When we earn more, we tend to spend more. This is true even for me until today. When I first started working, on the first few days I got my salary I would spend more. When it’s coming towards the end of the month and my remaining funds are low, it would lead to cheaper breakfasts, lunches and dinners. These days I no longer have that many out of the ordinary expenses. However, I still buy new clothes during Chinese New Year. 🙂 This is true for most Malaysians too. According to Bank Negara Malaysia (BNM), the largest share of debt or about 40 percent is owed by individuals in the top 20 income group. This group would be those earning over RM8,000 a month. Full article in NST here. Assuming a couple who’s both in this category, they would have a household income of over RM16,000 per month. Regardless of the depreciation of Ringgit, they should be quite well off unless both are spending way too much.
Based on BNM’s 2016 Financial Stability and Payment Systems Report, the average debt level for borrowers in this group was more than double that observed for other borrower groups. However, it added that “The debt servicing capacity of this group is reasonably healthy as indicated by more prudent debt service ratios. Relative to other income segments, a large share of this debt is secured, with about 77 per cent of debt taken out for the purchase of properties and principal-guaranteed investments which contribute towards individuals’ wealth accumulation.” The more vulnerable group would be those in the bottom 40 income group, earning less than RM3,500 a month. This group accounted for 11.4 per cent of total debt. This is the group which is likely to face difficulty servicing their debt when faced with unforeseen circumstances. Over two-thirds of all debts were acquired by those living in major employment centres, namely Selangor, Johor, Kuala Lumpur and Penang. It added, “A significant portion of debt is for the purchase of residential property, followed by debt for vehicle purchases and personal use, corresponding to the need for greater mobility and higher expenditures associated with raising young families and urban lifestyle choices.”
Top importance – Let’s aspire towards being listed in the top 20 percent income bracket in Malaysia if we are not yet inside. Second importance – If we could not hit top importance, then save MORE than those who earn within the top 20 percent bracket because they may NOT be saving enough. Third importance – Regardless of what bracket we are in, only investment would carry us further than our salary alone. Money should work for us and not the other way around. Fourth importance – When we overspend, no income can save us. Do note that investing and gambling (speculating) are two very different thing. Warren Buffett has this to say, “Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.” Happy learning.
written on 25 March 2017
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