Wednesday, 11 June 2014
Good Debts Bad Debts
In term of investment, I think I am more like a high-risk taker.
You may not agree with me as looking at my stock investment portfolio and transaction, you can hardly see spectacular punting and call warrants.
But, my cash ratio is close to zero. I'm throwing everything into it.
Because of the aggressive investment since year 2009, I am debt-ridden at the moment.
At any point of time, I have approximately 10 groups of debts which include credit card, property, car, personal & family loan.
Financial adviser will definitely advise us to restrict our monthly committed loan repayment to not more than 50% of our monthly net income. Ideally it should be less than 30%.
However, for my property & car loans combined, I have already exceeded 50% to quite a great extent. If including other smaller debts from credit cards & personal loans, I almost use up all of my monthly take-home pay.
If there are special big sum expenses in a month, my cash flow will be negative and I need to sell shares or unit trusts.
Currently Malaysian are talking about the high possibility of interest rate hike after Bank Negara's next meeting in 10th of July 2014.
It is widely believed that BNM will act now by increasing the OPR (Overnight Policy Rate) by 25 points. This means that the OPR will increase from current level of 3.0% (since May 2011) to 3.25%. It is possible that the rate may rise further to 3.5% at the end of 2014.
Thus, BLR (Base Lending Rate) may also increase from current 6.60% to 6.85%, though BLR will be replaced by a new system later.
This is no good news for me because this means that the interest of my property loans will increase as well. It is said that a 0.25% increase in BLR will result in 7% extra interest repayment for a house loan of RM500,000 with 30 years tenure.
I bought my first property in year 2009 and after that there were a few upward adjustment in BLR. However, I can't really feel the difference may be the property was still in construction stage.
I am not too sure how will the BLR hike affect me this time. Seems like it is still manageable, and hopefully so.
Loans with fixed interest rate like hire purchase and personal loan will not be affected though.
For those with low debts or without debts, then they will be least affected at the moment and can enjoy higher savings and fixed deposit interest rate.
However, if they wish to get any loan in the future, they have to face the higher interest rate as well.
Actually I don't think my debts are bad debts, so I'm not too worry.
First, my credit cards debts are only short term as I will settle the bills each month.
For property loans, I am actually glad to have bought them early without much hesitation as I will not be able to buy them now. They are for own occupation and investment purpose.
For car loan, I have actually saved quite a lot as I decided to give a miss to my "dream car" that costs RM120k and went for a cheaper alternative that costs RM80k. I need a more reliable car as I travel quite a lot on the road.
I have a few personal loans. One of them is for buying shares. I didn't use margin account as I still don't understand it completely and I am not comfortable with it as well. This personal loan interest is 5.9% per annum for 12 months and I am glad that I put most of it into Inari.
Another personal loan with interest rate 7.9% is for full settlement of my wife's PTPTN loan. My wife's PTPTN loan has been dragged for more than 10 years. Previously repayment was made sporadically but it ends up that she still owed more than RM12,000. As there was a 20% rebate for full settlement last year, I took the opportunity to remove this never-ending thorn from my household balance sheet.
Do I manage my money correctly? I'm not sure. Everything looks fine at the moment mainly because our economy and stock market are sailing nicely since 2009.
Starting from now, I think I should seriously build up my cash reserve.