Over the years, I have published many articles advising my readers to save for their retirement and not burn their hard earned money on non-durable stuff. This is because I stupidly burned my hard earned money on entertainment and gadgets in my early working years. If I were to add all the money I spent on gadgets, where they become obsolete the moment we buy it, it would easily sum up to more than a few hundred thousand ringgit. And what do I get from owning them? Nothing except shiok-sendiri!!!
When a renowned personal finance blogger Mr. Stingy asked me what advice I have for 2018, I simply replied no one knows the future but yet we must have a plan for the next 5, 10 and 20 years. You can read my comment by clicking here to Mr. Stingy’s article titled 17 Experts Share Their Top Financial Advice for 2018 for Malaysians.
Today, I am going to tell you young GenYs again the importance of saving money, especially if you do not have 6 months cash standby in the event of an unforeseen situation. And the situation I am talking about is our country may be in a Recession or worst still, a Depression, sooner than you think.
Yesterday, I read an article where Harry Dent predicted that we will face a global recession sometime end of 2018 to early 2020. Click here to read the article at news.com.au titled Coming Global Crisis.
I have experienced 2 recessions (1997-1998 and 2008-2010) while I was a salaryman and heard many horror stories by people who had no money to buy food for their families in the mid-late 80s including my dad who was practically broke because his clients couldn’t pay him and he had to sell his property at dirt cheap price so that my brother and I can continue to pursue our Engineering Degrees in the USA.
In the early to mid 90s, our economy was booming and everyone was making money from thin air including me. During the mid 90s, I could make RM1K per day from the stock market when my salary at that time was less than RM5K per month. But I burned the FREE Money on gadgets and entertainment. Then out of the blue, without any warning, our country went into recession in late 1997.
In 1998, many people were unemployed and the crime rate increased exponentially. Many of my Engineer friends had their employment terminated as their bosses simply didn’t have the cash to pay them. The company I worked for, a developer, also faced cash flow problems. Basically they sold only 2 houses for the entire 1998 and had hundreds of unsold units. The interest rate went up as high as 15% or more when DSAI was the finance minister (and yet so many people still want him to be PM!??). Many companies and individuals went bankrupt as they couldn’t service their bank loans. Practically everyone was facing cash flow issues. But my boss is from the old school, he had no bank borrowings!!! Whatever profits he made was dumped back to expand the company (buying land and launching new projects). Therefore, the company could ride out the storm – also thanks to Tun M when he took over as Finance Minister in 1999 and “Make Malaysia First” where he introduced many unprecedented policies that turned our economy around and out of the brink of destruction.
In respect of the above, that is why I keep telling you guys not to have any debts and not to pay a sen in interest to the banks if you want to be rich (or maybe the more appropriate words should be – if you do not want to be poor).
In 2008, we were hit with a recession again. I was still with the same company but this time my boss had learned his lesson from the last recession and since then became even more conservative and no longer suka-suka construct any units before it was sold. More importantly, he learned that the company needed to have cash reserves at all times. So, the 2008-2010 was smooth sailing for the company. Anyway, he was into agriculture then, especially Oil Palm and Bananas. Being his side-kick, I was given the responsibility to enter the jungle to clear it and plant oil palm seedlings and bananas!!! I am a banana expert too you know – I can teach you how you can ripen bananas without carbide but instead use tomatoes 🙂 But I can tell you planting bananas won’t make you rich but you get to “control” what poisons are to be applied or not to be applied to the banana trees so that the bananas you consume are actually not too bad for your health.
Coming back to the issue of recession – if you look at charts, it repeats in a cycle between 8 to 10 years. Based on this, we are about to be hit with another recession pretty soon considering that the last one was in 2008-2010. Therefore, each and everyone of you should be prepared for it.
Many people are complaining about the high cost of living. It’s not a Malaysian thingy but it’s the same any where on earth. If you think business is bad after the implementation of the 6% GST, wait till recession comes and then you will really understand what it’s like to not have money.
What you should do in preparation for the coming recession:
- Objective is to start saving to achieve cash reserve for 6 months survival. I.e. for essential expenses such as housing loan, car loan, makan, baby milk powder, utility bills, insurance bills and etc.
- Change your lifestyle now. No more holidays with RM0 AirAsia tickets, no more Starbucks (no coffee that cost more than RM5), no more eating at Japanese, Korean, Western or at any air-conditioned restaurants (every meal should cost no more than RM10), no more happy hour or partying at Zouk, no more popcorn at the movies, wake up earlier and take the bus to work if you are driving, etc.
- Change your spending habits – purchase 7% discount Petronas Gift Card from Lazada or 11St or Shopee with a credit card that earns you 5% cash back, check online shopping sites for daily specials on essential goods such as diapers or milk powder, etc.
- Cut your living cost – do you really need UNIFI or would a RM99 Mobile Plan with Data be sufficient?
- No unnecessary new toys that does not increase your wealth. For example, if your smartphone is still working perfectly fine, don’t be itchy and get a new Samsung S8 or Apple X Phone.
- No new debts – no 0% installment plans and no 0% balance transfer plans. These are debt instruments and the most you can earn is pocket money. If you want real money that increases your wealth, go work more shifts, e.g. be an Uber or Grab driver. Or if necessary, upgrade yourself by pursuing a post graduate degree on a course that guarantees you employment after graduation.
- No upgrading to a larger landed new home with a bank loan especially if you are near retirement age or your child is entering uni in a few years time. Or, if your 10 years old Jap car is not giving you any problems, is it necessary to buy a new car? Whatever it is , unless you have too much money, never get a non-Japanese car.
Yah yah, I know you all are very smart and know the above…. if that is so, you would already have 6 months cash reserve for survival and with your savings habit, you are on the way to being rich if you are not already.
But for those of you who have yet to save up for 6 months survival in the event of unforeseen circumstances (shit happens, okay), you better start now. So that when we are in a recession, you then have up to six months to reassess how you are going to make ends meet without resorting to crime.
So what happens if a recession never comes and you have 6 months cash reserve? Well, if this is the case, thank God on behalf of all Malaysians. And because you are now into the habit of saving money, you will be rich in due time.
What if a recession comes and you are still employed? You should then get down on your knees and thank God for the blessings everyday!
What if a recession comes and Maybank falls below RM4? BUT BUY BUY! And within 5 years when Maybank goes back up to RM8 or above, you can buy me a cup of coffee.
Let me share with you a secret, you become rich by saving money and not necessarily how much you earn per year. For example, a person who earns RM10K per month spends RM7.5K per month (balance RM2.5K goes to EPF, income tax) will never be rich. However, a person who earns RM3K/month and can save RM1K per month will have more cash in 20 years time.
And the most important thing you should avoid is – never to have any debts (except maybe for housing and car loan) so that you do not pay a sen in interest to anybody.
Another Personal Financial Tutorial by GenX