KUCHING: Consumers have a myriad of reasons to worry about the shrinking value of the ringgit.
In its efforts to strengthen its fiscal position and reduce the current account deficit to gross domestic predict ratio, the government is proactively looking at ways to improve its figures.
Prime Minister Datuk Seri Najib Tun Razak stressed on the need for a healthy current account balance, especially since Fitch Ratings downgraded Malaysia’s sovereign debt outlook to ‘negative’ from a previous ‘stable’.
In Budget 2014, it was mentioned that the country’s subsidy programme will undergo a “gradual restructuring”, garnering a portion of saved funds towards cash assistance and development projects.
But all theses will also ‘gradually’ reduce the consumer’s ability to spend.
It started off with the fuel price hike on September 2 for the first time since 2010. The price of RON95 grade of gasoline rose by 20sen to RM2.10 per litre, while diesel increased 20 sen to RM2 per litre.
The government then abolished the 34 sen subsidy per kilogramme for sugar effectively from October 26, 2013 onwards, under the pretext for a healthier Malaysia, as 2.6 million Malaysians under the age of 30 were diabetic.
This paved the way for many food and beverage enterprises to hike their food prices.
Now, the government is proposing to increase its electricity tariffs. Effective January 1 next year, it will cost approximately 15 per cent more for each kilowatt per hour usage in Peninsular Malaysia, Sabah and Labuan.
Although Sarawak is not directly affected, it will no doubt still see impacts to a certain extent by the increase in costs of living cascading in from the neighbouring states.
Lower mileage for your money
The current costs of living are not easy to digest. Many have been complaining about low mileage they get from their money compared to other currencies.
“Although the situation is currently certainly not getting better, in “The Cheapest Cities in the World” 2013 report, KL is ranked as No. 7,” notes CompareHero.my chief executive officer Floyd Sjimons to BizHive Weekly.
“Living in Malaysia is cheaper than most Western countries and some other Asian countries such as Japan and Singapore.
“That being said, according to market research done by CompareHero.my, an average family of two working parents and a single child would have an average monthly income of RM4,000,” he highlighted.
“Meanwhile, the average monthly expenses of a middle-class Malaysian household is RM2,500 per month, covering basic expenses such as food, transportation, rent, and education.”
Although those basic costs are covered more easily now than ever, Sjimons say one cannot forget there is just so much more to spend money on, including other needs such as handphones, TVs, computers, clothes, groceries, food, and more.
“Because of this, Malaysian families have also experienced an increase in debt level, and that is a trend we have to be very careful with.”
Against other currencies
In regards to the value of the currency, the ringgit has been strengthening steadily against the Indonesian rupiah over the past decade, observed Sjimons, with the same trend applicable against the Vietnamese dong up to the beginning of 2011.
Since then, the ringgit has been hovering just below a rate of 1:7,000 against the dong until it adopted a downward trend starting in May this year.
On the other hand, the ringgit is noted to have been weakening at a consistent rate against both the Singaporean and Brunei dollar over the past 10 years.
In fact, the ringgit had on July 29 this year hit a 15-year low of 0.38256 against the Singapore dollar.
Economists also note the ringgit has been on a steady decline against the Singaporean dollar as well as the US dollar since May this year when the US Federal Reserve mentioned it could start tapering quantitative easing by the end of the year.
Against the US dollar, the ringgit dlumped to a three year low on July 30.
“Meanwhile, the Thai baht has been hovering around at the rate of 10:1 to the ringgit consistently since the beginning of 2008,” Sjimons added. “This isn’t really surprising as we share the same top export partners including China, the US, Singapore, Japan as well as each other.”
Efforts by the Malaysian government towards its fiscal consolidation targets have yielded results, contributing to the ringgit’s rebound since its low of 3.3377 against the US dollar in August, said UOB in its UOB Economic Treasury Research report for the first quarter of 2014.
“While fiscal issues have become less pressing and export recovery is likely to drive a stronger economic growth in 2014 (1Q14), the ringgit could still languish in the months ahead.
“We expect the US dollar to the ringgit to trade higher to 3.25 by end-1Q14 and then 3.30 by 2Q14 as US Fed winds down its quantity easing (QE) programme.”
UOB opined that the QE tapering may not happen during Ben Bernanke’s term in the Federal Reserve office, which will expire on January 31, 2014. The earliest window for QE tapering may only happen after Janet Yellen takes over the chair, they said.
“We view the March 18 and 19, 2014 FOMC as the meeting when Yellen prepares the markets for scaling back of the QE3 and April 28 and 29, 2014 FOMC as the meeting to announce the first tapering by US$10 billion.
“We view that the QE3 will be gradually scaled back in the subsequent FOMCs and will be fully terminated by 4Q14.”
Should the QE tapering occur in 2014 as UOB predicts, this would initiate a broadly stronger US dollar and thus a higher US dollar to regional forex in 2014, excluding the yuan.
“We have seen this episode before. Between May and September 2013, the specter of Fed dialing back its monetary stimulus helped the US dollar to broadly strengthen and sent the US dollar/Asian-ex China currencies trending higher.
“That said, we believe that markets will be more prepared this time round, and therefore the market reaction when tapering happens should be more controlled.”
Purchasing power parity still shows good signs
Although it is true that inflation has risen at a steady rate of just above two per cent over the past decade, Malaysia’s purchasing power parity has risen between seven to nine per cent year on year (y-o-y) over the same period, excluding negative growth in 2009 in the wake of the Global Financial Crisis.
CompareHero’s Sjimons explained that basically, things do cost more today, but Malaysians are also earning enough to cover these rising costs.
“For example, not too long ago it was a luxury to have a TV, whereas today most households can afford one – a pretty big one at that,” he gave as an example. “In any case, there are huge savings to be made – it’s just about understanding what’s on offer in the market.”
Based on statistics from Tradingeconomics.com, Malaysia’s Gross Domestic Product per capita in Malaysia was last recorded at US$14,774.64 in 2012, when adjusted by purchasing power parity (PPP).
The GDP per capita, in Malaysia, when adjusted by Purchasing Power Parity is equivalent to 67 per cent of the world’s average, as calculated by the World Bank.
From 1980 until 2012, Malaysia GDP per capita PPP averaged US$9,336.30, reaching an all time high of US$14,774.60 in December of 2012 and a record low of US$5,063.40 in December of 1980.
Maximising your ringgit
With all these in mind, what then can you do to stretch your ringgit to its fullest? Sjimons lists eight tips to help the average consumer trim costs and spend wisely:
A. If you have savings beyond two or three times your monthly income, don’t let them sit idle in a low-interest deposit account.
1) Invest a portion of your monthly income in Amanah Saham Bumiputera/National schemes. These have provided average effective yields of 8.81 and 6.11 per cent respectively over the past three years. Although there is no upside through capital appreciation, there is no risk of capital depreciation either.
2) Invest a portion of your savings in Real Estate Investment Trusts (REITs). By law, at least 90 per cent of taxable income is required to be paid out on a quarterly basis. Some REITs even have monthly payouts to unit holders. Yields range between 4.58 per cent to 7.52 per cent across all 14 Bursa-listed REITs. This is an especially good project for people looking to retire who want to create a regular income stream.
B. Don’t pay more than you need to for goods and services:
1) Use online comparison websites such as Comparehero.my to make sure you get the most updated financial tips. It’s not always the case that the bank, telco, or an insurance provider with the largest marketing budget has the best product to suite your needs. Also, this service is 100 per cent free.
2) Use e-commerce and online discount sites to avoid paying massive in-store mark-ups outside of sale periods. In general, there is a tremendous amount of variety. You can find everything from luxury bags to groceries. Also, you don’t have to waste time or money travelling to the store.
3) Buy ‘Second-Hand’ items; there are great online marketplaces such as mudah.my and duriana.com with an immense variety of listings.
4) Cut your utility costs:
a.If you’re going to ‘Balik Kampung’ for the weekend:
i.Switch off all your appliances at the socket and remove the plugs.
ii.Turn off your water heating, and air conditioning.
b.If you don’t have anything (fragile) in the fridge or freezer, reduce the chill to its lowest setting.
c. When buying new electrical appliances check their energy usage. These often differ widely and CompareHero.my study found that 83 per cent of people don’t check it, though it can have a big impact on your monthly budget over time.
Taking these steps consistently can save you thousands of ringgits on a yearly basis.
C. Implementing a budget:
1. Use technology to help you stay on top of your finances. An app called Money Manager comes with 12 expense categories and five income categories.
2. Before going to the supermarket, write a list and stick to it. This will help prevent you from buying things you don’t need, and make sure you go grocery shopping while you’re full; going there while feeling hungry could cost you a fortune, and potentially make you fat!
D: Pay your debts on time if you can:
1) Make sure you check what you owe on your credit card at least every two weeks so you could set aside a portion of your income to cover these expenses. This helps you avoid paying nine to 18 per cent interest on these expenses.
2) Check if you have any fines using services such as those provided by MYEG. It doesn’t cost you any time and prevents you from accumulating additional fines.
Money-saving tips for new entrants in the workforce
KUCHING: Fresh graduates entering the workforce may face certain financial pitfalls, having to balance both income and expenses on a more serious level.
It’s almost inevitable for many inexperienced young people not to fall into financial pitfalls at the beginning of their career. Common issues would include inefficient budget planning, difficulties in establishing an emergency fund, and failure to pay debt, especially high interest credit card debt and student loans.
CompareHero’s Sjimons note that upon entering the adult world, paying taxes could be challenging and threatening.
“As a result of being busy all day, eating out might seem the only option, but it also drains your financial budget,” he forewarned. “Also, things like finding an apartment or accommodation is highly risky; there will always be someone who’s waiting to take advantage of an innocent fresh graduate.”
Meanwhile, even the wisest young professionals who see the value of investing in the future early on are not safe, Sjimons said. “It’s all about the portfolio and diversification. Don’t get swayed too easily by charming financial salesmen.”
“The young ego prevents some of seeing how vulnerable we are. Ignoring to save for retirement is extremely risky. It won’t bother you immediately, but imagine your old age without that little bit of luxury you deserve.”
To address this, he advises young workers to start off by planning a budget. “A simple step to make, in fact it’s as simple as having the knowledge on what money is coming in and what money is going out,” he said.
“An emergency fund should be started by aiming to have three to six months’ worth of living expenses in an easily-accessible savings account.
“This way, it would be easier to deal with the unexpected disasters life throws at us. Once you have it, your biggest challenge is to keep it untouched.”
Another way to minimise debt levels is to check the interest rates that are being paid for the credit cards using comparison websites like www.comparehero.my and switch to one offering lower interest rates.
“Pay the minimum monthly bills on time, and if possible, pay an extra amount so that it won’t gather debt,” he advises. “If there are any private loans, pay them off as fast as possible since they tend to have higher interest rates.”
Sjimons also advocated a sound tax strategy, as there are chances they might get reduced by claiming tax deductions, and one must be ensured that they are not paying extra or even underpaying the taxes.
“This is really not rocket science: find an expert to give you some free insight, or just spend an afternoon reading about it online. Check out hasil.gov.my for example.”
Another way to make money work for you is to start an investment portfolio as a prudent move, and the basic guidance, Sjimons said, would be to always diversify, invest in indexes, and to always check on expenses.