Once upon a time, our forefathers work hard enough to satisfy the basic needs of necessities. As times go by, the bad side of capitalism starts to invade us.
We start to become more affluent, with the spending power, we are bombarded with advertisement around us urging us to buy luxury items which does not constitute to our cycle of basic needs. With the riches able to afford these luxury items without feeling a pinch as they are able to fork out huge amount of cash for their purchase.
As time goes by, the lower/middle income folks become envy of the rich. Without the cash to afford these luxury items, thus the needs of these group of people gave birth to a new type of companies in the new economy which is known as credit and finance company.
Now the lower/middle income folks are able to buy the luxury items that was only made affordable to the riches, thanks to these credit and finance companies. But what these folks do realised is that they are enslaving themselves in a world of debts.
Some smarter folks make use these credit and finance companies reward system to purchase items thus gaining reward for themselves and able to meet re-payment period with spare cash-in-hand without heading into negative liquidity.
But some folks get themselves laden with debts having to worry how to make end meets, worry about their basic necessities, worry about providing basic needs to their family, worrying about cash flow and getting themselves into negative liquidity.
Let me emphasise more on the latter than the formal as the formal have bountiful of cash-in-hand to let them “play” around with the credit system to get the benefit out of it.
Case Study
Mardy is a young chap and has been working as an executive in a multi-national company for 3 years after graduation, earning a monthly salary of $3,000 after deduction of provident funds and with an estimate annual 4 months of bonus annually, thus his total annual income is $48,000.
Mardy likes to spend on luxury items,
– He wanted to keep himself in shape and fit so he decided to pick up cycling as a sport. But instead of getting a mid range bicycle which can fulfill his needs of getting in shape, he decided to get a higher end bicycle and over the years traded-in and upgraded his bicycle parts to satisfy his need for speed instead of getting in shape.
Thus, he spent about $20,000 just by trading and upgrading his bicycle parts.
– Mardy is also a movie buffs, besides heading to the cinema with friends, he also likes to buy DVD and watch at home. He surfs around audio visual forums on the Internet and was influenced by the formers that getting some mid-range amp, a good quality blu ray player and speakers will be better choice for him.
He was tempted with the idea and therefore went ahead with his purchase of a home theater component systems and a HD plasma TV for $7000 when a home-theater-in-a-box and a full HD LCD TV setup which cost $2500 will do the job, since Mardy is not an audiophile, and only spend 4 hours per week to watch his DVD and Blu Ray movies.
– As his workplace is about 25km away from his home. Mardy feels that it’s a chore to wake up early in the morning to squeeze in the crowded public transport system. So he decided to get a car to travel from home to his workplace and in the evening from his workplace back to his home; and also for the occasional weekend drive to town. He decided on getting a low fuel consumption and small fuel tank capacity Japanese car for this purpose.
But he changed his mind and decided on getting a higher fuel capacity car so that he will be comfortable in it while driving.
After expenditures on luxury items and luxury lifestyle, he has an savings $8,000.
One day, while Mardy was driving, he was involved in an accident. The knock down a pedestrian and was sued. He has to pay a hefty fine plus compensation for the pedestrian he has knocked down. After selling his luxury items and withdrawing all his savings, he was still not able to pay the compensation amount. So in the end, he declared bankrupt to have his assets to be sold off to pay for his debt.
What we can see from here even though Mardy initially have a positive liquidity, but he has not planned from unforeseen future circumstances that will bring down his liquidity.
So the old wise saying of “saving up for rainy day” seems to have been forgotten by our generation who are in pursue of luxuries and slaves to advertisements.
If Mardy has not purchased that higher bicycle, upgrade the bicycle parts; be contented with a simple home-theater-in-a-box system and a LCD TV; purchased a low fuel consumption, low fuel tank capacity car. He would not be a bankrupt, he might have some funds for the compensation or he might even be on a well deserved holiday.
So think twice before you spend your hard earned money. Are the stuffs you are buying is really what you need and does an alternative cheaper brand but better quality serve your need? Are you going to get old and join the tin can collecting folks? Or do you want to retire in comfort?
Drop me a comment on this blogspot should think my views and case study above are incorrect.
Chiawy's Blog 