Be A Balanced All Rounder

Don’t Just Learn How To Borrow & Invest.  Learn How To Earn More Too!

Happy Chinese New Year! For those of you newly acquainted to me, I believe in being a Balanced All-rounder.  I am a father and husband, senior employee, investor & writer.  I do my best to excel from a family, career and investment perspective.

Most people wrongly assume that whatever little comforts I enjoy today come solely from my investments. That’s a fallacy.  Rather, a strong career and earned income, coupled with support from my loved ones enabled me to build a property and investment portfolio that I am happy with.

More often than not, we are often influenced by many so-called ‘experts’.  Unfortunately, some ‘experts’ may be unbalanced & just advocate that we leverage and buy properties. How about efforts to boost your earned income, business cash flow or career? What about efforts to boost your interpersonal, social or soft skills?  Shouldn’t there be balance in our skillsets?  

OH NO! MY DEBT SERVICE RATIO (DSR) IS HIGH! I’M ‘STUCK’ NOW!

True Story – Gerald (fake name of course) came to me recently for advice. He just attended a property course not too long ago. He earns about RM 4K per month. After the course, he wasted no time and bought 2 properties in succession. One property was an Under Construction Property with negative cash flow, while the other was a subsale property generating a little bit of positive cash flow.  

Gerald now feels ‘stuck’ because his Debt Service Ratio (DSR) is high at circa 70%, and he can’t borrow anymore. His career and salary has been stagnant at RM 4K for about a year, and he found that he doesn’t really have the skillset or aptitude to climb the career ladder.  In other words, he didn’t really put serious effort or time to improve his Earned Income.

Gerald isn’t alone. Many people moan and groan that they want to take on more debt, but are currently ‘constrained’ or ‘stuck’ because of their high DSR.  Admittedly, my views on this can be a little unconventional, as I tend to go against stereotypical thinking. I do apologise if my views are too sweeping. I just hope my thoughts can introduce more paradigms of thought which challenges the status quo.  

BORROW, BORROW AND BORROW ONLY? LEARN HOW TO EARN MORE TOO!  

Let’s recap the DSR formula – Debt Service Ratio = Debt / Net Income. It’s not just debt, folks.  DSR comprises of BOTH debt AND income. Many people attend various courses to learn how to buy properties. On where to buy,  on how to borrow or leverage efficiently. But I’m normally perplexed that hardly anyone invests the time to build or invest in their earned income.  

Direct translation – hardly anyone puts in effort to build their earned income, whether it is from their career or business. We are too impatient to hurriedly build wealth, and tend to focus on Investments, while compromising on our earned income, careers and business. This may not be wise, and a balanced approach is probably needed.  

Remember this adage – THE MORE YOU EARN, THE MORE YOU CAN INVEST.  THE MORE YOU EARN, THE MORE YOU CAN LEVERAGE. In all humility, let’s be balanced. Don’t just learn how to borrow, borrow, borrow and buy, buy, and buy.  Ensure your earned income also grows at the same exponential pace.  

If you’re an employee – I suggest you set career goals and set salary targets.  Invest in books or courses on how to fly up the career ladder. Find mentors in your workplace that are willing to invest in your success. Learn how to lead and manage teams. Learn how to navigate office politics and to build alliances. Develop your interpersonal skills. The list goes on.  Somehow, learning how to have a better Career isn’t as ‘sexy’ as learning how to be a good investor.  That’s why high flying employees cum savvy investors are a rare breed.  

Savvy investors who are flying high in their careers or businesses tend to be more successful over the long term. Don’t take my word for it. Just observe savvy investors that are successful employees or business owners, and see if you arrive at that conclusion.  (Look hard; they are a rare breed).  A savvy investor that earns RM 40K per month tends to be a lot more successful than a savvy investor that earns RM 4K per month.  It’s just simple mathematics.  The higher income investor is in a position to replicate and leverage his portfolio more efficiently compared to his lower income counterpart.           

THE WINNER ISN’T THE ONE WITH THE BIGGEST DEBT, BUT WITH THE HIGHEST NET WORTH

Many investors often confuse Asset Values, Debt and Networth.  There’s even a well renowned Guru out there that says “Retire with RM3 mil of Property Debts”. To me, that’s a little strange. Again, I advocate a balanced approach. In all humility – The one that builds their net worth most efficiently wins. Simplistically speaking, net worth is defined as the market value of your assets less your liabilities (Mortgages)

Does it make sense to have a lot of assets, but also coupled with tons of mortgages & liabilities? Does it make sense to have tons of assets, but you overgear yourself with a DSR of say 100% and above?    

We are often taught how to ‘game’ the system, and how to borrow or leverage to the hilt.  How to leverage via ‘multiple submissions’. How to find below market value (BMV) properties to have a zero down deal.  How to find bankers with looser credit policies.  Well, I have no problems on that per se – but I humbly suggest a balanced approach as well.  

We should also learn how to optimise our debt and paydown our debt more efficiently.  Focus on this while building your asset portfolio, and this will ensure a net worth creation that is more efficient and sustainable. E.g. if you took a RM 400,000 loan over 30 years, and you made a humble RM 4,000 prepayment per year – you will save 101K in interest and reduce your mortgage tenure by 8 years.  

Another example – if you just make ONE advance payment per year – you will shave off 5 years in a 30 year mortgage.  Meaning, let’s say your mortgage is due on the 30th of the month.  Just pay on 1st of the month, 30 days in advance. Do this only ONCE per year. In terms of cash flow, you are not any worse off – instead of paying on Jan 30th, pay on Jan 1st.  Where did I get this knowledge from? A RM 40 book which is inexpensive and a lot more technical and detailed than most courses. 

MORAL OF THE STORY?  

Don’t be blinded or misguided by ‘experts’ who say that you can only reach the promised land via investments alone.  Don’t be discouraged when these ‘experts’ make condescending remarks that you are wasting your time as an employee. With due respect, can these experts achieve the same rate of return in properties in today’s market vs. the 2007 to 2011 ‘golden’ era?  Please ask them to show us how.  If I’m being honest, I know how to build wealth, but I know my rate of return will be a lot slower today vs. the 2007 to 2011 era.  

In today’s anaemic market, I humbly suggest a balanced approach for us to achieve our dreams.  Don’t just learn how to borrow, borrow, borrow and buy, buy & buy properties.  Learn to also improve your earned income. If you are an employee, fly up the career ladder and earn a salary well above your peers. If you are business owner, expand your business and get fantastic cash flow.  

The more you earn, the more you can invest.  The more you earn, the more you can leverage efficiently. The one with the biggest debt isn’t the winner. It’s the one with the bigger net worth that wins.  

By : Mark Chua

Mark is a Senior Vice President (SVP) in a Financial Institution. He is living proof that one can be successful in both our Career and Property Invesments.

He can be reached via : markchuamy@hotmail.com or www.facebook.com/MarkChuaMY.