In every corner of the world, staying healthy amid the Covid-19 pandemic has become the primary focus of governments, regulatory authorities and the average citizen.
Malaysians are also conscious of the risks and they are taking every precaution in order to stay healthy.
But there is more than one kind of epidemic, there is also the risk of an inflation epidemic.
In the past few years, a lot of the subsidies and tariffs people have become used to have been reduced or abolished (in the case of subsidies) and increased (in the case of tariffs).
Petrol and electricity are key examples. The result of the rationalisation of subsidies and increasing tariffs is known as inflation.
What is inflation?
Inflation happens when the prices of goods and services increases steadily over time, measured annually.
The net effect is that the same amount of money does not buy the amount of goods and services that it used to. In other words, purchasing power is lower.
Someone may have the same amount of money they used to live on quite comfortably but find that it is now not enough to survive.
For the average wage earner, it means that the cost of living and the prices of essentials has gone up and continues to go up.
As a result, household debt in Malaysia has soared to terrifying levels.
In addition to the usual housing, car loans and credit card debt, people are taking personal loans to make ends meet.
The high cost of debt servicing, coupled with reduced purchasing power, is leaving many households in Malaysia in a desperate situation.
There is not enough cash on hand to see families through the many days left to payday.
How to gain financial health
- Reduce high-interest debt
Those with credit card debt and personal loans should settle them in full as soon as possible because of the higher interest rates and compounding effect that can cause people to fall into serious debt over a short span of time.
- Save money in any way you can
This means cutting down on or eliminating all non-essential expenses. The usual categories are dining out, seeking entertainment outside the home, travelling and purchasing non-essential items and gadgets.
Cut these out completely and there will be a drop in monthly expenditure.
Cook and eat at home, entertain friends and family at home as it is much cheaper than going out and train the children amuse themselves at home rather than going to the shopping mall to buy stuff, watch movies and eat snacks.
Spending more time at home as part of a cost-cutting plan allows people to organise their lives better and improve their living conditions, such as taking on more housework and chores to stop employing a part-time or full-time maid.
All these steps will translate into a reduction in expenditure. The money saved can be set aside for emergencies and/or investment.
- Grow your money
This is trickier to achieve. Obviously, it is easier to save than to grow money, especially for those who are not financially savvy.
If money is already tight, people might fear losing what little they have by putting it in unfamiliar investment products. But there is growth potential in all markets for those who know what they are doing.
As a general rule, seek advice before deciding to invest in something. Make sure you understands the product, how it operates in an inflationary market and what the potential downside is.
Do your research and talk to friends and family members as well.
To beat the inflation epidemic, follow this simple formula: Save money + grow money = a better financial position.
This article first appeared in kclau.com
KC Lau is a personal finance author and trainer.
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