Saturday, December 1, 2007

Financial Literacy – your insurance to living

“DR AZAM, 28, had it all: two flashy cars, a beautiful home and a flourishing career. He wore expensive clothes and lived extravagantly on credit.

He renovated his mother’s home and decorated it with expensive Italian furniture. He took a loan for the renovation and bought another house.

Without realising it, Dr Azam owed creditors RM400,000 in housing loans, hire-purchase loans and credit card debts.

Stuck, he approached the AKPK for help. Being single and with his mother being the only dependant, Dr Azam was advised to sell his house. He moved in with his mother and sold one of his cars.

In the end, Dr Azam was able to save 45% of his monthly loan payment.”

This is a typical example of living beyond your means and spending your money before you even earned it. At least Dr Azam can still be rescued and live a comfortable life. Lets look at the next example:-

“BEFORE the economic crisis of 1997, Allen was a sales manager earning a five-figure monthly salary, living a comfortable life. However, the economic downturn forced his employers to shut down operations in Malaysia.

At 43, it was hard for him to find a new job. To complicate matters, his wife has a medical condition.

Allen turned to loans and credit cards to fund his lifestyle. Soon enough, creditors began hunting him and threatening bankruptcy.

Suicidal, Allen turned to odd jobs, making less than RM1,000 a month. He skipped meals to ensure his wife had something to eat.

His wife changed his mind about suicide and suggested that he seek the help of AKPK.

Allen had RM200,000 in his EPF, although he could only withdraw the money at 55.

With a debt of RM130,000, AKPK advised him to consider bankruptcy as an option, so that he would be able to settle all his debts when he turns 55.”

I truly empathised with Allen. Earning a five-figure income in the 90s is a lot of money but obviously he did not foresee the economic crisis. What we can do now is to learn from this very painful lesson.

A good friend of mine thought me to use the “Worst Case Scenario” method of looking at every situation. Do a “worst case scenario” of your financial situation. How much mortgages, loans, debts do you have and if you were to lose your job today, how are you going to survive. Do you have “Plan B”? Really look at it, it is scary but it is necessary.

Change your ways. Do not spend indiscriminately or at your wimp and fancy. Think before you spend.

CHANGE

Time and again, we need to change but change is hard.

Sometimes we change due to living changes

or we will wait for “hurt to change”

but never wait till you have to “despair to change”.

It may be too late or too drastic, like in Allen’s case.

3 comments:

JBY said...

Malaysia is still a developing country. There are still room for growth, but sometimes... we just can't rush things to be done :)

But one thing i am sure of is, the younger generations are getting smarter and smarter each day in personal finance issue.

Maybe it's because your posts are too long? But, for some people, that's fine. Well, you can get some real nice example from a personal financial blog.

Let me know whether i'm allowed to post the address here.

aliciaallyloh said...

Yes, Malaysia is fast developing and you see people competing and keeping up with each other. We end up seeing a lot of "suicide" and "ah long" cases. Its very painful and sad.

I quite agree with you that the younger generations are smart, in fact they are smarter than their parents, they are definitely more educated but valuing money is a different matter. Be prepared for negative eventuality is what the younger generations don't think about.

Of course, you are free to post anything in the blog, we all really need to learn from each other.

Thank you for your comments and support... its all for a good cause.

JBY said...

One of the financial blog that i had been reading is...

http://www.thesimpledollar.com/

by someone who believes in living frugally =)


Maybe 2 out of 10 youngsters have a good plans and goals in their finance. Well, we can't get everyone to see the way we see it.