RM2,500 A Month Income Challenge

RM2,500 A Month Income Challenge

Pre-amble: 
The original experiment had been initiated on 1 January 2016, but due to unavoidable circumstance, was terminated one week into the program. This is my next attempt at completing the experiment. However, there is a slight twist to the whole purpose of conducting this experiment, which has to do with my plan to find a sense of self-fulfillment in life. Finding functional financial solutions that positively impact lower M40 and B40 income groups is one of my longer term goals. You can read more about my journey towards finding self-fulfillment at my blog, Mid-Life Turnaround.


Introduction

The question of whether RM2,500 income for fresh graduates has been quite a lengthy debate in Malaysia, and especially among my younger peers. Most are in the opinion that RM2,500 is simply inadequate to live on, and that a higher salary scale of RM3,500 and above is a better reflection of current economic needs for fresh graduates.

A fresh graduate's point of view for demanding a higher starting pay:

• Cost of living in Malaysia is high, and RM2,500 is an unrealistic sum to live on. More so given that real inflation rate for most fresh graduates run at around 4% p.a., compared to 3.3% at the national level
• Even fresh graduates have huge amounts of financial commitments to shoulder, such as the repayment of study loan, providing financial support to family, car/house loan repayments etc.
• The amount of work demanded does not commensurate with the salary paid to fresh graduates
• There is no guarantee that employers will upgrade fresh graduate's salary scale upon confirmation and completion of training
• Fresh graduates are willing to work hard, as long as the starting pay is raised to commensurate with their economic needs

Most employers, however, are in the opinion that RM2,500 - RM2,800 is more than adequate as pay for the fresh graduates that they hire, and that the financial woes of fresh graduates are a matter of poor financial management skills on their part.

An employer's point of view for offering a starting pay of RM2,500:

• Fresh graduates do not posses the practical real world knowledge, experience and skills to contribute significantly to the company's business or operation. As such, they will need much training and this incurs costs to the company (including time and opportunity costs), without any real returns on productivity during the training period. The salary scale is thus a reflection of the cost needed to train a fresh graduate in undertaking the position they are hired to fill
• Employers acknowledge hard work, but this alone has little value as it is already expected (i.e. would you hire a slacker or lazy-bum?). Employers seek value when hiring employees, especially those that will translate into direct impact on company growth and monetary gains. And until proven, employers are unwilling to place a high "gambling fee" on fresh graduates that lack proven industry values
• Fresh graduates should be aware that they are competing for jobs with a very large number of people for a small pool of desirable jobs; some of the candidates include those with a few years of relevant work experience or those who are more attuned to the current market needs and trends. Since fresh graduates have no other track record except their academic background, employers will base their judgement using this, as well as the graduate's demeanor, existing soft skills (eg. command of language, communication skills etc.), and personality/character (i.e. attitude, aptitude etc.)
• Loyalty to the employer/company is dead in this day and age, especially among the white collar workforce. Employers thus compensate employees based solely on merit and Key Performance Index (KPI) achievements, i.e. those that perform their task better will be rewarded more. This is likewise the case for fresh graduates, and only the best will be paid accordingly

The debate about starting pay for fresh graduates is a fierce one. It is in the opinion of fresh graduates that those who comment about RM2,500 being enough should put themselves in the actual situation, and make due consideration, instead of just giving comments. On the other hand, employers are in the opinion that fresh graduates are being naive and very unrealistic about the real world, in addition to not being willing to pay their dues to get ahead but expecting things to be handed-over to them in a silver spoon.

Now, I have to put a caveat to the above debate. I have been on both sides in the past, i.e. I have been a fresh graduate going out seeking employment, and I have also been a hiring manager for certain positions in my past companies. While I am aware about how things are on both sides of the divide, I am trying my best to be impartial in this experiment I will be conducting, and hopefully, it will shed some light regarding the matter.

What follows now is an experimental design that I will implement upon myself to test the following hypothesis:

"RM2,500 a month is adequate for a fresh graduate to comfortably live on in a major city"

Objective

1. To determine if a pre-tax/EPF deduction income of RM2,500 is adequate to live comfortably in UEP Subang Jaya, a upper middle income residential zone based on the average financial obligations and consumption of a fresh graduate
2. To determine the minimum income level to adequately compensate a fresh graduate starting out in Kuala Lumpur City on his/her first job

Duration

The experiment will begin 1 April 2020, and will end 31 March 2021

Assumptions

Person A ("John")

1. Average pre-tax/EPF deduction income of RM2,500 per month (RM2,217 after 11% EPF deductions - RM275, SOCSO deductions - RM12.25, and EIS deductions - RM4.90)
2. Has one (1) schooling age siblings to support, RM100 per month
3. Both parents are still working, but given a stipend of RM200 per month (total)
4. Has a car loan to finance (2018 Perodua Alza 1.5L Auto, priced RM59,332 OTR) @ 9 years 90% loan (down payment RM5,933.20), 3.00% interest rate (RM627 per month)
5. Monthly fuel cost RM204.80 (51km to-and-fro from Casa Subang to office car park in KLCC for 20 working days; fuel conversion is 10.36km/L RON95 at city driving conditions, fuel priced at RM2.08), taking toll-free routes; parking space provided by company
6. Renting an apartment near within 30km of KL City Center (Casa Subang, RM1,500 3-people sharing, RM500 per month including utilities, WIFI)
7. Has PTPTN loan to repay, RM22,000 loan amount (RM100 monthly payment)
8. Has smartphone data plan, average RM98 per month
9. Daily food allowance of RM10 per day (RM300 per month)

Current "fixed" cost - RM2,421.95; balance - RM78.05

Person B ("Joan")

1. Average pre-tax/EPF deduction income of RM2,500 per month (RM2,217 after 11% EPF deductions - RM275, SOCSO deductions - RM12.25, and EIS deductions - RM4.90)
2. Has one (1) schooling age siblings to support, RM100 per month
3. Both parents are still working, but given a stipend of RM200 per month (total)
4. Does not own a car, but takes public transport from South Quay BRT Station to KLCC LRT Station @ RM7.80 per day (RM3.90 single journey) (RM156 per month)
5. Goes back every weekend to family home in Nilai (USJ7 LRT Station to KL Sentral @ RM7.00, followed by KTM Komuter to Nilai @ RM8.00, single journey) (RM150 per month)
6. Renting an apartment within 30km of KL City Center (Casa Subang, RM1,500 3-people sharing, RM500 per month including utilities, WIFI)
7. Has PTPTN loan to repay, RM22,000 loan amount (RM100 monthly payment)
8. Has smartphone data plan, RM98 per month
9. Daily food allowance of RM10 per day (RM300 per month)

Current "fixed" cost - RM1,896.15; balance - RM603.85

Other items that had not been included in these assumptions are things like personal hygiene and care products, utility bills, etc. I will include these items under the Miscellaneous category, since this cost factor is highly variable.

Method

1. I will assume the role of "John", while my partner while assume the role of "Joan". We will subject our real income to the above stressors; a daily account of expenses incurred will be recorded and posted on a monthly basis
2. Expenditure accounts will be presented in itemized table form, using figures and percentages to express the data collected
3. Level of comfort will also be determined on a weekly basis using a pre-defined scale (1 to 5, with 5 being most comfortable), to determine the level of comfort afforded by the expenditure of income throughout the entire duration of the experiment
4. The quantitative data (i.e. the account of expenditure) will be used to determine whether the amount stated is adequate to live in Kuala Lumpur City; the qualitative data (i.e. level of comfort) will be used to determine whether the amount stated provides adequate living comfort

References:

1. Survey reveals why fresh grads job hop, demand high pay - survey-reveals-why-fresh-grads-job-hop-demand-high-pay
2. Negotiating your first salary? Here's what you should know - fresh-graduate-some-basic-information-on-salary-negotiation-you-should-know.html
3. RM2,500 fresh grad salary : Why it's not a question of enough - RM2-500-Fresh-Grad-Salary-Why-its-Not-a-Question-of-Enough.html