How would you 𝗳𝗲𝗲𝗹 when you are in this situation of…..
❗Total RM 382,000 𝗼𝘄𝗶𝗻𝗴𝘀 in credit card & personal loan
❗Have a 𝗱𝗲𝗳𝗶𝗰𝗶𝘁 of RM 5,328/month, of which RM 13,500/month is into servicing debt instalments
❗𝗡𝗲𝗴𝗮𝘁𝗶𝘃𝗲 net worth due to faster growth of loan interest than the growth of his assets
To feel 𝗰𝗼𝗻𝗳𝗶𝗱𝗲𝗻𝘁 & 𝗳𝗿𝗲𝗲 like this……
✔️𝗥𝗲𝘀𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲 his personal loan & Credit card outstanding to only RM 131,000 from RM 382,000
✔️𝗦𝗮𝘃𝗶𝗻𝗴𝘀 of RM 7,851/month by restructuring his commitments from RM 13,500/month to RM 5,649/month
✔️𝗜𝗺𝗽𝗿𝗼𝘃𝗲 his wealth to RM 565,000 after we help him restructure his debts, giving him 𝗰𝗼𝗻𝗳𝗶𝗱𝗲𝗻𝗰𝗲 to buy two properties worth almost RM 1 Million
So this is what happened to Raymond, who is an IT professional, working for a famous Multinational company. Single & available, he is very friendly & has a very good relation with his friends & colleagues.
Not settling for mediocrity, he always dreams of doing his own business. That is how he started partnering with a long-time friend in the chicken-rearing business. His friend was a veterinarian, and chicken is a staple food in Malaysia.
So he put in his share of RM 225,000 in investment from his side, while his friend put in RM 75,000 to purchase live stocks and stock feeds. The condition was that his friend would run and manage the company’s operations.
But within six months, the business couldn’t generate enough sales, struggled to stay afloat, and accumulated a debt of RM 120,000. He went from having good cash flow with monthly savings to having a deficit of RM 5,328/month by using his credit cards to finance the losses of the business.
When we dive deeper into his situation, we see that his problem compounded because, over the years, he did not pick ‘G.O.O.D’ assets, despite earning a high income. Simply put, his assets were not growing as fast as his loans. We discovered that he also placed a large amount of his savings into insurance policies—21, to be exact.
So while most individuals are right about having a mix of high-risk investment vs low-risk investment in their portfolio to generate good returns, Raymond was right on the big picture but struggled to see that insurance does not generate healthy returns.
So here is two things we did to help Raymond:
- Restructure his debt of RM 382,000, which is causing him to have a negative cash flow of RM 5,328/month, by using Debt Replacement
- Freeing up RM 27k/year cash flow by restructuring his insurance using PMR rate and maximising his low coverage up to 5x
You have heard a lot about Debt Restructuring, but what is PMR?
You might be wondering, what actually is this PMR tool? Is it some kind of magic?
PMR stands for Policy Maximisation Rate and is used to measure “Is your insurance coverage maximized with the lowest possible premium?”
For example, a PMR rate of 125 means that for every Ringgit premium paid, you are getting coverage of RM125.
One of the first things we did was to list down all his insurance policies and premiums and run them through my proprietary PMR tool to identify Raymond’s under-optimised policies and correct them.
To his surprise, Raymond was undercovered despite paying for so many policies.
Raymond: “But, Ka Hoe, all the savings plans are good. At least the premiums are not burned, and I will get a lump sum back?”
“Well, it depends,” I answered. After calculating the rate of returns of the savings plans, we found that Raymond is getting about 2% per year. His money will earn better interest if deposited in FD.
Next, we calculated how much Raymond needs to cover so he won’t be under-covered or over-insured.
Raymond is not alone. Most people buy insurance based on what they think they need without calculating their actual needs and end up paying too much and covering too little.
So, what is a good PMR, then? Based on my experience in the past 14 years, after reviewing thousands of policies, a PMR of less than 100 is normally under-optimised.
If your PMR rate is between 100 and 200, it’s somewhat optimised, but it can be better. A PMR rate over 200 is well optimised, but you must ensure each component of your insurance needs is covered.
You can learn more about the PMR tool here. (short video of my previous sharing on KCLau’s webinar)
Interested to find out what is your PMR? Are you currently under or over-insured or simply paying too much in premium?
Then, I would like to invite you to our first “How to Free Up RM2k/month Without Sacrificing Your Lifestyle” webinar in 2023.
This webinar has assisted many of my students in lowering their insurance premiums and increasing their coverage, allowing them to start working twice as hard and possibly retiring five to ten years earlier.
During the webinar, I will not only go through with you the exact steps I did with Raymond with my proprietary PMR tool but also:
1) How to identify under-optimized policies and correct them
2) Calculate how much you need to cover so you won’t be under-covered or over-insured.
3) Better prepare you for the future and prevent potential time bombs from blowing up during retirement
4) Go through real-world case studies with proven results on how to free up your cash flow so that you can work your money 2x harder.
Click here to learn more about how Raymond and the rest free up their cash flow up to 3x and maximize their coverage up to 5x. Use this promo code SIGUEST to get it at 9.87 (80% off the retail ticket of RM 47, the webinar is valued at RM 1,997)
Ka Hoe is a Licensed Financial Planner having a “Financial Adviser Representative” (FAR) with Bank Negara and “Capital Market Service Representative License (CMSRL) – Financial Planner” with the Securities Commission. He is also the Founder of J Advisory, a Personal Finance Academy that helps struggling Malaysians elevate their financial well-being with proven tools, systems and strategies.
Disclaimer: All strategies listed here are neither recommendations nor advise. The article is written purely for education and journaling only. The content of this article is an expression of my opinion and should not be taken as professional advise. If you are seeking professional advise, please consult me personally. When dealing with debt, you should conduct research and seek expert advice.