We hear about it everywhere we go, everytime we tune into the news or pick up a newspaper.
Epidemics and how dangerous they are. Ebola, H1N1, SARS, JE, dengue, malaria, the list is endless.
In every corner of the globe, staying healthy amidst the health risks has become the primary focus of governments, regulatory authorities and the average citizen. Malaysia is no exception. We are very conscious of the risk posed by epidemics and we try to take every precaution in order to stay healthy.
But the thing is, we are facing the risk of more than one type of epidemic. We are also facing the risk of an inflation epidemic.
How has the current situation come about? Well, the simple answer is that a lot of the subsidies and tariffs we have grown dependent on or used to, have been reduced/abolished (in the case of subsidies) and increased (in the case of tariffs). Petrol and electricity being a key example. The result of the dual initiatives in rationalising subsidies and increasing tariffs, has resulted in inflation.
What exactly is inflation?
It is what happens when prices for goods and services increase steadily over time, measured annually. The net effect, is that the same amount of our money, does not buy the equivalent amount of goods and services that it used to. In other words, our purchasing power is depleted.
You may have the same amount of money that you used to live on quite comfortably, but find that it’s now not enough to survive. And for you and me, ie. the average wage earner, it means that the cost of living and the price of essential items, has gone up and continues to go up.
As a result, household debt in Malaysia has soared to terrifying heights. In addition to the usual housing and car loans as well as credit card debt, people are even forced to take personal loans to make ends meet. The high cost of debt servicing coupled with reducing purchasing power leaves many households in a desperate situation. There is often far too many left days left to pay day, and not enough cash on hand.
Friends, we are facing an inflation epidemic.
What precautions can we take to ensure that we do not succumb to the “financial illness” that is spreading in our midst?
Firstly, we should consider ways to hold on to our money. How can we try to do this? One way is to make all efforts to reduce high interest rate debt obligations. For example, with housing loans, the BLR already went up once in 2014. There are widespread rumours that the BLR will go up again, possibly even more than once. So for those of us who took out flexi-loans, our monthy minimum repayment will go up if the BLR goes up.
Maybe we can try to top up as much of our loan as we can now before the next hike. Also, if we have existing credit card debt and personal loans, we need to settle those in full a.s.a.p because of the onerous interest rate and the compounding effect which can cause us to fall into serious debt over a short span of time.
Furthermore, we should try as much as possible to save money. Yes, I’m afraid this means, cutting down or eliminating ALL non-essential expenses. The usual categories here are dining out, entertainment outside the home, travelling and purchasing of items and gadgets which are not essentials.
Cut these out completely and you will notice a drop in monthly expenditure. Instead, cook and eat at home, entertain friends and family at home as it is much cheaper than going out to restaurants, and train your kids to find ways to occupy themselves at home instead of wanting to go out to shopping malls to buy stuff, watch movies etc.
We’ll also find that spending more time at home as part of our cost-cutting plan, allows us to organise our lives better and improve our living conditions. We might even find time to take on more housework and chores and perhaps, can stop employing a part-time or full-time maid. All these steps will translate to reductions in expenditure. The money saved can be set aside for emergencies and/or investment.
Which brings me to the next precautionary step to avoid succumbing to the inflation epidemic – we should look for ways to grow our money. But this aspect is more tricky. Obviously it’s easier to save than to “grow” our money just like that, especially if we are not financially-savvy.
If money is already tight, we might be afraid to lose what little money we have, investing in the investment products out there which might be unfamiliar to us. However, there is growth potential in all markets, if you know what you are doing.
As a general rule, seek advice before you decide to invest your hard-earned money. Make sure that you understand the product, how it operates in an inflationary market and what the potential downside is. Do your own research and talk to friends and family members as well.
Let’s work hard to fight against the inflation epidemic by following the simple formula : save money + grow money = a better financial position.