Financial management is a complex subject, and it's often hard to put
yourself in another shoes because everyone's circumstances are so
different. It's also a topic where you can easily 'offend' other people and receive tons of backlash.
"How dare you criticize/judge me for not saving? You don't give as much to your parents."
"You are single while I have families to raise. It's not possible to save."
"You earn more than me blah blah blah..."
Etc...
you get the idea. Of course I think there are really genuine, serious
cases out there of people struggling to make ends meet. Their income is
not enough to suspend bare necessities. What I am describing here excludes them.
Anyway, here are my observations:
I've
known people who have worked for ~10 years or more, and doesn't have
>3months salary worth of savings. I also know people who prefer to
drag their school loans for as long as possible, paying the minimum each
month and pay an additional god knows how much in interest. Then there
are people who have no qualms about splurging on expensive vacations
then claiming they are poor. This is something I am totally unable to
comprehend.
These are views that I keep to myself,
because you can see how easily they can be offensive to others. I have
no business meddling with how they wish to spend their money.
I see people around me
claiming they don't want to work until they die, yet they're not even
saving/investing at all. What do you expect? Strike the lottery 'someday'? If
you can't save now while you are young, do you think you can save later
when you've got families, aging parents, worsening health, more commitments?
To me, I am very clear on my financial goals and my strategy to
achieve them. There are more than one way to Rome,
and I don't claim
mine is the best. Some people work harder to increase their income, some
live frugally to cut expenses, other choose to start their own
businesses. It is just what you choose to
sacrifice, and I stood by my principles and beliefs.
Still
think it's impossible? Again, you can look around the financial
blogosphere for inspiration. Take a look at "Budget Babe", who saved
$20K a year on a $2.5K salary. Or "Dividend Mantra", who had nothing at
28 years old (2009), and in 6 short years has built up a portfolio
generating $5000+ per year. How about this janitor who amassed $8 million dollars by simply saving and investing over 65 years?
You
might be thinking that's stupid cause there's no point being the
richest man in the graveyard. Well, I don't plan to wait that long
either. And we don't have to.
I think most of us here
earn more than the janitor. If we just practice a little delayed
gratification, avoid bad debts and big purchases that will lead to
financial ruin, it is very possible to achieve financial security in 10
years, and financial independence in 20 years. All these without "going
overboard". By that I mean still enjoying life in the process, not
de-voiding yourself of all pleasures of spending.
Most
of us are not lucky enough to be born with a silver spoon or blessed
with a super high paying job. We need to plan the first half of our
lives carefully to escape the rat race. The goal is not to amass
mountains of wealth to show off or compete with others, but to generate
your personal income stream so that finances no longer becomes a factor
in the future. You can finally afford to choose a job you love without
consideration of the salary. You can finally sleep in peace knowing you
are prepared for any emergencies.
If you look far in the future, you will see that starting today is definitely worth it.
This is a financial blog documenting the investment journey of an average Singaporean graduate. Join me on my journey towards financial freedom through my investments in ZZ Holdings.
Tuesday, November 10, 2015
Monday, November 9, 2015
Revelation - Investing
As I got more into investing over the past year, it has also become a
more prevalent topic in my life. I have made many observations about
how people around me react to this, and I think quite interesting.
I'll break down these observations into 2 separate posts, this one on
investments, and the other on financial management.
When it comes to investing, I have encountered 2 major groups of people in my social circle.
Those who are completely uninterested in the topic
They view investing as something dangerous, risky, and roughly equivalent to gambling. I think maybe they watch too much drama, or news of people jumping off buildings during financial crisis. I was such a person in the past - and today one of my biggest regret is learning about investing 10 years late.
Do you know that $100 now can only buy $50 worth of things in 20 years time?
Do you know that if you invest 'conservatively' in the market, your $100 will grow (past on historical results) to $400 in 20 years?
People spend 8-10 hours a day working, 40+ hours a week working and they don't even spend 1 hour a month to learn about growing their money. That 1 hour is worth much much more in dollar value than your salary.
Those who speculate/do trading
I think these are the people who give investing a bad name.
These are people I know who time the market actively, buying/selling based on chart patterns, some even buying without even knowing what the company (usually penny stocks) do. Worst: Some employ leverage and trade using borrowed money. My intention here is definitely not to laugh at them, although I think some of them feel this way. In fact, it pains me to see people I care about sink deeper and deeper into the hole.
Studies have shown again and again that 95% of traders lose money. On the other hand, if you invest your money in the market for 20 years at ANY point of time, you would never have lost money. Time in the market matters, not timing the market.
Even the best fund managers and companies in the world, who do these as their full time job, have gone bankrupt from speculating. Do you seriously think you are better than them?
I think that is the problem with 'young people' nowadays? They want to get rich fast, and they want to get rich NOW. (yeah it makes me sound like an old man)
---
Whenever I tell people I am investing, they automatically categorize me as the 2nd type.
Then they start sharing macro economic trends, simi simi patterns, simi simi penny stocks. It really is a stereotype linked with the word 'investing'. Even my own family had the same reactions. They do not believe there is such thing as buying a company 'for the long term'. To them, long term = 6 months. Growing your money means putting it into banks fixed deposits.
And hence, my observation is this:
The 2nd group of people 'scares' the first group of people from ever starting to learn about investing. And if somehow the first group of people got started, they became the 2nd group of people.
Long Term Investing
Very few of my friends actually share the same investing methodology as me. Luckily, I have a huge group of "enlightened tutors" (启蒙导师) that I follow online. It makes me feel that I am not alone on this arduous and misunderstood journey.
If you bother, take a look around the local blogosphere community: There are many examples of normal, working class 'peasants' who are recording their step by step journey towards financial independence (and some already 'reached their destination'). They are not born with a silver spoon. They are not multi-millionaires giving generic, motherhood statement advice. They are middle class citizens who got a median income job just like you and me. Just google them:
AK71 - Semi retired at 40+, with a 6 digit passive income every year yet still live a frugal lifestyle. Blogs about saving money, investments, CPF and many other topics.
Dividend Warrior - Started investing in 2008 and accumulated a portfolio generating $1000 per month by early 30s, before starting his own business.
15HWW Couple - A couple who recorded their expenses monthly, married and saved $250k before 30. Earned $8K passive income last year. (how lucky is it to have a SO who share the same financial dream as you!)
Got Money Got Honey - A 25 year old chap with a $20K portfolio, $300/year passive income who writes really entertaining articles. He has a clear goal of what he wants to achieve at each stage of his life.
And many more which I can't possibly list.
As you can see, they are all at different stages of life with largely different "networth". Some started earlier, some started late, but that's not what is important at all.
What is important is they all largely believe in long term investing, in creating passive income to ultimately achieve financial independence. Accumulating durians no longer works in the world we live in today. We need to plant durian trees where we can harvest year after year.
"Measuring returns at the start of every month from 1988 to August 2013, if the index was held for a year, there’s a 41% chance of sitting on negative nominal (i.e. unadjusted for inflation) returns. Hold it for 10 years, and losses occurred only 19% of the time. Double the holding period to 20 years however – here comes the kicker – and there were no losses." (Straits Times Index, Motley Fool)
When it comes to investing, I have encountered 2 major groups of people in my social circle.
Those who are completely uninterested in the topic
They view investing as something dangerous, risky, and roughly equivalent to gambling. I think maybe they watch too much drama, or news of people jumping off buildings during financial crisis. I was such a person in the past - and today one of my biggest regret is learning about investing 10 years late.
Do you know that $100 now can only buy $50 worth of things in 20 years time?
Do you know that if you invest 'conservatively' in the market, your $100 will grow (past on historical results) to $400 in 20 years?
People spend 8-10 hours a day working, 40+ hours a week working and they don't even spend 1 hour a month to learn about growing their money. That 1 hour is worth much much more in dollar value than your salary.
Those who speculate/do trading
I think these are the people who give investing a bad name.
These are people I know who time the market actively, buying/selling based on chart patterns, some even buying without even knowing what the company (usually penny stocks) do. Worst: Some employ leverage and trade using borrowed money. My intention here is definitely not to laugh at them, although I think some of them feel this way. In fact, it pains me to see people I care about sink deeper and deeper into the hole.
Studies have shown again and again that 95% of traders lose money. On the other hand, if you invest your money in the market for 20 years at ANY point of time, you would never have lost money. Time in the market matters, not timing the market.
Even the best fund managers and companies in the world, who do these as their full time job, have gone bankrupt from speculating. Do you seriously think you are better than them?
I think that is the problem with 'young people' nowadays? They want to get rich fast, and they want to get rich NOW. (yeah it makes me sound like an old man)
---
Whenever I tell people I am investing, they automatically categorize me as the 2nd type.
Then they start sharing macro economic trends, simi simi patterns, simi simi penny stocks. It really is a stereotype linked with the word 'investing'. Even my own family had the same reactions. They do not believe there is such thing as buying a company 'for the long term'. To them, long term = 6 months. Growing your money means putting it into banks fixed deposits.
And hence, my observation is this:
The 2nd group of people 'scares' the first group of people from ever starting to learn about investing. And if somehow the first group of people got started, they became the 2nd group of people.
Long Term Investing
Very few of my friends actually share the same investing methodology as me. Luckily, I have a huge group of "enlightened tutors" (启蒙导师) that I follow online. It makes me feel that I am not alone on this arduous and misunderstood journey.
If you bother, take a look around the local blogosphere community: There are many examples of normal, working class 'peasants' who are recording their step by step journey towards financial independence (and some already 'reached their destination'). They are not born with a silver spoon. They are not multi-millionaires giving generic, motherhood statement advice. They are middle class citizens who got a median income job just like you and me. Just google them:
AK71 - Semi retired at 40+, with a 6 digit passive income every year yet still live a frugal lifestyle. Blogs about saving money, investments, CPF and many other topics.
Dividend Warrior - Started investing in 2008 and accumulated a portfolio generating $1000 per month by early 30s, before starting his own business.
15HWW Couple - A couple who recorded their expenses monthly, married and saved $250k before 30. Earned $8K passive income last year. (how lucky is it to have a SO who share the same financial dream as you!)
Got Money Got Honey - A 25 year old chap with a $20K portfolio, $300/year passive income who writes really entertaining articles. He has a clear goal of what he wants to achieve at each stage of his life.
And many more which I can't possibly list.
As you can see, they are all at different stages of life with largely different "networth". Some started earlier, some started late, but that's not what is important at all.
What is important is they all largely believe in long term investing, in creating passive income to ultimately achieve financial independence. Accumulating durians no longer works in the world we live in today. We need to plant durian trees where we can harvest year after year.
"Measuring returns at the start of every month from 1988 to August 2013, if the index was held for a year, there’s a 41% chance of sitting on negative nominal (i.e. unadjusted for inflation) returns. Hold it for 10 years, and losses occurred only 19% of the time. Double the holding period to 20 years however – here comes the kicker – and there were no losses." (Straits Times Index, Motley Fool)
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