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Non Performing Loan – Still safe or danger on the horizon?

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Negative news sell. Positive news less. I know because all the negative news writeups are more popular than all the good news. For example, the articles on crisis will beat the articles about Malaysia being ranked more competitive etc. Thus, that’s why newspapers love to use negative news as headlines too. As long as it is done objectively, I think it’s good. For example, a recent article which said that with the potentially higher interest in the years ahead and higher cost of living, Malaysians may find themselves in danger due to their current debt position. Some reasons given are that many may not be ready with unforeseen circumstances such as loss of jobs or health emergencies. In fact for majority of the people, they are spending most of their incomes just to pay their loans. Hands up, who falls into this category? The statistics show that the debt-service-ratio of households in Malaysia stood at 43.5%. The typical acceptable level of debt-service-ratio is up to 30%. Major reason? SPENDING MORE THAN THEY OWN.

Honestly, this situation is not just in Malaysia but also the world. Creature comfort goods are wanted but somehow many does not seem to buy within their means. When people think about LCD TVs, they think about 40 inch LED RM2,000 or higher ones instead of the 32 inch LCD ones for RM999. Instead of a 6kg washing machine for RM600, they think they are saving more by buying a 10kg washing machine at one go at RM1,400. There are even those who think that by buying a VIOS, they are saving on petrol which is utterly rubbish because based on calculations, even if you drive for 10 years, you would still not save enough to beat my trusted Proton Persona. (7.4km/100km) today. Is it because of ONLY low salaries? Or it has to do more with the mindset? A mindset which wants to be ahead of everyone else but yet could not yet afford it? A mindset where, since I cannot pay for it once and for all, I can still pay for it by instalment, even for a new refrigerator?

I think it’s important that everyone be very honest with themselves. Be objective when you buy. It was said that all the fresh grads are starting with low pays. This is true even during my times but if you are willing to learn and work hard, soon you will start to be heads and shoulders above the rest. The structure of the company is a pyramid which meant that not everyone would be promoted. Only the better ones would and from these better ones, some would then go further up to the senior management category. Many aspire to start their own business but majority of these businesses fail in the process and only the few good ones continue to be bigger and more profitable. I seriously think majority of the time, it is not just based on the income but the mindset of the people. Are we thinking like the wealthy? Who buys via cash instead of credit? If we are, let’s become one. Save enough, buy one on cash. Are we doing like the wealthy? Living below what they earn? If we are, then do not splash on too fancy items. Somehow in a few years’ time, we may really be wealthy!

Non-Performing loans from all of us would get worse when we overspend even more. Once we settle ourselves into their category, coming out is going to be tough. Thus, danger on the horizon or rainbow after the rain is really up to us. When I first started working, I have even bought a second hand fridge and a second hand washing machine before. Both lasted me many years of good use until I sold them for a pittance. Do I feel like a loser? Sorry, not at all because the items were bought with my own money. Why should I feel bad? Want to be like wealthy people? Spend like them, buying within our means. Happy buying.

written on 24 Nov 2014

Next suggested article: 84% of homebuyers have only ONE (1) outstanding home loan. 🙂

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