The decision to purchase a car is easily one of the biggest financial decisions you have to make after the decision of owning a real estate property. The average consumers are easily convinced with the ‘low’ interest rate, free gifts that comes with the purchase and even direct cash rebates.

Since most of the car salespeople are more concern on selling more cars, it’s often not easy for you to figure out the actual ownership cost of a car. For some people, getting a new car can sometimes be an emotional decision. With the recent retrenchment trend and uncertain times, many Malaysians are putting off their car purchases. Putting food on the table and paying the bills has become the priority of the day.

To ensure that your new car purchase does not burden you financially, it’s important to see through the high-pressured sales messages that bombards you every time you go to the car showrooms. You have to take into account many other factors before you drive your dream car home.

Hence, I have come up with an easy to use calculator to help you do just that- calculate your actual cost of owning a car.

You can download the spreadsheet here: Malaysia Car Ownership Calculator

On the side note, I am always in favor of purchasing pre-owned cars ;-)

Photo courtesy of Hey Gem

I think another reason could be the fact that it’s almost becoming a no-brainer to get a credit card these days, and on top of that, the limits given to credit card holders doesn’t really commensurate with their level of income (which directly affects their repayment ability). It’s quite common for an individual who earns RM2,500 a month to be allowed RM15,000 limit of ‘swiping facility’, which is obviously very tempting.

(Business Times) Total outstanding balances due from cardholders in the first four months of 2009 for payments in the near term rose as more cardholders face difficulties in servicing their credit card payments on time in an environment of a global economic slowdown.

According to Bank Negara Malaysia statistics, total outstanding balances for the period of three to six months due from cardholders rose 15% in the first four months of 2009 to RM2.12 billion from RM1.84 billion in the period of September to December of 2008.

Compared with the corresponding period a year earlier, the outstanding balances were also 15% higher.

For credit card outstanding balances owing to banks for less than three months, the amount rose to 6.3% to RM8.18 billion in the period of January to April 2009 from RM7.69 billion in the last four months of 2008. The outstanding balances were up 7.7% against RM7.59 billion a year earlier.

Outstanding balances due from cardholders for more than six months rose 13.3% to RM213.3 million in the first four months of 2009, compared with RM188.2 million for the period of September to December 2008.

Nevertheless, year-on-year, the amount of outstanding balances owed by credit cardholders fell 11% from RM239.7 million.

AmResearch deputy research head Fiona Leong said the rising outstanding balances due from credit cardholders in the near term did not necessarily mean most of them would turn into non-performing loans (NPLs).

She said currently, the percentage of NPLs against outstanding credit balances stood at 2.6%, which was still small.

“No doubt, cardholders are taking more time to settle their credit card bills, especially under such economic environment. But, not all of this amount will turn into NPLs, as the amount owing to banks would still be considered as performing loans as long as cardholders are able to service the minimum amount each month, such as the interests of the outstanding balances,” she told The Edge Financial Daily here last Friday.

She added that as the number of retrenchments appeared to have eased, the outlook on NPLs would no longer be on a deterioration mode. “Hence, we should not see NPLs rising so much after all,” she said.

Industry observers said banks had already anticipated that credit cardholders might face more difficulties in servicing their debt since last year, as unemployment soared while industrial output dipped.

Recently, US bank JPMorgan Chase chief executive Jamie Damon warned that losses on the credit card portfolio of Washington Mutual, the troubled bank that JPMorgan acquired last year, could climb as high as 24% of the total by this year-end.

However, an industry observer said local banks were not expected to face high credit card losses, as the country was not impacted in the same manner as the US, while local banks??net NPL ratio had held steadily at 2.2% currently.

To help credit card holders better manage their minimum repayment to banks, the Association of Banks in Malaysia (ABM) had revised downwards interest rates of local credit card charges in February.

Reader Twinbearer made the following changes to one of the most downloaded forms on Meshio.com:

1. address (both can just be typed in)
2. selection of dates from calendar
3. particulars of card holders (name, card no, card type, expiry)
4. add the print button (visible on the form, but do not appear when printed)

Here’s the PDF web preview:

To harness the ‘full power’ of this form, download this form onto your computer and open it with Acrobat Reader, since most of the new features added by Twinbearer doesn’t work on the web preview.

You might be surprised with the title of the post, since in many of my previous posts, I have not given much credit to the credit cards (pun definitely intended!). Alright, my beef is never really with the plastic itself, since it’s just an inanimate piece of object, barely the size of standard name card. Rather, the way these card issuing banks are acquiring their customers are highly questionable. That’s a story for another day, but today, we’re going to look at how you can benefit from using Plastic.

Photo courtesy of Hey Gem

1) Convenience
It’s definitely way more convenient than looking for an ATM machine or carrying lots of cash in the wallet. Also, you can skip the queue at the cinema if you purchase the tickets directly from their website. It’s not only a time saver, but it also gives you the option to choose your own seats.

2) Online Shopping
Okie, most of us are probably not accustom to making transactions online, since we’ve heard so much horror stories from victim of credit card frauds. However, as long as we practice a bit of caution and exercise some common sense, the reality of online payment is actually not as scary as it sounds. If you are going to buy a ticket from AirAsia, you’ll definitely need a credit card. If you are buying from Dell, you actually get more discounts if you pay online! Yes, there are lots of good deals around if you are paying with plastic.

3) Security
As long as you call the issuing bank immediately after you’ve lost the card, there’s not much risk of someone swiping your card and getting away with a RM5,000 brand new laptop.

4) Traveling
A friend just went to Europe for a cycling trip, and a few weeks before his departure, he actually went over to Citibank just to apply for a card. His reason was because a Citibank card is accepted globally. So, a credit card is your best companion in a foreign land.

5) Record Keeping
A credit card helps you track every transaction you made. Of course, you might not be able to charge a pack of nasi lemak using your card but it can help you keep track of your big ticket transactions and allow you to consolidate them with your personal balance sheet at the end of the month. This is one advantage that cash might not be able to provide readily.

6) Perks and Points
Okay, this should not be the primary reason why you own many credit cards, but since you are already going to spend the money, why not get something in return? Some cards give you free insurance, some reward you with loyalty points exchangeable with vacuum cleaners while some offers direct cash rebate on your purchases.

7) Emergency
Not to be mistaken with the emergency fund that you saved up for rainy days, a credit card gives you the ability to create instant cash, up to as much as your credit limit. This is especially handy when you’re caught in an emergency, for instance, prior to being admitted to a hospital. Most private hospitals require you to pay an up front deposit of RM150 to RM500 before they even allow you to register. And if you’re like me who don’t carry more than RM200 cash in the wallet at any one time, you might just bleed yourself to death in front of the cold-blooded receptionist.

However, with great power, comes great responsibility. The credit card can be your best friend or it can also be your worst nightmare, depending on how you exercise your responsibility. The ability to swipe your future money away is ever present and if you know you cannot handle such temptations, opt for debit cards or get a card that is well within your capacity. If you are earning RM3,000 a month, a card that gives you RM3,000 limit would be a good way to curb you from overspending. Pulling out a glittering Platinum Card from your wallet might show others how much ‘credit limit’ you have, but I would rather have a stack of RM50 notes wrapped in old newspaper anytime, like a motorbike millionaire.

Before we engage the enemy, we must first understand as much as we can about the enemy. Otherwise, it will be difficult to decide on the best tactics to neutralize the enemy. So, what’s this recession monster that’s being portrayed to sound like Armageddon itself?

Investopedia defines recession as…

“A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.”

In other words, it’s the downward spiral of everything the economy holds dear, an inevitable part of the economic cycle. Like a strict diet regime for an obese individual, the recession is nature’s way of correcting the mal-investments and artificial booms that has occurred in the course of the business cycle.

Impact of a Recession
So, on the global geopolitical level, we are going to see countries pumping cash into the system in the name of economic stimulus. We will probably see some major tax reforms, revising of the National Budgets, and even Finance Ministers changing hands. Some strategies are aimed at prolonging the inevitable, while some measures are meant to ensure the governing Administration ‘looks good’ in the public’s perception.

On the corporate level, where the impact of the recession is much more pronounced, we are looking at companies filing for bankruptcies, restructuring their business models, and retrenching employees like a slaughterhouse. As for the politically linked corporations – we might begin seeing trend where they start receiving taxpayer’s donation in the name of government handouts.

On the personal level, this is where the average people like you and me is going to see some changes. For starters, we are going to feel the pinch in our pockets. With job cuts and ‘revised’ salaries, there’ll be less disposable income to go around. Nevertheless, it’s not so much of a bad thing after all. It’s a good time for us to reflect on what’s essential and what’s unnecessary luxury. Some will even go to the extreme, switching Milo for Vico, Nescafe for Indocafe. Not that it makes a world of difference, but it helps to feel the recessionary effect.

Shopping and retail outlets will also see fewer crowds. People will eat-in more frequently and skimp on the fashion department. Even your cat would have to switch to a much more affordable cat food. On the upside, it’ll be easier to find parking spaces, and we’ll probably see families spending more time flying kites together or having picnics in the park.

The dark side would not be spared from the downward cycle. Crime rate usually shoots up during recessions, mainly due to unemployment and the sudden adjustment of lifestyles. Generally, intake of alcohol, cigarettes and lottery buying amongst the public would see a sudden spike.

A friend of mine relates to me how even high-level manager who had been retrenched from the workforce faces not only the loss of income, but also pride and dignity. Some even had problems adjusting to a much lower hierarchy in the corporate ladder, resulting in them to consider the possibility of suicide.

For small business owners, dwindling sales figures and inability to pay the bills will be the norm. It doesn’t help when banks start becoming more wary on providing loans to these business owners due to increasing defaults. Hence, it’s important to ensure a good reputation with the bankers so that when you need them, you can count on them.

The Truth about Recession
As we’ve seen from the scenarios above, the recession is not a monster as it was advertised. Yes, it’s depressing to know about the job losses, plummeting stock markets (and hence personal networths), and contraction of spending power amongst the population. However, we also need to realize that a recession is just like any other natural phenomenon, and to prevent a natural event from running its course is only going to snowball the impact of the inevitable. Like the dotcom bust we’ve witnessed in the early 2000, a mal-investment of financial capital would need to be corrected eventually.

An important sign that we must observe from the effect of a recession, aside from the gloom and doom, is that after the crisis, there’s bound to be an opportunity. Remember the Newtonian law? For such a damaging crisis, the opportunity would be equally huge. It could be the rising awareness of a flawed monetary system, as we are now witnessing. It could also be a sign that the existing capitalist economy is no longer sustainable and that certain industries are no longer as profitable as they seemed, and hence there’s a need for a change. If the recession is being resolved with the right attitude and mindset, it could propel the next economic cycle with a stronger foundation and a better living conditions for all.

We have to realize that we are living in a time where great transitions are taking place and there’s no place for self-serving mentalities. It would be detrimental for a government or any political party to place self-interest above the nation’s well-being when the time comes. As I have mentioned before, the only consequence of living in a state of denial is a rude awakening. It’s not enough by just telling the citizenry that recession is going to skip the country (as unbelievable as that might sound) while it engulfs our neighboring countries.

Crucial data that can lead to important decision making for policymakers and business owners should be made available in the public domain and updated consistently.

We also need a government that focuses on serving the people, rather than putting up dramatic power struggle dramas. It might just be the most expensive soap opera every Malaysians would have to pay.

Making Recession Work for You
Following Sun Tzu’s advice- “Know thy enemy, know thyself and you shall be victorious”, you need to look at how your own personal finance is staking up. Let’s look at 10 ways you can turn the table around and make the ‘monstrous’ recession work for you.

1) Firstly, look no further than your own balance sheet. Keeping an updated balance sheet is definitely no rocket science, but is often neglected simply because you do not see the benefit in the short term. Doing a reality check, like looking at yourself in the mirror takes more than just sheer courage- it takes a whole lot of discipline just to keep at it.

Knowing where you stand financially is the first thing you must do before you start messing around with your money. Even if you decide to go forward in the wrong direction, it helps by having a map so that you know how much you’ve strayed! Therefore, if you haven’t already done so, do yourself a favor- start a journal for your personal finance. It could simply be one of the best ‘investments’ in your financial life.

2) Buyer bewares! If you are a shopaholic, a recession can help you train your self-discipline when it comes to your shopping addiction and making you more conscious about your spending.

Here are a few tips that you can protect yourself to resist against such impulses:

i) Always use cash, because it’s much more painful to part with cash than to swipe with a credit card.

ii) Have a shopping list before hitting the stores and REALLY stick to it!

iii) Filter out the discount and sales tags- “they are on discount because nobody wants them!”

iv) Shop with a full stomach. You are more impulsive and temperamental when shopping with a growling stomach.

iv) Here’s one tip I find very useful, and I call it the ’24-hours Craving’- Would you crave and still come back for it 24 hours later? Some cravings evaporated instantly the moment you leave the store.

v) Resist shopping for the sake of shopping. The Chinese has a saying, “Don’t send the lambs into the wolf’s den”, which means don’t do something when you already know there’s going to be a tragic outcome. There are so many other ways you can spend your weekend productively.

3) Get enterprising! No, don’t quit your day job yet, unless you are already retrenched. You’ve probably figure out that you could earn some extra pocket money working on the weekends. There are many ways you can build passive income using the extra time you have. With access to internet, there’s no longer excuse that there’s no market for your skills.

Many skills become even more valuable in a recession. Repair-related industry, such as cobblers, clothing alterations, car mechanics and computer technicians would probably see a surge in their revenue in the coming months.

However, a word of warning though, with so much opportunities opening up, you can also be easily fall prey into scams if you’re not too careful. Pyramid-schemes, Get-Rich-Quick schemes is especially rampant during a recession.

4) Get charitable! In the midst of a crisis, it’s easy to forget about those who are even more unfortunate than ourselves. By sharing what we have in abundance with others, not only would we be spreading kindness and love (which is in very short supply these days), we can also remind ourselves and be grateful with what we have now.

5) Replacing your hobbies for something less inexpensive would also help you reduce the impact of the recession. If you happen to be a shopaholic, it would really help you save once you replace shopping with jogging in the park.

What about if you happen to like reading? Reading would be tough to replace but you can start sourcing for much more affordable reading materials. In a recession, pre-owned books are going to be very much sought after. So, that’s something for bookstore owners to think about.

6) Cut the cards! It’s a good time to cut and consolidate those plastics. It’s already difficult to juggle between your incoming and outgoing cash flow, let alone managing multiple credit card statements. Do yourself a favor; consolidate all your cards into one, or two at most.

7) Review your memberships. Go through all the renewable membership programs you’ve signed up and trim those that you’ve been benefiting from. You might realize that you are not going to the gym as often as you thought you would when you signed up. I am not a gym-fan. Always preferred the natural outdoor anytime to enclosed gym studios.

8) Attack your subscriptions! Check if your Astro subscription is absolutely essential? Maybe you can cut down on some channels, or even start watching your favorite dramas on the web.

What about your broadband packages? Can you surf with the basic package? I am using StreamyX’s 1MBps, which is costing me RM77 per month and is more than enough. Many people I know have already switched from printed news to alternative online news. Not only because it’s cheaper, but also the news are much more less likely to be spin-doctored.

9) Pre-retirement exercise! If you happened to be retrenched, not all is lost yet. How can being retrenched works for you? You can look at the retrenchment and the looming recession as a retirement simulator, except that the simulation is real. This is how it feels when you retire – no income, and living off the money stashed in your bank account (if there’s any left). Hence, this could be a good reminder that if you don’t plan for your retirement now, this is what’s going to happen when you ‘really’ retire.

10) Burn the fats! A recession can be good for your health. Just make a quick estimate of how much you’re spending while eating out right now. If you work around Klang Valley, eating out three meals a day would roughly cost around RM20 (inclusive of 2 meals at fancier restaurants such as TGI Friday or Penang Street). That’s at least RM600 a month. You can cut down on the frequencies you eat out and replace those with home-cooked food. For example, eating-in saved me at least RM400 last month!

Also, if you are interested to know if eating at home really can help you save, follow this link for an interesting debate!

If you are a regular smoker, cutting down on the cigarettes or eliminate it altogether would save you quite a lot and lengthen a few more minutes of your life (depending on how long you’ve been puffing). Same goes with alcohol intake, moderating the consumption can stretch your Ringgit further.

Epilogue
So, still think that recession is bad? No doubt, it is going to disrupt our lifestyles quite a bit, and in most cases change is a painful process. As the saying goes, “what doesn’t kill you only makes you stronger”. In fact, this is the first time in my working adult life I am experiencing an economic crisis, and economists are claiming that this crisis is one of the worst ever since World War 2.

As for the financial planning industry, concerned friends have been asking how had the crisis affect my bottom line. It would be ignorantly optimistic to claim it is business as usual. Investors’ confidence has never plunged any lower before this, and being a licensed unit trust consultant, earnings is surely going to take a hit. Insurance products have never been harder to sell, especially when giants like AIG can announce to the world that they’re facing solvency issues. You can no longer believe the numbers anymore, even when they’ve been prepared by the most trusted of professionals. Mega ponzi-schemes disguised as highly lucrative investment plans are being revealed as you are reading this. Greed seems to be the order of the day.

The entire financial industry is undergoing major transformations. It has definitely make the life for us in the financial planning industry very ‘shaky’, for lack of a better word. However, I do believe that for any businesses, as long as we stick to time-tested values such as integrity, honesty and accountability, we would be able to brace through these tough times. I can’t say I’ve found any silver bullets, as I believe that the crisis has yet to be played out fully. Time is better spent preempting for the worst and ensuring that when the storm hits, you have enough flexibility to ride it out unscathed.

However, I am worried that our government is pushing the problem away from their boardroom meetings, and nothing substantial has been brought up to quench the curiosity and doubts from the public. The recent political turmoil has taken too much focus and it seems our leaders are having problem placing their priorities. Time is definitely running short, and I wonder how much longer these politicians are going to continue buying time and avoiding the issue at hand.

The recent drop in Bank Negara’s OPR rate has helped to remove some burden off housing loan borrowers like me. Also, as I am writing this, a local daily’s headline goes – “RM5,000 rebate for a new car purchase!”. You can also read about it here.

We are also witnessing a higher level of awareness on the financial crisis globally, thanks to the Internet. If we are fortunate enough, we will probably see some positive reformation of the non-sustainable monetary system that we have come to depend on for so long. We now have the chance to review the viability of our current capitalist culture.

If the collective governments of the world do not take pro-active stance to remedy the on-going crisis, it’s possible that we might be entering another World War, fighting for leftovers in a resource-depleted planet. A reader posted this great speech by Vladimir Putin at the recent Davos World Economic Forum.

And here’s an interesting quote to end this post:

It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. ~Author unknown

We can find 101 reasons to justify the overspending we did the last 2 months. Chinese New Year splurge, Christmas gifts for the loved ones, Valentine chocolates… yes, just about anything to make ourselves feel better. The fact remains, the overspent amount still needs to be solved somehow. You still need to fork out extra money to rectify the ‘malinvestment’.

Via The Edgedaily…

The rate of credit card defaults next month will be closely watched. Normally in the month of March, the rate of credit card defaults comes down after increases in November, December and January.

Bankers in the consumer banking segment believe that an uptick in credit card defaults next month would likely show a trend of rising non-performing loans (NPLs) in the credit card segment.

??redit card defaults have been on the rise from December until now, which is a norm, as during end of the year and festive seasons people tend to overspend. However, usually, the defaults come down in March. Should defaults continue to rise instead, we have to be careful and monitor the segment closely,??EON Bank?? head of group consumer banking Michael Lor told The Edge Financial Daily.

??n uptick in credit card defaults in March could spell the start of rising NPLs in the segment,??he added.

More…

If you don’t have the habit of keeping track of your cash flow, you’re probably in for a rude awakening, or maybe you’re already used to paying interest to the bank. Couple with recessionary woes, these credit card debts might just become an even dangerous beast to deal with.

With the tide of economy turning against us, it’s a good time to keep unnecessary debts out of the way. Maintaining a frugal lifestyle will be crucial against uncertainties.