Malaysia Petrol Prices since 1991

data from

http://www2.kpdnkk.gov.my/index.php?option=com_content&task=view&id=12570&Itemid=419

the sides of GST

Actually GST is good, at least in theory. In practice, it could really go either way. And either way could mean good or bad for somebody and not everybody. This has already been proven in many countries who has adopted GST for ages. But one thing for sure, GST gives the government full Flexibility.

Now or in the past, it started with "I will tax this and that". So sales tax, service tax, government tax, custom tax etc. were introduced. With GST, it started with "I will tax everything" except those I give exceptions.

So system wise, GST is also better. Or in another word, GST is more systematic.

Most people may have known the devil of GST from many blog posts by now, but seriously if you look at the topic with a clear mind and NOT just from consumer point of view, you may realize those are really just purely speculation. However, it may still happen but when it does, it is because the consumers ourselves are making it happen. By thinking it might happen.

Interestingly however, not many people know the official GST info. What is the government thinking with regard to GST ?

• Tax payers will pay less tax
• Industries will save money
• Government can earn more money ( diversify income actually )
• GST will not impact inflation etc.

Got it ?

People who buy will pay less,

people who sell will pay less and

government will have more money.

Interesting or not ? its MAGIC !!

At the end, it really doesn't matter what the big boys are doing. What really matter is what affects you. So forget about agreeing or disagreeing with GST. IT WILL HAPPEN ! You may as well start thinking how to make use of this GST to turn yourself into a part of the HIGH INCOME GROUP.

For that, you may want to check out .... Exempted stuffs


This article was suppose to be read in this sequence.

Malaysia's GST - a MAGIC !

Secrect of the MAGIC revealed !

a Perfect World !

What can we do ?

Easy Retirement

This is an extract of what I read in today's newspaper. More and more people start to carry this type of alternative concepts about retirement especially in this 21st century. You can't say its wrong. As a matter of fact, its a rather SMART way to go. But lie within is a huge hidden risk.

21st century trick ...

Once upon a time, there was a gasoline called 97. The cost of this item was $1.80. One day, the governing body wanted to increase the price to $2.10. However, the governing body knows that if they simply increase price, that will affect their popularity. Which in turn affect their eligibility to continue to be governing body in next election.

Hence they come up with a perfect idea. They first introduce another brand called 95. Actually this is a much lower quality product than 97. In short, 97 simply means there is at least 97% of pure petrol in the gasoline. On the other hand, 95 only has 95% purity. However, they push out 95 as if it is a better quality product. They even add some 'addictive' into 95 to justify their claim its a better product. It was presented in a way that 95 will replace 97, and stay at the same price at $1.80

More than 90% of the consumer fall for it. Hence the transition of 97 to 95 went through smoothly. Majority of the consumers pay the same price for a lower quality gasoline while thinking they enjoy a great quality petrol. This is the power of marketing ...

A few more months pass by, its about time to gain even more profit. Hence 97 is released to the market again. It was released silently and the price of 97 is $2.10. Now this time they leave it to individual vendor to tell consumer how 97 is better than 95.

16.7% of profit has been gained without a single complain from the public. You have to admit this is a fantastic marketing gimme. Even if you see it coming like I did, even if you wrote letter into the authority request for action taken .... but the majority of the consumers were falling for it, hence there is really nothing you can do about it, like I was, no matter how hard I tried. We just have to admit ... it was a gimme well played.

I waited more than 6 months to release this article. What do you think ? Do you still think this governing body has taken good care of your interest ? Or do you believe this article has some truth ?

Recession over, what's NeXT ?

Sometimes I feel very depress when my prediction comes TRUE.

For those who don't know yet, Malaysia is going through a transition where political power could potentially shared between 2 parties; instead of just one-side-say-it-all like the past 50 years. Unfortunately, the initial phase of this transition has ended in a way when our new Prime Minister has strategically resolved it.

At the moment New Economy Model was presented, I immediately sensed the game err they plan to play. Because exactly the same game plan has been played in USA before. While it is true that Malaysia CAN become a developed nation by adopting those moves but it has also been proven that such finance structure is NOT sustainable. Just see what has happened in USA and what is happening in Europe.

Although as if recession is over now, actual effective inflation experience the SHARPEST rise in last 2 months, as high as 25% to 50% if you visit hypermarket often. That is not the worst. What is happening now is that major manufacturers are deceiving consumers in large scale openly. While their products have inflated severely, they run advertisements and promotions as if their products are ON OFFER ! All these are done as part of the exercise to smoothen the transition into a developed nation, hence they have government support behind the scene at all cost. Ahem ... at consumer's cost that is. While these are nothing new to those who have seen it all, but sadly ... there are more consumers falling into it than realizing it at all.

As mentioned in what can we do when bully by the big boys, there is probably nothing much we can do to STOP anything now. So there are just a few things we can probably watch carefully and ride on so that we can get a piece of the pie too ...

• Property will rise drastically. Wherever you are staying right now and despite how much you like it, it may become more worth while to sell it off in the next 10 years. So do plan ahead where you may want to stay 5-15 years later. This may become your LAST and ONLY ticket when the nation is developed and you are still under developing.

• Double your salary in the next 2-3 years. If you wait till the wave carries you, you will always stay behind. You salary WILL increase AFTER the effect of inflation fully kick in. But by then, your increased salary will mean much less. So you really have to think for yourself now. If you are really royal to your employer, your employer should have seen this coming too and take care of you but did it ?

Other than that, derived finance products like futures, options and forex will over shine proper financial planning so much that a lot of weird and ad-hoc theories will surface out. Most people will no longer be able to differentiate what the real proper investment is. On the other hand, that is due to more and more improper investments will actually obtain real returns for the new few years. So if all you care is to get more money, then it should fine temporary.

Hence, MalPF only has one advice to all. Be deviated all you want, just remember to engage an exit strategy and keep yourself in high cash flow condition.

2010 Inflation vs life style change

In 2009, Dung, Mat and Ahmad's personal inflation rates are 4%, 24% and 2.5% respectively representing the Rich, the Average and the Poor. Unfortunately this year we can't do a 1 to 1 comparison because Dung's business has expanded into main land China and his life style has drastically changed. Mat lost his job and now float between temporary freelance works. Ahmad on the other hand has ventured into politics and sort of get himself 'upgraded' into the Average arena. Unfortunately, none of their personal inflation rate can be used to represent our 'typical' experiences. All of them are going through a 'transition' in life rather than reflecting the general senses of inflation. But perhaps you are experiencing a transition in life too ?

When one is calculating his own personal inflation rate, it is important to differentiate value and cost. For example, a plate of used to be $1 fried mee is now $1.50; that would be a 50% increase as in it has inflated by as much as 50%. Like wise, if the $1 mee is now much smaller plate, it has inflated as well. But if you are no longer eating fried mee at a street stall, instead you pay $10 for a dish of mee in a nice deco restaurant nowadays, your inflation rate is NOT 10X ! You are merely having a change in life style.

The rise of cost on the same value is inflation. Inflation does not usually apply when you are comparing 2 different things with 2 different values.

2010 is an interesting year. While inflation was on the rise in 2009, inflation has finished rising in 2010 especially after March. If you do your grocery in hypermarkets, you may have already observed a rise of 15-30%. Certain goods haven't had an increase in price for the past 3 years, hence averaging out would annualized to a 6-9% inflation rate.

If you do your grocery in a wet market, the worst is over. Most of the stalls which haven't gone bankrupt yet have found new supplies. Most of the selling prices remain the same as last year. Generally the inflation remains stable at 3-5%.

Local or individual grocery stores on the other hand are still facing challenges. Some of them who manage to find wet market's supply chain manage to stay more competitive than hypermarkets. Others are struggling wondering if they should just close the store or relocate.

Night clubs, bars, restaurants and places for The Rich remains similar by large. Most of them face reduce in sales and therefore beef up their marketing and promotion deals to play catch up. There aren't much change in price. But one may find these service providers start to charge for all the little things that were used to be free last time.

There you go, 2010 is a year of stabilizing inflation. But the worst is NOT over yet. When the bail out funds end mid this year, the critical turning point would be if all those dump ass giants can stand on their own. Even if only ONE of them still collapse when the bail out fund withdraw, it will still tear down the whole economy creating the worst recession ever. But its unlikely. The old faulty finance system will most probably stay through out this decade, forex loop holes will continue etc. Perhaps it may crash in 2018 ... but for now, we are off the hook temporary.

Related Posts:

Inflation is an external factor, Living Standard is internal and is the one you have power over with.

Living Standard @ Personal Finance Level

Like inflation, Living Standard can be a big number where GDP, poverty rate, income growth inequality, life expectancy are involved. But as far as personal finance is concern, what you should really care is your very own personal living standard.

Simply put, living standard is your ability to sustain how you live your life. At one hand this can be calculated very much similar to Living Cost and the increase of living cost over time is inflation. So is living standard the same as inflation ?

But it should be the opposite instead. One would want lower inflation but higher living standard. So what has gone wrong in the formula ?

The keyword is "ability". If you are NO longer ABLE to sustain how you live your life when inflation kicks in, you are facing the risk of lower living standard. Inflation is an external factor. Your ability to fight the inflation will determine your living standard. When your ability increases faster than inflation, your living standard is raised.

Most of the time, this ability is associated to income. The more money you get the less you need to worry about how expensive the stuff has become. Although vastly applicable but earning income is NOT the only ability one can have.

Says the food and rent have been increasing rapidly. You have to rent a smaller place and eat at cheaper places. You change your lifestyle, you are having a lower living standard now.

On the other hand, another guy is facing the same inflation challenge. Instead of moving to a smaller place, now he rent a bigger place and sublet it to collect higher rent. He starts to grow his own food at his spare time. He changes his lifestyle, but he is having a higher living standard now - staying in bigger place while paying the lower rent and eating healthier food.

Which of the above is living cheaply and which one is living frugally ?

Sometimes creativity and innovation plays a vital role in achieving higher living standard, both in generating higher income and also how one can live his life.

5 cents Round Up mechanism

Most of the Malaysians are already used to the 5 cents round up despite how silly some of the transactions could become.

BNM has already clearly stated that this only apply to cash transactions where we are trying to get rid of 1 cent coins. But it is obvious that even if you are paying with credit card, check and online transfer, most of the retailers will still round the 5 cents up.

When you go to bank and make a payment of $9.98 over the counter. You may write down $9.98 in the bank in slip. Upon making payment, the cashier will have to get $10.00 from you. Which is fine since now the rule is to round it up. When the transaction is done and you get back your proof of payment, what do you think your paper work will say you paid ? Correct, $9.98 !

So be smart, round it up and write down $10.00 because that is the actual amount you pay.

What if the amount is $9.96, you would definitely have to pay $9.95 but should you write on the slip $9.95 or $9.96 ?

If you did write down $9.95 as in honestly you have just paid that exact amount and not 1 cent extra, you may face the risk of another funny finance scenario ... credit card forward interest calculation where your 1 cent ignorance could have cost you $15 !! Well, not that funny but its happening everyday ...

Guess what, with this GST coming soon ... we consumers may not see it how it comes at all, we may NOT even realize after many years ... but all these little things combined together are THE ONES that kill your personal finance, especially if you don't know.

Government and the big boys can do all kind of tricks to keep the national inflation number down but what really matter is your own REAL personal inflation rate!

Best Retire Young ? How possible is it ?

Is it best retire young? Have you ever heard some people retire early at their 30s ? Do you think they got lucky or they must have own some businesses to become rich before they can retire ? Here are the stories of 2 persons who retired at their mid 30s and they only have worked for other people before.

( due to consent issues, the figures are generalized just to illustrate the concept )

They started working at their early 20s with starting salaries of $1,800 to $2,000. After more than 8 years of working, their monthly income were more than $6,000 and then it didn't increase any much further after that. Usually the salary big jump occurred during career move and they have changed career once or twice. Together with bonuses, they have earned a total of $800,000 in total after 12-15 years of working.

Through out those time, they have saved aside a total of $175,000. Initially they save their money in fix deposit getting about 2-3% return but very soon they move on the mutual fund and stock market. Over the years, their average return is 6.3%. So when they retire, their savings are more than $260,000.

Their monthly expenses is about $1,000 and their personal inflation rate for their life style is 2.8%. So with this saving alone, it can last them until age 75.

They also have an EPF ( like 401K ) that is more than $100,000 at their mid 30s. When they can withdraw it at their 55, they should get at least $200,000. With this, they will still have a $500,000 balance when they are 100 years old. Of course they don't plan to live that long but this is their surplus money.

At the time they retired, they also have a home and a vehicle that are already fully paid off. The property was worth $100,000. They ended up paying about $120,000 for it with their 10 years loan. Conservatively this property is expected to worth more than $200,000 when they are 60 years old, just in case and in time for them to enter old folks home where care and friends are around.

The first few years they retired, they literary sit around doing nothing. But very soon they got bored and started interacting with they industry they are used to. From time to time, they provide freelance consultancy to their friends and earn some extra income too, ie. $10,000 to $20,000 a year sometimes. With these incidental incomes, it pushes their 100-year-old left over to $3 millions !!

They may have lived frugally all along but they are enjoying life the luxury way more often now. They don't run any business, they didn't get any lucky in their investments but they must have been good at their jobs because someone actually paid for their services after they retired. But then again, a $10,000 yearly consultancy fee doesn't sound like a real consultancy at all, its more like a very small incidental assistance in one small project only. On the other hand, a $6,000 salary employee is a good employee but its no where near CxO positions neither. So there can be many good employees, this is not one of those only-one-man-scenario.

Some of the keys to their early retirement would be;

• Save First
• Live frugally first
• learn to invest
• bought a motorcycle - just to get around
• bought a small apartment - just enough for him and his visiting friends

There is really no trick here. If there has to be one, they are singles. Some of them may be married but with no dependencies, meaning no need to take care of parent and no kids.

It is really not that hard to retire young.

One last key difference between young retirees and others, their hobbies do not cost them money. As a matter of fact, some other young retirees actually make their hobbies their life time businesses after they retired.

Can 12% return cope with 3% inflation ?

('’)
If you have an investment that consistently gives you a 12% return while you have been controlling your own personal inflation at 3%, would that mean you are financially free forever ?

The first trick you may think off could be the actual amount of money involved. For example, a $100 12% investment will never be able to cope with $200 3% inflation. But in this case, the investment amount starts at $567,803 and the annual living expense is $53,915.

So do you think a 12% return from $567,803 is able to substain 3% inflation on $53,915 ?

This is actually the 3rd part of Gabriel's story. ( part 1, part 2 )

If you are one of those who cann't believe 12% return is still not enough to substain even 3% inflation, then buckle up and stay very close to this blog as you may not believe still how under educate we all are in our personal finances.

As shown in part 1 of the story, this is the projection to the question above.

and these are the first few years of calculation:

$53,915 inflated 3% becomes $55,532 next year. $567,803 with 12% return becomes $635,939. Minus out the $55,532 becomes $580,407. These are the numbers for subsequent years.

Everything seems fine as the total investment capital keeps growing.

However ... things start to change about 15 years later when annual expense reaches $83,997 and capital changes from $692,754 to $691,887; marking the end of capital up trend.

As you can see, the investment capital is rapidly deprecating after that until it completely disappears 30 years later.

So a 12% return on half a million can only substain a 3% inflated $50,000 for 30 years! 30 years is VERY far from eternity at all.

The case is quite ok for Gabriel because he is already 68 years old now and he has another backup fund other than the numbers shown here. But if this is a total retirement plan for a 30 years old person, this will only last him until 60 years old. Not to mention the potential short fall on the 12% return in some years and 3% inflation seems like a very tough target for a 30 years old person in today's environment.

Consistent 12% return is very close to the top performance you can ever get. (imagine Warren Buffect's average return from 1999 to 2007 is 9.23%). And a 3% inflation comes with very little hobby life style and I would consider it far from luxury. So even the best return can only last the most controlled life style for 30 years

Just like how other articles have been emphasizing, put down ALL your numbers on a paper, not just look at the overall concept or just the interest rate. Every case could bring a different result but if you look at the real numbers, you will put all other doubts and tricks away.

( part 1, part 2 ,part 3)

You may also be interested in these articles:

January 2009 Inflation Update

Calculate Future Living Cost

Bigget Killer in Malaysian Personal Finance - Car

Inflation vs BLR

2009 Inflation January Update

I mention the Real Inflation is the Infaltion that is happening to you, not the 'number' released by your goverment in an old post titled "Inflation vs BLR".   Below describe a quick summary how and what to do ...

1. List down all your "daily routine" items and their costs

2. Determine what quantity / amount of each item is consumpt over a fix period of time

3. Sum up the total cost for that period

Then compare the difference between 2 periods give you a rate, that is the Your Inflation !

Lets get an update of this inflation rate from 3 real life examples.  Each example represend one of the Rich, Average and Poor categories.

Ahmad : found his alternative ways of life

Ahmad used to spend RM 5 to fill his stomach in a day (Jan 2008), today he is still using about the same averaging at RM 5.10.  By now, the garden he has been having has grown enough so that they can feed themselves more meals.  He also found a few more places where he packed left over food for his family before he goes home every night.  Hearing so many negative economy news, he didn't spend any extra money in clothing.  The place he is squading remains the same, no extra cost.  Bus fares increase quite a lot but he took some alternative routes and walk further to reach office, home and the stations.  Calculating all of this month's living expenses shows that Ahmad's inflation rate is 2.5% this year.  He doesn't think his life style has been degraded.  As a matter of fact, he found an opportunity to sell some used goods in a flea market on the new route when he walk further to work.

Mathew : no where to go, so just keep looking ...

Mathew is self employ but forecast to lose about 20-30% of his business income this year.  His wife stopped working since mid last year because her company was closed down.  Mat used to pay RM 3.50 to RM 3.80 for a bowl of his favourite Pork Meat Noodle Soup, now he pays RM 3.80 to RM 4.50.  His favourite drink Teh-C was RM 1.00 but now RM 1.10.  So instead of ordering one small cup of Teh-C, he ordered a big one for RM 1.60 and shared with his wife.  Prices of veggies and pork meat in wet market are not stable, he tried his best to buy whatever is cheaper at the time but still ended up an average cost increase about 5% to 15%.  In hypermarket like Carrefour and Jusco, tuna flake can food went from RM 3.30 to RM 4.50;  cheapest hot dogs from RM 2.90 to RM 3.80; salted pickle from RM 1.10 to RM 1.30 ...  Mathew's inflation is 24.3%

Ah Dung : What ?  What Crisis ?

Ah Dung continues to dine out in TGIF, Chillis, Coffee Beans, Starbuick, Old Town Coffee etc.  Average per person per meal remains the same at RM 50 compares to one year ago.  Some restaurant meal size becomes smaller but Dung just move from one restaurant to another, whichever is serving the meal the same way they did before the financial crisis.  Eventually most of these restaurants will serve proper meal size and more promotions will surface out.  Now TGIF also have kids eat free like Chillis.  MAS matching Airasia low air fares allow Dung to travel all over the world more frequent now.  Dung's bangalow architected by the same guy who designed for Dr. Mahatir continue to grow and takes up a huge chunk of his expenses but all these are rolled under his company accounts.  Dung's inflation rate is 4%

Below table shows the summarized inflation rate for these 3 person :

So while all the supermarkets are advertising for how low their prices are, what is your Very Own Personal inflation rate NOW ?  

The right way to lower down price

Generally it is a BAD idea in economy sense for a goverment to influence hypermarket to lower their price ( more on that here ).

Because the ultimate great thing that can happen in our market is FREEDOM to trade.  Whoever smarter will think of better ways to save cost and therefore lowering their sale price, those who are not will not survive.  Eventually all the creative ones remains and we will have 'smart' business men in our society.

Hypermarket doesn't really care about slashing prices.  Because it doesn't hurt them at all.  Its their suppliers who are affected.  First of all hypermarkets don't pay suppliers cash.  Second, hypermarkets don't pay suppliers in full.  Third hypermarkets don't hold responsible for lost and damage goods.  

Imagine a supplier barely survive getting pay check 3 months after the goods are sold and now due to price slashes, the supplier receive only part of the payment.  So at the end, the remaining ones are the ones who did not give discount ?  Or those who already monopoly the market remains stronger ...

However, out of all these smoke screen ... some lights do shed.  Air Asia slashing their fuel surcharge mainly to counter MAS recent 'Net Price' advertisement, not so much of  because minister said so.  Like wise, BAT who started cigarette price war are purely business competition oriented.  These 2 are great price reduction examples, compare to the terrible hypermarket price reduce.

Has your daily lunch price reduced yet ?

Calculate Future Living Cost

I mention before that the Real Inflation you should care about is Your Own Inflation Rate, not those published by goverment or experts ... ( read here for old post )

In other to calculate future living cost, first you list down your living cost now.  The 4 basis of living standard are Cloth you wear, Food you eat, Place you stay in and Transport that brings you around.

Then determine your own inflation rate.

Lastly using the FV formula to calculate your future living cost.

PV - Present Value ie. $570 x 12

i - interest rate ie. 3% or 0.03

n - number of years ie. 17 and 20

FV - Future Value, ie. the results I shared below

( more on FV formula )

For exampe, using above figures, the cost of living for

17 years later is $11,305.48

20 years later is $12,353.80

instead of only $6,840 a year today.

if you don't have calculator at hand, you can also use Rule of 72 to do a quick estimation in your head.

2008 Recession ?

Quite a handful friends complain to me that I keep talking about fundamentals while the market crashes like he!! and they are in deep sh!t.  They even curse me as a NATO ( No Action, Talk Only ) and they wouldn't give up until I give them "Real" guidelines what they should do NOW.

I ignored them for quite a long time and the reason is that it violates with the purpose of my sharing - you NEED to know the fundamentals before you go on with the fancy stuff.  (You don't have to do all the fundamental stuff, but you NEED TO KNOW them )  But then again, the fact is that they were already IN and it would be unfair for me to continue ignoring them.  It will be very hard to discuss about current situation without speculating the future  .... but I will try.

You have heard about Buy Low Sell High and may have get bored with it.  So if I say that again, it may not catch your attention.  So let me try this then ... this is Exactly what you should DO !

Low ?  Buy !   High ?  Sell !

Like wise, it also follows with ...

Lower ?  Buy More !  Lowest ? Don't Buy All ...

Higher ?  Don't Sell yet .. 

Highest ?  Sell a bit ...  

Too High !?  Take a break ...

If I share with you that I withdraw all my investments back in March, you may curse me even more.  ( But when I did that you laughed at me, remember ? )  Anyway, I decided not to say too much and let someone famous speak indeed.  Dr. Lim is a famous X Malaysia politician who happen to earn some money from stock markets too ...

Ok, if you are patient enough to read till here, here goes ...

1.  Access each investment and ask yourself, 

"Is this the kind of business I want to do myself, in long run ?"

2.  If not, cut them lose.  If yes then calculate their Future Worth in future.  

( How much will this business earn if it goes according to my plan, its already my own business remember ? )

3.  Backdate the Future Worth from #2 to Today's Price assuming a growth rate.

4.  Compare that price to actual price today, add a safety margin to determine sell, keep or buy.

Too much ?  In that case, try these then ...

1.  If you need money now, sell them.

2.  If you don't need money now, keep them.

3.  Either way, find more money to prepare to go in again

Ok ok, lastly what I would do for myself ...

Its not bottom yet.  The fundamental flaw for today's problem ( USA mainly ) is 'creating something from nothing'.  Unfortunately this time it fails to hold real substance in our world before the finance creation become self-substain.  Hence, what was 'created' $2 (loan amount) is now only $1 (property value).  Read financialindependent.blogspot.com for Sub Prime issue.  Then chain reaction follows through.

The way I look at this is ... no financial institutes are having problem.  Its just that NO ONE WANTS TO TAKE UP THE RESPONSIBILITY.  When one of your business ideas fail, and IF your company structure is setup 'Correctly', Bankrupcy is one of the methods to end the failed business.

Goverment taking money out to 'support' market is just a smoke screen, it will NOT help substain the market AT ALL.  The good way to end this recession ( if this is one ) is to close down all those BIG institutes who played with fire before.  Acquisitions are fine too but may have bigger monopoly in future.  What I hope to see is a New Generation of Banking should surface out during this crisis.  Some small business start some 'make sense' banking facilities and slowly take over the old tranditional banking pratices.  If none of this happen, I doubt if it is bottom.

Having said that, I don't wait for bottom neither.  I started keeping my fund in liquidity and eyeing on the best vehicle I should get on now.  Since my fund is limited, I can only go in 1 or 2.

Don't get me wrong, I am not perfect neither.  ALL my USA stocks are affected.  My decisions are to keep them as they were never within my radar anyway.  The reason they were affected is also because they were not within my radar.

For those who got burn, think of if this way.  When your investment value drops from $2 to $1, you lost 50%.  But when your investment goes back from $1 to $2, you earn 200% !!

All you need to do, in order to enjoy above scenario, is to put in the same amount of investment money when it was $2, as in now when it is $1.

Like wise, $2 to $0.50 is 75% lost and the reverse is 400% gain.

============= added 20081006 00:56

Just read from Tun Mahathir's blog that he agrees too ..

3. The failures are all due to playing with money, selling mortgages, selling papers and all kinds of financial dealings which have been invented by the finance houses in order to make huge sums of money out of nothing. Currency trading is one of them.

 

The Biggest Killer in Malaysia Personal Finance Planning

I did start this blog with Malaysia in mind.  All previous postings are general in concepts and may apply everywhere.  Now let's look at specific challenge in Malaysia.

Remember that the inflation I care about is MY OWN INFLATION, not any numbers released by goverment nor bank nor any other expert.  ( read last post )

So let's talk about CAR ... one of my daily routine item ...

I bought a 2nd hand car in 1995 for $10,000 and eventually scrap it in 2005.  

So $10,000 divided by 10 years of usage is about $1000 a year.  

Divide it further by 365 days is roughly $3 a day.

That means I had been paying $3 a day for that car.

Then I bought a Wira in 1998 for $55,000 and today its worths about $15,000.

Following similar calculation, I have been paying $11 every day for this car.

So I used to pay $3 for my vehicle back in 1995,

Now I have to pay $11 for the same in 2008.

This alone is more than 10% compounded infation !!

I haven't mentioned I bought a Hyundai for $90,000 in 2003 and now its worth about $20,000.  That is more than $38 / day !!

Ok ... some of you could be smart enough to see the flaw in above calculation.  I am still using my Wira and Hyundai.  So as time goes, the average cost of ownership should go lower.  It is TRUE BUT don't forget the car resale value also becomes lower as time goes.  So give and take, its still not much difference.

I haven't included car loan in above calculation.  The actual total price I paid is more than $68,000 and $110,000 for Wira and Hyundai respectively.

For every car you buy in Malaysia, you pay more than Double the car's value. That means at the moment you buy an imported new car, you lost half of your money instantly !

This is due to various ways how goverment increases the car price in the name of protecting national own pride, make of our own cars.  I was in Total Support IN THE BEGINNING !  And that was more than 20 years ago ...

Right or Wrong put aside.  Buying car in Malaysia is the #1 killer in Personal Finance Planning.  No matter how little your income is, if you do NOT own a car, you probably can still have a great solid finance ground.  And no matter how rich you are, the cars you own are burning big holes in your pocket, an easily 10%-30% depreciation rate.

Lastly, if owning car is a MUST like me, think of it as paying for the experience.  So the next time you get in your own car, be happy ... because you are getting more out of what you already paid.  Else you lost both your money and the enjoyment.  Drive Safely ... and Happily !!

How to Buy Car in Malaysia ( personal finance point of view )

1.  Try your best to buy car with CASH only

2.  Get the loan with the Smallest Amount and Shortest Time possible

3.  If possible, go for limited edition super famous car.  That way, it may become a capital that may appreciate.

Inflation vs BLR

In my Personal Finance make simple, there are only 2 big numbers :  Inflation and BLR.

Inflation tells you how much more expensive your daily routine cost is going to get.  Or how much your money will worth less in future.

BLR or Base Lending Rate is used by bank as reference how much they should charge you when they lend you money.

Both Inflation and BLR were created in Free Market, and therefore perfectly suitable for the Free Market - a trading ground that has Total Freedom.

However, Total Freedom also welcome frauds and scams.  Hence, in order to protect 95% of the population, controls have to come in.  Since then, Inflation and BLR have become more complicated.

Forget about what the goverment say, 

What is YOUR OWN Inflation ?

1. List down all your "daily routine" items and their costs

2. Determine what quantity / amount of each item is consumpt over a fix period of time

3. Sum up the total cost for that period

That would be your Living Cost !

After you have done the above for sometime, you can compare your living cost.  For example, last year was $1000 per month and this year is $1100/month, then your inflation rate this year compare to last year is 10%.  ( It doesn't have to be exact but if you do the exercise above, you will have a pretty good idea )

And this is the Real and Only Inflation Rate that you care about, 

not any other numbers experts tell you.

I don't borrow money from Bank,

Why should I care about BLR ?

First of all, all personal finance money goes to bank.  It doesn't matter if you buy insurance or mutual fund or stocks, you pay to a bank !  You may write a seller's account number but you still "pay to" the bank.  And Bank has ALL our money.  

Bank takes your money and lend it to others.  Bank promises you an interest rate and the Lender promises bank a higher rate.  The difference between the interest rates is what Bank earns.  Bank uses BLR to govern the lending rate to the money borrower.

So BLR can be used as an indicator to how well economy is doing ( again, actually much more complicated than this, but bear with me first ).  Actually the effect could be reverse, raising or lowering BLR can affect economy growth.

BLR Trends

Rules Of Thumb

1.  Your "Saving" should earns more than your inflation.

2.  Your "Income" should grow as much as BLR if not higher.

footnote : This post is written by a layman for the layman friends.  Hence quite a lot of terms used here may cause discomfort to many economists.  Don't curse and shout yet, just stick around a bit longer.  Eventually things will get clearer

Banks ...

The principle is .... Bank makes money from you. So if you think you can make money out of banks, then you must be more naive than the banks.

Having said that, it doesn't mean you cann't make money WITH the banks, together with them ...

Unfortunately due to banking history and its old pratices, they will hide everything they think is benefiting you.  ( btw, before there are moneys, there are already banks ).  Although they are regulated by goverment to protect you, but they still have the room "Not To Voluntarily Offer You Information".  

With Banks, if you don't ask the right question, you will NEVER get the right answer.

So all the traditional banking products including Saving Accounts and Fix Deposit just let you get by.  You don't really earn anything from there if you consider inflation.  In the past, Banks didn't want you to know about Mutual Funds and Insurance.  But now they don't have that choice anymore.

In short, you put your money in Saving Accounts and Fix Deposit when you don't know what else to do with them.  AND you think its higher risk to keep them in your own place.  If someone stole your money from your place, you lost them.  If someone stole your money from the bank you deposit into, usually you will still get your money back, thanks to legislation and laws.

Inflation => You Lose

(Saving Accounts + Fix Deposit) - Inflation -> You Lose LESS

But you still don't earn.

(don't assume yet, mutual fund and insurance aren't going to get you out of your rat race neither, if its that simple, I wouldn't need to start a blog at all)