For today’s financial roundup, we will be focusing more on various topics instead of what’s happening today. If you are an investor, it is important to learn about business, economics & even politics both locally & globally. Books (especially biographies), the business news & personal finance sites are a good place to go to. Today we will be looking at DSR, Home Ownership, GDP, Gas, Deflation & Medical Inflation
DSR (Debt Service Ratio) & Home Ownership
DSR = Mortgage Payment / Income
- Previously: 70-80%
- Currently: ~50%
- Historically: As low as 33%
This means that to qualify for a loan today, your monthly loan payments & debts would need to be below 50% of your monthly income.
Suggestions:
- Get listed in a CCRIS report (available from BNM). While not as critical as in US, having loan commitments for at least 1 historical year will make it easier for your loan to be approved. For example, get a credit card (but spend with it like you were using cash!)
- Ensure your 6mth min emergency savings buffer includes your loan payments.
- Don’t assume interest rates will remain low forever at 4-5%. Will you be able to sleep at night if rates go up to 7-8%? Consult a professional if refinancing or putting in capital payments to your home loan would help you save money.
GDP (Gross Domestic Produce)
- GDP is a primary indicator used to gauge a country’s economic health.
- GDP represents the total monetary value of all goods & services produced over a time frame – you can think of it as the size of the economy.
Nominal GDP = Money x Velocity of money
Let’s say Benji & his 2 friends have $5 each. Benji opens a lemonade stand selling lemonade for $1 each. His 2 friends sell cookies & ice-cream also for $1 each. Benji & friends each spends $5 buying lemonade/cookies/ice-cream from each other. As the $ only changed hands once, the velocity of money is 1. The GDP is $15 x 1 = $15.
Gas
- US crude oil production has surged to a 22yr high. Revolution traced to fracking from shale beds championed by deceased Texan George Mitchell.
- Enormous oil shale deposits found in South Australia & New Zealand est US$18trillion.
- Syria, although not a major exporter, has 50b tons of oil reserves which is why major players want to control Syria.
Deflation
Deflation is a macroeconomic situation opposite of inflation where prices go down.
- We may think its good as everything is now cheaper.
- However, when deflation is for long periods, businesses profits decline. Companies need to cut costs, reduce wages or layoff workers. Unemployment increase. The public is unwilling to spend because of economic uncertainty.
- Deflation is more difficult to control then inflation. Governments often respond by lowering interest rates to stimulate the economy.
Medical Costs Inflation
- Worldwide, medical inflation is increasing at ~10% per annum
- In Malaysia, medical inflation is increasing at close to 15% per annum
- An example would be to take a procedure done that costs RM30,000 today
- With the increase in hospitalization costs, obtaining medical insurance coverage is a necessity today & not a luxury.
- Ensure that medical insurance provides a reasonably high annual & lifetime limit, yet is affordable within your budget. It may be advisable to get coverage for a larger insurance provider as some smaller providers may offer lower priced coverage but may indiscriminately increase prices when they are unable to cover their costs & risks.
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