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Thursday, December 28, 2006

Saving For a Rainy Day

They used to teach this proverb in school many years ago.

Today as we witness the prolonged wet weather that has disrupted tens of thousands of lives and damage that will run into millions of ringgit, that proverb is true for it explains the need to save for unknown mishaps and other bad things that happen to us in the course of our lives.

The authorities have promised aid but let us remember that the government coffers have recently been opened or should I say emptied to help thousands of Class F contractors who have been deprived of projects in the economic slowdown as major projects have been cut back.

Our economy has been kept artificially high in previous years with the so-called “pump priming” that unfortunately does not sustain growth if the projects are not viable but simply a wanton wastage of public funds.

It also creates a pool of hungry contractors who may get a plum job or two, upgrade their lifestyle and then find themselves in a quagmire of debt and subsequent bankruptcy. Just observe your neighbours who seem to have struck the 4-D lottery. They renovate their homes, buy an upscale car and seem to have a bonanza of wealth. Within a few years it may all be gone.

I support the authorities’ plan to cut the budget deficit as we cannot afford to be like the USA that has operated on deficit budgets for many years supported by inflows of foreign funds as the US dollar has been a sort of global reserve currency. That seems to be changing slowly as more countries adopt the Euro as an alternative.

For the ordinary man in the street, worrying about the US dollar means little if you are barely making ends meet but you need to have a savings plan for a rainy day as in the current flood situation many jobs will also be lost for a few months and some insurance policies do not cover floods that is deemed “an act of God”.

I suggest everyone should have a emergency savings plan based on some criteria like the following:

Monthly pay ........ Save per month
RM500 and below ........RM10
RM500 to RM1000 ........RM30
RM1000 to RM2000 ........RM50
Above RM2000 ........5%
Above RM3000 ........10%

The actual amount saved is not that critical but developing the habit of not spending all the money you earn in a month is vital if you are not going to end up the victim of loan sharks.

In the old days we used to have security guards who used to sleep on their stringed beds in the building usually a bank. Most of these were Indians who had families back in India and they lived rather frugally. I have heard stories that many of them retired and went home to large parcels of land they saved for. Of course some of them also operated as money lenders.

It is also good to teach your children the value of money as they will learn important lessons that will last a lifetime.

Photo: thanks to malaysiakini

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