Thursday, August 12, 2010

Thoughts: Money and Life

Read an interesting blog entry by famous blogger fourfeetnine.

It's an interesting entry about Wants, Needs and Money. In today's society, especially in Malaysia, it is quite a common scene to see everyone (nearly) drives to work. But yet, there are still a lot of "Car-Less" people out there.

It's nothing unusual to not own a car of your own in other parts of the world, but in our country, a place with poor public transportation system, it is quite a pain in the a$$ to rely on it on a daily basis.

Fresh grads these days could hardly earn enough to save or to live, let alone to finance their own vehicles. To make things worse, cars in Malaysia are rather expensive. Low pay, overpriced cars, overpriced property and high cost of living will only lead to one result. Instability.

We have imbalance here. Unfortunately, we don't live in a Perfect World as generally assumed by Economists. This imbalance does not revert to norm at all. When you have low income but high expenditure, you will see huge outflow of talents (well-known case for Malaysia), and for those who stay behind, you hear dissatisfaction day-in day-out.

Either way, it will do the country no good. So, as you can see, the problem of budget deficit or one government could be better than the other does not really solve the problem, if the root issues are not being addressed properly.

When I first graduated from Uni, I called for a family meeting. I told my dad that despite with my qualification, i will be doing a donkey job and earning peanut pay for the 1st few years. What that means is, though your son has great potential to achieve great things, he won't be able to bring back much money to support the family and buy his own property or car in the initial years of working life.

So i suggested to my old folks. You helped me with a car and a property to begin with, that, will help me to focus on making money and saving them up.

as you can see, though i am not from a well to do family, it's simple maths. With their years of savings, naturally the car they can afford would be better than what my peanut pay can afford. Similarly, they can afford to buy a nicer property with huge potential for appreciation, versus what i can do with my peanuts.

Think about it in long term: They have buffer now but i don't. Without the need to divert my savings into houses and cars, I can roll my savings into investments or businesses which can help my wealth accumulation. 10 years later, i should be able to build up my buffer, whilst they will be more or less use up theirs. So then, with a house and a car in hand (financed by Family Fund), i can use the money saved to take good care of them. So in the end, the whole family benefits.

But what if i do what most Gen Y do? At the start, parents' funds will most likely sitting in Fixed Deposits generating peanut interest. I as a freshie, making peanuts and have to save about 5 years before i can put down the down payment for my car or house (with a 30 year loan somemore). Then after another 5 year later, my cash flow remains super tight, as i don't have investment (all spent on financing the cars and house), nor i have much flexibility (because salary does not rise in tandem with inflation), whilst parents are using up their savings bits by bits (it will escalate to "chunks by chunks" if they don't have insurance plan and there's health issues). After 10 years, in scenario 2, the whole family will suffer.

With the way the economy is going, we know one thing for sure. Young people is going to suffer. And with them going down, i don't think the older generation can last any longer too.

Wants. Needs. Money. It's hard to juggle at times... but before you can talk about Wants and Needs, you will need to sort out the financial blueprint for your family first.

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