|DEBT CAN BE YOUR BEST FRIEND|
Monday, March 3, 2014
Posted by Billy Toh at Monday, March 03, 2014 as Debt, finance, Financial Management, managing debt, Money, Personal Finance, thoughts
To a lot of people, debt is a scary thing...but yet at the same time, it is a beautiful thing. Without debt, it would be very difficult for the middle class to consider earning property, vehicles and some other expenses.
In our world today, with the credit card, there are so many ways for consumers, like you and I to manipulate future money in order to enjoy some of the luxurious goods.
I have known people who disdain debt to a point that they would pay as much as they could as downpayment for a property even though most of the time, it only requires 10% of the property price. I have also known people who had piles of debts that it is impossible to settle it, and thus BANKRUPTCY.
There is a simple rule of managing debt...DON'T SPEND MORE THAN YOU EARN, but it really isn't that simple, especially when you want to leverage on some of the low interest environment loan. If you only spend less than you earn, there is also a high likelihood of you missing the opportunity arises from leveraging on future money.
Let's look at some examples: assuming that you are to buy a smartphone today, the high ends one, which cost us about RM2000 to RM2500. You have an option to pay the amount upfront or you could actually pay by installment...most of it are 0% as well, for up to maybe either 12 months or 24 months. I'll give you three different situation, calling them extra conservatives, reckless consumers and smart consumers.
Situation A: The extra conservatives would pay upfront, because they are afraid of debt...thus only spending less than they earn, but they miss out on other opportunities. They could actually pay by installment and save the RM2000 or RM2500 on either FD (which only contribute 3% to it) or maybe some lower risk investments like stock markets or unit trusts.
Situation B: The reckless consumers who failed to manage their debts wisely would opt for 12 months or 24 months installment, use the cash on hand to buy additional accessories. This would eventually lead to unsustainable debt in the future as one could easily overspend without knowing their own future cashflow estimates.
Situation C: The smart consumers would opt for either the 12 months or 24 months, and set aside the RM2000 or RM2500 for some savings on either FDs or unit trusts. But they would do more than that....they would actually record their cash flow for the future, and thus their debt could be monitored in a more systematic manner.
From the scenario above, it is easy to see that debt might not necessary be a bad thing. It is how we manage our debt that make the difference. One of the most effective way to manage it is to treat our income, expenses and cash flow like how a company would do so....creating an Excel spreadsheet could help one to monitor easily and effectively. If you are overspending on your credit card, chances are you are not managing your debt effectively and could lead to a lot of unrest in the future. If you are those conservatives who are afraid of debt, I challenge you to start making use of our financial system to help you leverage your money. As for those of you who are smart consumers, maybe it's time to learn more on Excel to help you monitor your debt even more easier than it used to be.
I will share some sample Excel spreadsheet that could easily help you to monitor your expenses, income and cashflow in the upcoming posts...stay tune!!
Saturday, February 22, 2014
Posted by Billy Toh at Saturday, February 22, 2014 as klse, malaysia airlines, MAS, News, opinion, stock
The other day, I couldn't contain myself after reading of another huge loss by Malaysia Airlines (MAS) and thus blogged about the problem with MAS, which is mainly down to mismanagement and the lack of serious and fair competition in the country.
Well, my frustration was shared by AirAsia boss, Tony Fernandes, who tweeted, "I wonder if it's fair that Malaysia Airlines can lose so much money and protect its market share. Can only do that with taxpayers money."
I couldn't helped but to agree...while external factors such as the increase of crude oil and other factors could contribute to this, MAS could at least show some improvement, which is hardly reflected on the financial statement and their balance sheet.
A bit of history of MAS could tell us a clearer picture of the direction of the Malaysia airline company.
Prior to the Asian Financial Crisis in 1997
MAS had recorded losses as much as RM260 million. This was after their record breaking profit of RM319 million in the 1996/97 financial year.
There were apparent efforts to bring their P&L back into the black. The airline cut its losses from RM700 million in the year 1998/99 to RM259 million.
But in FY2000/01
MAS plunged into further losses, amounting to RM417 million and RM836 million for the FY2001/02. As a result of these losses, the airlines cut many unprofitable routes such as Brussels, Darwin, Honolulu, Madrid and Vancouver.
In the year 2002/03:
The losses were cut and in 2003/04, MAS recorded its highest earning at that time, RM461 million.
In the year 2005:
The airline hit the news for the wrong reason again: a record loss of RM1.3 billion. It was then that Idris Jala was appointed as the CEO of MAS to help solve this serious problem...the Business Turnaround Plan was introduced, identifying issues for the huge loss in 2005.
2007 RECORD PROFIT:
After a series of losses since 2005, the airline posted a record of profit: RM851 million in 2007...but MAS seem to have a tendency to go backwards....
MAS recorded a stunning record loss: RM2.52 billion.
Well, there seem to be a slight improvement before the latest announcement that seems to suggest to us that MAS will continue with its' decline.
VERDICT FROM THE HISTORICAL RECORD:
It is difficult to judge how a company can grow from historical data alone, but a company without a proper management and fair competition is definitely not one that I will look into. Regardless of whether MAS will grow for a short term, my judgement is simple...without a clear direction and fair competition, MAS will continue in its' mismanagement....unless there is a change in that, I'm not going for MAS. What about you?
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