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TABLE OF CONTENTS
Game Start: Protect Your Treasure from the Inflation Dragon!
🕹️Quest: You are to protect your treasure from a dragon named “Inflation”. This beast has a skill of making the prices of everything soar sky-high, and it’s your mission to keep your gold safe. So, here’s a guide for you to beat this cunning creature. Ready, set, let’s go!
Know your enemy —
Inflation is a sneaky creature that causes the overall prices of goods and services to rise over time. This results in our hard-earned cash to lose its purchasing power, hence buying less than before. It happens when there’s too much demand for products and not enough supply, or when production costs skyrocket.
What feeds the beast?
Several factors can contribute to price inflation:
- Demand-pull (when demand outpaces supply)
- Cost-push (escalating production costs passed onto consumers)
- Built-in inflation (inflation expectations lead to rising wages & costs, further increasing prices)
How it may hurt you?
Inflation can hurt you by eroding the purchasing power of your money.
E.g. You save $10,000 in an account with a 1% interest rate, you’ll have $10,100 after a year. However, if the inflation rate is 3%, the same groceries that cost you $100 last year now cost $103.
Your savings might grow, but if the cost of everything else soars even higher, you’re still losing the game.
Tracking the dragon’s nest
Inflation is generally measured by the Consumer Price Index (CPI) which track the changes in prices of a representative basket of goods and services, such as food, housing, transport, health, recreation services, etc.
CPI in Malaysia was at 3.3% in 2023, but don’t you worry — you can find fixed deposits with rates up to 4% or more today!
Not all dragons are evil —
Healthy inflation at 2% is necessary to stimulate consumer spending, When prices rise slowly, it’s not usually a big problem. However, when prices start to rise too quickly, it hurts the actual purchasing power of people and businesses.
To defeat inflation ⚔️
- Invest in assets that have the potential to outpace inflation
- Seek employment with opportunities for wage growth
- Develop additional income streams
- Sharpen your skills to stay competitive
And there you have it! Armed with these tactics, you’re ready to face the inflation dragon and defend your hard-earned treasure. Show inflation who’s boss by taking control of your finances today!
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Word of the Week: Amortization
Definition: Amortization is the process of gradually paying off a loan, like a mortgage or car loan, over a set period. With each payment, you’re covering some of the borrowed money (the principal) and the interest that’s charged on the remaining balance. As you keep making payments, the amount you owe gets smaller until the loan is fully paid off.
Imagine you borrow $30,000 for a new car with a 5-year (60 months) repayment plan and a simple annual interest rate of 2.5%. Let’s assume 100% financing, you do not pay any down payment.
Since the interest rate is 2.5% per year,
Total interest for the 1 year =$30,000 * 0.025 = $750.
So, over the 5-year period, you’ll pay back
- Car loan: $30,000
- Interest: $750 x 5 = $3750
Hence, the total amount due is $33,750.
Now, divide the total amount ($37,500) by the number of months (60), you will need to pay $562.50 per month. You can also access the loan calculator here.
Key Economic Dates:
- 1st June: ISM Manufacturing PMI (May)
- 2nd June: Unemployment Rate (May)
- 5th June: ISM Non-Manufacturing PMI (May)
What I’ve been reading:
Here are the top stories that caught my eye:
- US Congress to Raise the Debt Ceiling
- Tesla Cybertruck interior revealed in new photo
- Ringgit hits fresh low against US dollar
- Nvidia Q1 2024 Earnings Beat Expectations, Shares Surge
You’re all caught up!
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Cheers,
Ziet
