Sunday, August 16, 2009

Economics @ Home © Volume 1 Issue 4

Where is my money?

How many times have you asked yourself that question, or some other similar version of it? Waking up at 7.30 a.m. to go to work and returning past dinnertime every weekday just to keep your family fed. As Monday begins, you look forward to Friday, AGAIN. Some of you even dread Sundays because tomorrow is Monday. Weekends are a whole lot of fun because you get to watch TV, hang out with friends, or do whatever it is that you do. To make things worse, after all that, when you receive your paycheck at the end of the month, you feel only two seconds of joy as it dawns upon you that you have to pay your rent, your bills (electricity, telephone, internet, handphone and god knows what else), your wife (for her to buy groceries and necessities for your family because she quit her job to take care of your children; you refused to hire a maid because you want the best environment for your children) and the list goes on. By the time you subtract all these expenses, you are afraid to even look at the balance that remains. Maybe that’s why you don’t keep account of your expenditure. Does the above sound like you? Granted, most of my readers have not had a family yet but I hope the story is something you can relate to.

Don’t misunderstand me. I am not saying that you are struggling to make ends meet, but I believe that you wish you had more money at the end of every month. There is a reason why I keep referring to “you” throughout the introduction above. If you feel belittled or angry or even better, you said to yourself, “That’s definitely not me”, then you have even more reason to read this issue.

The purpose of this issue is to raise awareness regarding personal finance. Though I do not claim to be an expert on multiplying my money or earning millions, I feel it is important to know how to be prudent. I am talking about that date you had with your girlfriend last Saturday that cost almost RM200, the clubbing nights you had with your girlfriends on Friday and Saturday, that extra haircut you had last week because you suddenly decided that a straight fringe does not look good on you. I am almost certain that at that point in time, you had a dilemma whether to spend that extra money or not. It wasn’t that you couldn’t afford it, but it definitely is a decent proportion of your monthly income. That is to say, I don’t think you are not prudent. In fact, you showed great persuasiveness and reasoning skills to the extent you convinced yourself that you are either doing it for love, or because it is a once in a blue moon kind of thing and not purchasing spontaneously. I am not going to judge your spending habits but one thing is for sure, these expenditures add up and very quickly at that.

I have not even gone into the fact that women (more mature form of “girls”, which was actually my first word choice referring to the female human species) shop for clothes, shoes, makeup and all the other ego-enhancing doodads that sometimes make them appear more glamorous and aesthetically pleasing than they actually would be (or in some cases, less). What about the manicures, pedicures, spa sessions and gym memberships, yoga classes and pilates? At the end of the month, you often ask, “Where is my money?”.

Where is your money, indeed. The only way we can ascertain exactly where all the money went to is to prepare a simplified income statement or cashflow projection that I showed two issues ago (refer to Volume 1 Issue 2: The Lean and Mean Machine Pte Ltd). Once you figure out where your money goes, the next step is to list those spending down in order of priority. Some people rate shopping above food, so… I don’t know what your list would look like. Now start from the bottom up and ask yourself two questions? First, “Is this expenditure necessary?”. Second, “By how much can I reduce this expenditure?”

Of course, cashflow projections are meant to be taken seriously. I recommend a 10% decrease on unnecessary items such as shopping, eating at restaurants and things like that. Try that for a month. It takes a lot of discipline and self-control. So to help you, you should visualize a goal that, something that you really wish you could do or have, be it a trip to Paris, or an iPhone, or your favourite LV bag, if you had enough money (by which I assume you currently do not have enough). With this goal in mind, every month you manage to save a proportion of your projected expenditure would seem like a huge step closer to attaining this big dream of yours. This is how you are going to get what you want. That is of course assuming that is the point of asking “Where is my money?” to begin with. There must be something that you want.

Just to switch gears a little, I would like to address a slightly larger perspective. On a macro scale of things, many of you who have existed in the past ten years or so would have heard about our fourth and fifth Prime Ministers who don the fancy Egyptian crowns and declare themselves Pharaohs, building their pyramids and monoliths. What am I talking about? I am talking about the Mega Project era of Malaysia, the dark times when projects of galactic proportions mushroomed throughout our country.

Let’s visit a few, in case you’re struggling to think of any. The most notable one would be our local favourite Petronas Twin Towers, which cost about RM1.8 billion. In a news article, Mahathir was quoted as saying that a country needs “something to look up to”. With a building of that height, there is no surprise that we have to look up to get a full view of it. Not only did the towers cost a fortune, it was built right smack in the middle of KL, the jammestest city in Malaysia, even worse than Sydney, a city with a much larger population than KL. More offices in the city means more people have to travel to the city to work. The debate about all the man-hours (and woman-hours) lost each year due to traffic jam is almost disgusting and will be left for discussion on another day.

Second, how many of you have heard of Putrajaya? Now, how many of you actually know where it is? If I did an actual poll among Malaysians, my guess is many of us don’t even know where Putrajaya really is. But guess what? The administrative capital that is actually in the middle of nowhere cost RM5.26 billion to construct. Among the buildings there is the “Prime Minister’s Palace”.

Third on the list is Malaysia’s favourite racing circuit, the Sepang F1 track (other than the streets of KL). At least one can say that street racing has been curbed to a large extent, no thanks to the 300 bumps that were laid across each straight road. One only has to visit the housing area of SS2 to see that 300 is probably not an exaggeration. The F1 track that was built, again, in the middle of nowhere cost taxpayers about RM75 million, a midget figure compared to the previous two projects.

Lo and behold, the fourth superstar, the KL International Airport. The airport is another one of the super projects that was located “a stone’s throw” from the city as publicized by the media. It only requires one to drive about 45 minutes to the airport for a 40-minute flight to Singapore. The airport cost about RM2.36 billion. To makes things worse, the airport was so seldom utilized that the government had to force all international flights to go through KLIA to maintain its A grade rating. In the past, Japanese tourists frequented Penang because of the direct flight that was available from Narita, Tokyo to Penang. This option is no longer available as one has to go through KLIA now. The Japanese no longer visit Penang and the tourism in Penang has suffered tremendously because of this.

Even more recently, any newspaper reader would be aware of the PKFZ scandal in which Kuala Dimensi Sdn Bhd was alleged to have overbilled the government close to about RM1 billion for the development of Port Klang Free Zone. Of course, the exorbitant expenditure works both ways as the overbilling was not questioned at that time and the government overpaid KDSB, or did they? Nonetheless, with its political twists and turns, the scandal is far from being settled and one can only hope that the case will not be buried six feet under once again just like the many high-profile scandals that have occurred in the past. I must be cautious not to misquote anyone or throw any names to avoid being pulled from my comfortable armchair by the ISA. Who is going to stage a demonstration for an unknown person like me to get me out?

I do not have to total up the billions that were spent on these mega projects to tell you that you are not alone when you ask, “Where is my money?”.

It would be too harsh to equate oneself with the excessive spending of the government but the idea is similar. We spend and we spend on things that we may or may not need and pay a price that sometimes far surpasses the intrinsic value of our purchases. To put it simply, we are paying RM10 for the new RM9 note, just because its unique or some other funky reason. Would you pay RM10 for an RM9 note? If we try our best to live life practicing strict valuation on our purchases as well as good cashflow planning, hopefully we would never have to pay more for something than what it is actually worth. So for those of you who have asked yourselves, “Where is my money?” it is about time to wake up and smell the coffee or roses or whatever it is that you want to smell. Start taking control of your money and don’t let your money control you.

Where is my money, indeed...

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