Tuesday, April 29, 2008

Financial Intelligence – Part IV


How many times have we heard the above adage? And yet, how often do we actually translate this into our personal lives?

Again, let’s consider the case of Bumbling Bill. He earns RM10K a month. Wow! What a huge salary, 10 grand a month. However, let’s break this down into time units.

To earn RM10K a month, he has to work from 8:30 morning to 7:30 evening (even though his official hours are from 8:30am to 5:30pm). Excluding lunch, he spends approximately 10 hours a day in office. He works five days a week per month.

So, he has to work 10 hours * 24 days = 240 hours (assume 24 working days in a month) to earn RM10K. That works up to about RM42 per hour. Is that a lot of money?

Gross pay per hour ______________________________________RM42.00
Less: Direct Costs Incurred Related to Work
Parking ________________________________________________(RM0.50)
Petrol _________________________________________________(RM1.00)
Tolls ____________________________________________(RM0.50)
Lunch ________________________________________________ (RM1.00)
Miscellaneous __________________________________________(RM1.00)
Net Pay per hour (Before Tax) ____________________________ RM38.00

Less: Boss No. 2 – Inland Revenue (i.e. Tax) ________________(RM10.50)
[RM42 * 25%]
Less: Boss No. 3 – Banks [Assume RM144k loan]
(RM144K * 10% * 1/12 divided by 240 hours) _________________(RM5.00)
Net Pay per hour (After Tax) ______________________________RM22.50
Well, so you see Bumbling Bill is only earning RM22 per hour. With this information in mind, let’s interpret the manner Bumbling Bill spends his money.

Hmmm… well:

Lunch at Posh Restaurant
1. He spends every weekend going with his family to the most expensive restaurant in town. It’s more to affirm his upper class social status, rather than about enjoying good food. It costs him RM500. It only costs RM50 for him to have a meal with him and his family. What’s the point you ask? It’s only RM450 difference. Can’t a man enjoy a meal with his family once a week at a posh restaurant just to show off? Gimme a break, you say!

Well, that may be true. But remember: TIME = MONEY
Let’s look at it again.

(a) Option 1: RM500 = 22 hours of his life [ RM22.50 * 22 ]
(b) Option 2: RM50 = 2 hours of his life ___[ RM22.50 * 2 ]

Now ask yourself, is it worth slogging for over an additional 20 hours of your life just to have a posh meal every weekend? Or would you rather spend time helping your wife to cook a meal and enjoy it with your family?

Car Loan
2. Bumbling Bill has a loan of RM144K which he used to finance the purchase of his Toyota Camry. Like they say in Malaysia, “Gaya mesti ada” [Loosely translated, it means “Must have style”]. So what, you ask!

Well, he pays loan interest = RM14.4K per annum, which translates into:
= 640 hours [RM14,400 divided by RM22.50], equivalent to
= 80 effective working days = 3.33 months [80 days/24 working days a month]

There you go! Instead of one boss, you have two. No wonder you get so tired and grumpy. So that's why those bankers can afford to drive those Mercedes and wear nice suits. And don't get me started on credit cards [subject of my next post!]

Remember, TIME = MONEY.
So spend your MONEY wisely, so you have more TIME to do the things you want in life.


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