LEARN TO EARN

Overcoming inflation

Comment by C.S. TAN

The Star 10th June 2008

As we cut spending on less essential items, we have to try to earn more.

IT'S a painful time for the consumer as prices surge for basic goods – petrol, rice, chicken, pork, fish, flour and bread.

At the same time, manufacturers bear the brunt of higher energy and raw material costs while the Government faces the force of higher costs for steel and cement for its infrastructure projects.

There are no winners in an inflationary environment.

One of the obvious causes of this trend is the Second Wave of the contact with communist China as it steadily embraced free markets over the last 15 years.

In the First Wave, China supplied the world with consumer goods produced cheaply by a few hundred million workers. That produced a benign effect.

As the 1.3 billion Chinese people obtain higher incomes and become consumers like us, they produce a demand shock as the supply of crude oil and other commodities cannot be proportionately increased. The huge investment in commodity futures by hedge funds and pension funds probably raised prices further.

The world will have to live with high consumer prices for some time. This may be an extended inflationary spiral like the 1970s.

It is often said that people in the middle class should trim their budget as prices soar. That becomes impractical within a short time when the budget is cut to the bone and there’s nothing left to cut.

When times get tough, it’s usually not useful or right to blame the Government, or blame our parents. As we cut spending on less essential items, we have to try to earn more, or “Learn to Earn” as fund manager Peter Lynch put it in his book of the same title.

Good companies will not only reduce costs; they will also have a plan to increase revenue. Likewise, we need short-, medium- and long-term plans to earn more money.

An immediate plan could be to take on a second job. That has long been the path for those who need a higher income.

A medium-term plan can be a willingness to take on more responsibility in one's job for a higher salary. In the longer term, we need to upgrade our skills and education so as to meet the criteria for a job that pays more.

We need to be more productive to earn a higher total income so that we can still afford the same or even more consumer goods. Higher subsidy is not the solution for us to maintain our standard of living as prices rise.

In these difficult times, everyone has to share, and be seen to share, the financial pain. It was therefore apt that Prime Minister Datuk Seri Abdullah Ahmad Badawi said yesterday the Government would be cost conscious and trim its own budget. This is a time when the people will watch very closely how the Government spends the billions of ringgit under its stewardship.