2014 a year of Price HIKE

2014 is a year of price hike, at least that’s what majority of Malaysian will agree.

First, we have higher car petrol price, a cut in sugar subsidies, followed by electricity bill hike, implementation of minimum wages, higher toll rates and the impending GST by 2015. All these point to only one eventuality, higher costs of goods and services, hence higher costs of living.

Instead of blaming the Government, blaming the FengShui or luck, blaming employers for not reviewing salary scheme by affording the much needed increase, what can we proactively do? You can choose to do nothing and continue singing Lengang Lengang Kangkung, well, that’s your choice and I’m not going to interfere with your basic human rights of freedom of expressions.

For me, I choose to focus on the things that I have control over, things that I can do, to change my current situation. I choose to reduce unnecessary spending, while at the same time, find ways to increase my earnings. Well, major corporations also did the same thing during period of turbulence by cutting down on expenses, and find creative ways to increase sales. As individual, we can employ the same strategy.

It’s easier said than done, therefore we have to be constantly reminding ourselves to not give up, and keep brainstorming for ideas to make extra.

If you are currently serving debts, make an effort to list all the items down. Identify the high interest debts, and make an effort to restructure it so that you can either pay less interests going forward, or you paid it up with cash on hand to save the interests.

For example, credit cards interest rates are in the range of up to 18% per annum. In case you are having credit card debts, and you also have savings in fixed deposits which earns you around 3% per annum, applying simple mathematical calculations, you should know what the best thing to do is.

In case you are like the majority of prudent savers, you should also notice that the inflation rate of less than 3% no longer hold water. Almost every single item on the groceries list is getting more expensive these days, and RM100 really will not be able to fill up the shopping cart. Therefore, placing money idling in the savings account, or fixed deposits really is not the answer to curb inflation.

With the introduction of higher RPGT, abolishment of DIBS, tighter loan approval mechanism by banks, high “frying” property prices everywhere, it seems property investment might not sound like a good idea anymore. 

Many Malaysian bought properties not for own occupation, but for investment. Some people hope to flip the property for higher price, while others hoping to rent to receive recurring income. When things does not work as planned, the burden of servicing monthly installments will starts to burn a hole in their coffers. When too many people defaulted on their loan, and property prices did not increase yearly as anticipated, there comes the risk of property bubble, or subprime crisis.

How many friends or relatives have successfully invests in properties and gain profits? Have you heard of anyone who bought properties, hoping it to be a successful investment, but end up unable to rent out, unable to sell out, or unable to rent for more than what they pay for installments?

Renesial Leong, famed Property Queen, once shared in her book, a successful property investment will depends on the location, and must be able to generate positive cash flow for us. The formula is, 10 months rental incomes must be able to cover for 12 months installments. The extra 2 months’ worth of rental incomes will be used to cover for vacancy, advertisement, repairs, land assessment fees, and etc.

Applying her formula, I cannot find as many rental properties in Penang which fulfill the strict criteria.

The thing I realized from people around me is that, they got it wrong. Their installment is higher than rental received, yet they are telling themselves it is investment. It just did not make sense to me subsidizing people to stay at our property. What if tenants did not take care of our place? We will have to incur additional costs to repair it. Until and unless they successfully flip the property for a profit, in future, they still should not qualify it as investment, just yet. That is my view.

If you are not keen on property investment, there are other types of investment vehicles which might suit you. The rule of thumb is that, if you are unsure of anything, or your guts feeling is telling you something is not right, it probably is. Things that sound too good to be true, it normally is. You have to protect your hard earned money by all means. Only do something that you know. And only get advice from the right people.

This blog is a place for me to share my “general” knowledge, and also a place to keep track of my route out of RAT RACE. I’ll come back with more sharing. Thank you for reading.