WHEN IN DOUBT, SAVE MORE!

HOW do you plan to react now that prices of some goods and services will be rising? It’s finally here. The SST 2.0 or our revitalised Sales and Service Tax kicked in yesterday. The still new Pakatan Harapan Government won immense public support for its quick cancellation of the much maligned GST or Goods and Services Tax and the hugely welcomed three-month consumption tax holiday this past June, July and August.

Sadly, all good things must come to an end, including tax holidays.

Finance Minister Lim Guan Eng has given Malaysians a refreshingly transparent blow-by-blow account of the painful funding gaps our country faces because of past excesses.

I dislike paying taxes as much as the next guy but it is clear from our national accounts that an alternative consumption tax is needed by the current revitalised administration to trim our deficits and help balance our books.

Toward that end, the introduction of the SST should help us plug about RM20 billion of our fiscal shortfall over its first year of implementation. Given the front-loading of consumer purchases by pretty much all of us during the just ended consumption tax holiday, I expect Malaysian retail sales to take a huge hit in September and a slightly smaller one in October due to many of us delaying big purchases. At least that’s what simple logic and a rudimentary understanding of behavioural economics suggest to me.

When GST was zero-rated on June 1, 2018, Malaysians heaved a collective sigh of relief with the elimination of the 6 per cent mark-up on almost everything we buy. Unsurprisingly prices fell, inflation eased, and an exuberant populace — on both sides of the political divide — went shopping!

Finance czar Lim correctly pointed out that with the implementation of SST, some prices will rise again; some, but not all. Still, the psychological effects of the price hikes will, in my opinion, cause most of us to postpone forking out money for fresh big ticket purchases for at least a couple of months.

Should such buyer inertia actually kick in, then it’s possible Malaysia will experience weaker than usual quarterly GDP numbers for both Q3 and Q4 2018. However, that is not a certainty because our weakened RM (against the US dollar) should help increase our exports; and if we are to sell more goods to the rest of the world then our domestic manufacturing activity must first rise. That bump in industrial output may help offset the anticipated short-term dip in domestic consumer demand.

We’ll need to wait and see what happens to Malaysians’ buying patterns throughout September and October, but I suspect by November the fresh pent up demand by consumers will result in a reasonable rebound in retail sales throughout Malaysia. Then with the Christmas shopping season rolling around after that, Malaysia’s economic numbers should — I hope — start to show significant signs of recovery.

You’ll note that all my near-term prognostications are based on logic and not some mystical crystal ball. So, as I’m sure you understand, I may be right or I may be wrong.

Uncertainty about the future is a constant factor within our individual life equations. That’s why insurance is so important. Furthermore, when viewed through the lens of the wealth management process, another great way to deal with doubts about tomorrow is to construct a defensive barrier of cash savings today to serve as a strong and solid wall against near-term and mid-term uncertainties. (Note: Longer term uncertainties and financial requirements are better met by higher yielding investments than lower yielding savings.)

Our beefed up savings will be especially easier to accumulate over the next couple of months because of the natural resistance most of us will initially exhibit against buying items that once again have a consumption tax (this time our SST) levied on them.

But trust me when I say that innate resistance to spending will fade away quickly for most people. However, may I urge you to act in a way that’s unlike most people’s behaviour?

Do your best to defer unnecessary expenses not for just two months but perhaps for three or four or more! Of course if everyone follows my advice the Malaysian economy will nosedive, but few people are internally wired to be able to defer expenses for a long time.

To see if you might be in that minority, I urge you to flex your mental muscles of self-discipline by incrementally exercising more and more delayed gratification over the next several months.

Most people won’t take my advice. Some will try for a short while before giving up. A few will give it a shot for a longer period. It’s that last minority that will save much more money and later perhaps channel some of those extra savings into solid longterm investments.

For you and your family, over the years and then over the decades to come, the snowballing of your well-allocated capital can metamorphose into a robust financial fortress providing protective shelter against tomorrow’s arsenal of economic uncertainty.

Along the way, as your fortress is under construction, the central principle you might turn into a personal mantra is easy to say and easier to remember:

When in doubt, save more!

© 2018 Rajen Devadason

Read his free articles at www.FreeCool Articles.com; he may be connected with on LinkedIn at https://www.linkedin. com/in/rajendevadason, or via rajen@ RajenDevadason.com. You may follow him on Twitter @RajenDevadason