Can a junior executive afford to live independently in M’sia?

June 23, 2014

FEATURE

By Joshua Ong

In a previous article entitled, Can A Fresh graduate Afford To Live Independently In M’sia?, we compared the average salary of a fresh graduate living and working in the Klang Valley with his/her expected living expenses in an attempt to determine whether the average fresh graduate can actually afford to live independently away from home.

Living on a fresh graduate’s salary of RM 2,500 a month is no easy feat, especially with the recent surge in food and rental prices throughout the Klang Valley. Despite the challenges however, our theoretical fresh graduate “Tom” was able to live through an entire month independently on a fresh graduate’s salary albeit with countless sacrifices required.

Just in case you forgot all about our previous article, here’s a quick summary of the results.

EPF Contribution = RM 275

Rent (Small room according to iBilik) = RM 400

Monthly Public Transportation Cost = RM 150

Student Loan Repayment = RM 350

Meals & Entertainment (Nothing fancy, just the absolute cheapest) = RM 994

Total Monthly Cost = RM 2,169

Leftover Savings (For emergency or for alcohol when Tom gets depressed) = RM 331

As you’ve probably already guessed, Tom isn’t exactly living like an overpaid Malaysian CEO. But while Tom might not be enjoying martinis on a daily basis, he is (at the very least) surviving. After all, no one stays a fresh graduate forever right?

In a few years, Tom will be soaring above the rest of the crowd as a junior executive. Or will he?

First of all, what is a Junior Executive?

To put it simply, a junior executive is a person (usually in his/her mid to late 20s) who has been working within a corporate environment for a period of at least 2-4 years. Think of a junior executive as a worker who has more experience than a fresh graduate but has yet to develop the veteran skills of the more senior members within his/her profession. In Malaysia, the typical junior executive will usually earn an average of RM 3,300 a month, though this amount may vary depending on the field.

Meet junior executive Tom

After slugging it out for 3 years in the same company, 25 year old Tom resigned from his present post and join a new firm (because apparently this is the only way to ever get a raise in the Malaysian workforce). At his new firm, Tom earns a cool RM 3,300 a month, enabling him the ability to indulge in luxuries that were previously unattainable (a girlfriend). In the interim period, Tom has also managed to pay off all his student loans.

Now that Tom is a few years older, can he finally afford to live well in the Klang Valley with his new salary? Let’s weigh out his expected costs.

Housing

Back when Tom first started working, he opted to rent a small room for a meager cost of RM400 a month. The economical yet cramp living conditions of Tom’s former dwelling might have been feasible while he was still single. Unfortunately, with the arrival of Tom’s significant other, a move to a larger facility seems to have edged itself at the top of his agenda.

Most medium sized rooms in housing areas like Kelana Jaya, Damansara Utama and Cheras go for around RM600 a month including utilities and Wi-Fi. It’s not exactly a penthouse at the Hilton, but it’s certainly a lot better than what he used to live in.

Cost = RM 600 per month for medium room including utilities and Wi-Fi (according to iBilik)

Transportation

The unreliable schedule of public transportation in Malaysia is definitely more than enough to drive most Malaysians towards buying their own vehicles even though bus fares are priced at only RM2-3 per trip within the Klang Valley. In the case of our junior executive Tom, the need to own his own vehicle is not just about the convenience of not having to wait for the bus but rather the freedom of having the ability to travel anywhere without having to worry about the constraints of a bus route.

Choosing a used car over a brand new car isn’t exactly the more economical option. On one hand, a used car is usually cheaper, which translates into a small loan and lower interest payments. On the other hand, a used car might not have to vitality of a brand new one, which could mean more trips to the local mechanic over the next few years.

For simplicity sake, let’s imagine that Tom choose to buy a basic brand new 1.3L Perodua Myvi. Factoring in taxes and other associated costs, the total cost should be around RM 47,000. Assuming that he successfully made the 10% down-payment, he should be paying approximately RM 475 monthly for a car loan of RM 42,300 for 9 years.

Cost = RM 474 per month for car loan repayment on brand new 1.3L Perodua Myvi

+ RM 160 per month for petrol (assuming Tom is a moderate driver)

+ RM 90 per month for car insurance coverage (Tom always drives safe but he still needs this)

+ RM 7.5 per month for road tax (Tom is patriotic)

= RM 731.50

Meals, entertainment & communication

Given that Tom has been steadily working for the last three years, he has (among other things) been able to build a solid credit history. This means that in addition to the car loan for his Perodua Myvi, he would also be eligible to apply for a credit card.

A credit card is not just a fancy piece of plastic. It is an avenue from which Tom can now borrow money in an instant for all his entertainment needs. As long as makes the minimum monthly repayment every month, he can essentially spend above his means whilst dodging the interest rate bullet. In addition to allowing Tom the ability to maximise his spending, owning a credit card will also give him certain benefits like cash back and reward points.

For example; if Tom decided to go with a credit card with which he would be entitled to 10% cash back on selected purchases with a minimum monthly required payment of only RM 50.

Assuming that Tom spends an average of RM 50 daily for meals & entertainment, this works out to a sum of RM 1,500 per month. In order to fully utilise his credit card’s cash back feature, Tom stacks RM 500 of his purchases onto his credit card.

Communication is important in every relationship, which is why Tom has invested in an RM 100 a month mobile phone plan with data. Now his girlfriend can send him photos of her breakfast, lunch and dinner along with random emoticons and acronyms that obviously desecrate the English language. But Tom doesn’t mind because she’s sensitive and has a thing for pandas.

Cost = RM 50 x 30 days = RM 1,500 per month for meals & entertainment

Amount not charged to credit card = RM 1.000 (paid in cash)

Amount charged to credit card = RM 500 – (cash back of 10% x RM 500) = RM 450

Mobile Phone Plan with Data = RM 100

New Cost = RM 1,550 (assuming Tom is a good boy and always pays up his entire credit card bill)

Survive and thrive but don’t live for tomorrow…

Adding up all of Tom’s monthly costs will give us a grand total of RM 2881.50, which is well below Tom’s salary (even when the almighty EPF and income tax is factored in).

Unfortunately, while Tom is living rather comfortably, he is certainly not saving much money every month. If (God forbid) an emergency befalls upon Tom then he will barely have any funds stuck in his savings account to fall back on.

What do you think? Is this the way a junior executive should be living?

Joshua Ong is an Investigative Journalist of SaveMoney.my, an online consumer advice portal which aims to help Malaysians save money through smart (and most of the time painless) savings in their daily banking, technology, and lifestyle spending habits.