investing”. However, I never kept track of my investment losses (or the very few and very far in between gains).  

In late 2004, I decided that this was not on and formulated a system to keep track of my investment activities. 

First, I thought about and wrote down my investment strategy. 

Second, I opened a separate bank account (joint account with my wife), for this purpose and deposited the seed money into this account. 

Three, I used an Excel file and created 4 sheets. 

a)    One for my monthly balance sheet and benchmark comparisons. The items in this sheet are:-

Benchmarks   

i)                  Monthly closing of the KLSE Composite Index, 

ii)                Monthly change in the Index (%) 

iii)             Cumulative change in the index for the year to date (%), 

iv)              Monthly % change in my “Investment shareholder funds”, which is (ix) below plus or minus the realized and unrealized gains / (losses)  

v)                Cumulative change of (iv) for the year to date.  

This shows me where I stand every month against the benchmark index as well as against my targeted investment returns goals.    

Balance Sheet 

vi)              My account, which would represent drawings from or extra contributions to the bank account,(excludes the seed capital) 

vii)           Bank account  

viii)         Cost of shares/stocks owned at month end

          a.    Add / Deduct Marking to Market 

ix)              Start up capital (my seed money)

         a.    Add / Deduct Profit / (Loss) – Realised

         b.    Add / Deduct Profit / (Loss) Unrealised, i.e. marked to market. 

b)    Sheet Two shows the details of the bank account, all deposits from sales of shares/stocks as well as additional contributions or withdrawals I make. This also includes dividends and interest received. 

c)     Sheet Three is for the details of my account 

d)    Sheet Four is on monthly stock transactions I make.

    This sheet shows:- 

    i)        Date of transaction,

    ii)       Stock Name,

    iii)     Number of shares bought and at what unit price,

    iv)     Total cost,

    v)      Market price as at end of month,

    vi)     Profit / (Loss) for sales done during the month 

At the end of each month, I close off the month’s transactions by inserting a new sheet and naming it by month. The profit/(loss) for the month + the balance as at the end of the previous month is carried into the balance sheet as realized P & L.  

All these may seem cumbersome and complicated, but it takes me only about ten minutes a month to complete the recording for the month. After all I do not have many trades a month.  

My records and benchmark comparisons are based on the month ending closing buying prices. I ignore brokerage and stamp duty for purposes of balance sheet. 

This system has resulted in some changes in my investment management. Seeing the index’s change against the changes in my “investment shareholder’s funds” gives me a clear indication on where I stand for the month. In fact, it is a snap to do this at the end of any day I choose.  

And knowing where we are is clearly the first step to getting to where we want to go.       

At the end of the year, I just close off the year’s results by deciding how much I should use as the opening seed capital for the next year. The difference between the amount of seed money for this year and the decided seed money for the next year is knocked off against my account.

If I have a credit, then I withdraw the amount and it is banked into other accounts, like paying off our mortgage or car loan etc, or a small celebration. 

This is the system I have followed since 1st January 2005 and it has proven very useful. This includes details of every stock transaction that I have done since the above date. 

Though my “funds” were down by 10.91% against the index’s decline of 1.90% for 2005, they were up 95.45% against the index’s 21.83% gain for 2006. Thankfully, 2007 also looks good so far.  

The absolute amounts involved, will not put me amongst the “markets movers and shakers”, anytime soon…..Sigh H

However, this ability to see and gauge my actual performance against benchmarks and against my internal targets has made a difference in my investment “luck”.

Debt Management 101- taking on only known and well understood debt obligations

Sunday, November 11th, 2007

The CNNMoney story of 9th September started like this.

“It seems surprising that Kurt and Vicki Oliver could lose their home to a bank foreclosure. They had great credit, long-term employment and excellent assets and income.”

This story is another one of the sad stories emanating from the subprime mess. However the Olivers do not appear to have been one of those borrowers who borrowed far more than they could ever afford, and took illogical risks.

As the CNNMoney opener states, the Olivers appear to be pretty stable and switched on people.  

Rather, these people seem to be one of those, who just did not read and understand the fine print of the agreements they were entering into. They entered into agreements, having no idea of the liabilities they were taking on. Now, sadly, they are paying the price. 

Sometimes, we see people at supermarkets, squeezing a loaf of bread, sniffing it and checking it from tip to toe, before buying it.  

Similarly, in fact, even more so, reading and understanding the documentation governing the financial obligation that we are taking on should be a must. But the financial dumps are littered with people who took this brokers word, that lawyer’s word, that lender’s word and regretted that day. 

A former boss of mine told me, “if anyone ever presents a deal to me, a deal that needed me make an immediate decision, my answer would always be NO. 

This makes a lot of sense. The same should apply for any documentation that we are asked to sign. We should ask for and get time to read and understand them, and if necessary get an independent trusted lawyer to vet them for us.

If we are asked to sign on the spot and no time is given for us to study the documents, we should just walk away. That’s it. Period. 

No financial institution or intermediary is there for purposes of charity. Their purpose, maybe, their sole purpose, is to make as much as they possibly can from us. Their lawyers (though, usually paid by us), use their full arsenal to protect the banks, and guess who, is left unprotected and exposed. 

I should know. 

I read an ad for a fixed rate loan that offered me substantial savings should I refinance my mortgage. I applied, went through the process and finally got a letter of offer.  

The legal documentation that followed was something else. The agreement provided for the lender to increase rates anytime they wanted, decrease the term anytime they wanted, transfer the loan to someone else at their wish and my cost…..blah, blah, blah. 

Had I just signed the documents, which was what the lawyer wanted, I would have gotten myself an open ended obligation that appeared to have no limits.  

Whilst it is important to manage our debts well, it is even more important that we take on only well understood and accepted debts in the first place.   

Starting organized and keeping organized with our documentation.

Friday, November 9th, 2007

My first job was that of an articled clerk with an audit firm. Man! Audit firms, have great filing systems. Their individual files are neatly cross-referenced, and it would be really tough not to be able to trace something. 

My eldest brother, who kept all my important documents whilst I was in school and university is another meticulous organizer. He kept all our family documents as well as others such as my old school certificates, school magazines, and even photographs taken ages and ages ago. 

I think this is where I got my stickiness for organizing and keeping organized all my documents. From the time I started working, opened my first bank account, etc., I have kept my records quite meticulously.  

Now that we are a family and the documentation is a lot more, we have graduated to a home filing cabinet. We have files for our children birth certificates, their school certificates, passports, medical tests reports….well, you get the picture. 

Keeping all our documents in an organized fashion is a great habit to cultivate.  

Whether it is a “shoe box” system, or a “big ring folder” system, it is great, so long it works for you. When the time comes for filing tax returns, updating or renewing insurances, applying for loans for our house or other purchases, having the required documentation handily and easily retrievable is a great help. 

Our two elder girls, now in their final year of university, have started their own folders. Their school certificates have been taken out of our system and given to them.  They have already gone through one exercise of having to retrieve their documents when they were being registered for University. 

We are sure they are well aware of the care and trouble, their mother and I take to keep important documents properly organized.   

We hope that this habit will be ingrained in them just as it was passed on to me from my brother.      

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