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Friday, November 21, 2014

Compare the "mddle class" today and 10 years ago


The term "middle class" was a word that signifies progress, and it also mean stability. The "middle class" used to mean a family with a nice place call Home, drives a Volvo or vehicle of that class, goes on yearly vacation and send their kids to college. 

But those were the days. Because the middle class today varies so much in comparison to 10 years ago.

In Malaysia, the "middle class" group generally includes people who earn RM3,000 above. Between RM3,000 to RM4,999 a month, it's normally the lower middle income while the upper income earns RM5,000 above. In our country, our government data in 2012 shows that 27.8% household income was at the lower middle income while 33.6% household earn RM5,000 and above. 

Even though there is a stead increase in income in the country, the increase barely offset the country's soaring inflation rate....the rising living cost. 

Here are some of the significant items that one should compare between now and 10 years ago to gauge how the "middle class" looks like today:

A) FUEL PRICES

Petrol increase is one of the biggest burden to the "middle class"

We all know that the fuel price dropped recently in the world market but Malaysians are paying RM2.30 per litre for RON95. In 2004, it was only RM1.38 per litre (RON92). Diesel was RM0.83 per litre but today, it's at RM2.20 per litre. 

Chart showing a big jump in price from 2004 to 2014

A simple calculation will let you know that you are paying 60% more for petrol while about 165% for diesel. 

This become worse when more people are staying far away from their work place. The jam is not helping the middle income either. Of course, for those who are staying near to the LRT (which is not many at the moment), there is an option to consider the public transport. But on average, most middle income earners will have to fork out 60% more for fuel alone.

B) PROPERTY PRICE

This is also another important factor to consider....the property price today is no longer affordable. Middle income earners will definitely notice the drastic jump in the price.



Taking Klang Valley alone, you will notice this trend: 15% to 18% increase per annum. 

Today, a condominium of 1000 sqft at RM500k and above is considered reasonable. Back in 2004, for the same amount of money, you could probably get a 2,500 sqft double storey terrace. That's about RM2,100 a month for installment. If you are the lower middle income group, that's already about half of your salary. 

C) ELECTRICITY TARIFFS

Another important part of our lives....electricity...but now we have to save. That's what middle class means today. Savings, managing our increase of living cost. 

Power tariffs rose by an average of 15% effective January 1 this year, after Putrajaya announced in December 2013 that it had approved the increase by utility firm Tenaga Nasional Berhad (TNB).

The rates were purportedly raised as a measure to reduce Government subsidy and to boost development spending.



Consequently, the average electricity tariff in Peninsular Malaysia went up by 4.99% per kWh or 14.89% from the 2011 average rate of 33.54 sen/kwH.


UP NEXT: FOOD? Alright...I'm not going to talk about that....because this is already depressing enough. What I can conclude from these simple examples is this: a middle-class family today may be spending well over RM3,065 a month just on these basic essential items...these days, it's no longer about stability for middle income...it's more like sufficient for a day to day survival. 

Welcome to the middle income family!!

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Sunday, November 16, 2014

Credit Card Mistakes That One Should Avoid (Part 1)


Credit card can be friend as well as foe, as mentioned previously in Credit Card - Friend or Foe (Part 1), Credit Card - Friend or Foe (Part 2), Credit Card - Friend or Foe (Part 3) and Credit Card - Friend or Foe (Part 4) and while a credit card comes with numerous benefits and flexibility to one provided that the user uses it well; can be rewarding to him or her as well. Having said so, there are several costly mistakes that one should avoid at all cost - as those mistakes will eventually lead one deeper into the debt pit.



1. Avoid Paying Only the Minimum Payment
Typically on a credit card statement, one will see two type of balance due; total balance due or some known as the statement balance as well as minimum payment due. The minimum payment due is usually RM50 or 5% of the outstanding balance. Imagine only paying 5%, with 95% of the outstanding will be charged a hefty interest rate. Piling up debt in this way shows the incapable to repay the debt thus hurting the credit score and eventually when one want to take up new loan, the application might be rejected or, even if approved, the interest rate definitely will be higher.

2. Maxing Out Credit Limit
Another mistake that most credit card users have in common is to max out the credit limit given by the financial institution. As we all observed, credit limit given by the financial institution is usually twice the salary or some can go up to his or her annual pay. By maxing out the credit limit, one will have no choice but to pay only the minimum payment which eventually lead to mistake number 1.

Of course, there are times where we max out the credit limit for emergency purposes or planned spending after several years of savings, but most of the time, it is not encourage for us to max out the credit limit.

Besides that, imagine the embarrassment one might face when you go to checkout only to realized the credit card limit already max out and there is a long line and everyone else behind you is waiting for you to pay and worse still; there is not enough cash for you to top up the balance.

Finally, there are penalty charged by the financial institution for over-limit spending, although you can eventually get them to waive but you have to be a good pay master in the first place, meaning never to commit mistake 1.

As per mentioned previously in Credit Card - Friend or Foe (Part 3), credit card can be friend, and at the same time it can turn against us. Use it wisely, you will find that there are more benefit in swiping credit cards. There is no bad credit card or financial institution issuing the credit card, just bad credit card users

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