May 20, 2007

Simple Maths

Yeah, I know that I already made the point recently. At the risk of sounding repetitive, here's something from the Sunday Times:
ST May 20, 2007
Being rich: It's not how much you make, it's how much you save
By Author, Sean Toh

MANY people think you have to make lots of money in order to be rich.

I will tell you now that knowing how to make lots of money will not make you wealthy.

You could make $10,000 a month, but still be poor if you spend $15,000 a month because of your luxurious lifestyle.

However, if you make $5,000 a month and your monthly expenses total only $2,500, you could save up to $2,500 every month for a period of up to 30 years.

You would then have accumulated $900,000 including interest.

You will realise that being wealthy is all about how much money you are able to keep and not how much you make.
If you put it in simple mathematical terms, it becomes quite clear how it works. But in day-to-day life, many people still fail to intuitively grasp it.

Even ex-world heavyweight boxing champion
Mike Tyson can go bankrupt. And his total career earnings were in the region of USD 300 million. Mathematically, all you have to do to go bankrupt, when you have USD 300 million, is to spend more than USD 300 million. Which he promptly did.

Poor chap has reduced to such a state that he had to consider pursuing a
new career in the porn movie industry.

Mike isn't unique. This article talks about various celebrities and ex-celebrities who also went bust. How on earth do you go bust, if you have No. 1 singles and produce best-selling albums, like famous pop stars do? Mathematically, as I said, it's quite simple. Your expenditure simply needs to grow faster than your income.

How much have you ever spent buying flowers? $20 per bouquet? $80, or $150, on Valentine's Day? In a 20-month period, Elton John spent USD $205,774 on flowers alone.

Personally, I am not a stingy person. It's just that things which interest me have a tendency to be cheap or free. Like blogging; running; meditation; playing the guitar; swimming; reading; writing. Lucky me.

Yoga is something else I'd like to take up someday. Initially, you'd have to pay for classes, but I think eventually, it's something that you do on your own, at home. All equipment is optional, other than your own body - which is free.


negnohl said...

I recommend Oasis Holistic if you wish to take up yoga.. I've been a student there for a few months now and it's a refreshing change from the commercial yoga-gym-spa places. It's run by a mother and son team, and their introduction yoga courses are fantastic!

If you're interested:

Anonymous said...

Simple maths aside, I am surprise you even consider the cost of taking yoga lessons.

There should be a balance between making money, savings and spending. Keep it to both extreme is not good either.

Anonymous said...

In the end, it could be what you want, but not really what you need.

I always asked this question when making any purchase: Is this your "want" or "need"?

Anonymous said...

i agree with the anonymous reader categorizing spendings into "want" and "need".

as a poly grad waiting for enlistment, planning of my finance determines whether i will be having instant noodles or macdonald at the end of the month. my parents have stopped giving me allowance since i started working working full time. here are some of my tips on saving money:

bring a water bottle with you around and drink plain water instead of going for a coke or fruit juice. its a lot cheaper and healthier.

research more on a product and look out for promotions to get the best quality-to-price ratio.

apply the concept of "liability" and "asset" always when buying. dont buy stuffs that require monthly subscription fees or pay by installments.

getting rich is just personal ego. saving so much money is just a figure in your bank. have a goal in your mind of what your going to do with the money instead of blindly increasing the digits in your bank account. retirement, studies and holidays are the common ones.

Gilbert Koh aka Mr Wang said...

I'm planning to retire at 40. Definitely, by 45. If I'm still working by then, it will only be because the job I have then is something I'm really passionate about.

The other problem is that I expect to live to a very ripe old age. If you read studies on life expectancies, you'll see why. Many experts think that due to advances in medical technology etc, many people in developed countries will just eventually live past 100 years. Living past 100 will be pretty routine.

So you have to aim to have a portfolio so large that you can live indefinitely on the interest income it generates, and draw down only very minimally on the principal, at leas until the last 15 years of your life.

Nothing very new here, folks, you can read Richard Kiyosaki's bestselling books on passive income.

Anonymous said...

mr wang, consider delving into your experiences about meditation too. sounds interesting hehe. also any thoughts on religion

Anonymous said...

Mr. Wang, don't wait. Take up yoga now! You won't regret it.

Philip said...

Mr Wang, seems like we are on the same boat. I have given myself by 2015 when i would be 40. Will review my portfolio to see if i should give myself another 5 years or not.

Cant reveal the target but ya, am really racing against stiff targets. Sad, i dun earn as much as you do ;)

Yau said...

When I was in Australia- I went to an excellent Qi Kong and Tai Chi master, Lai Wei Tang, you can get his videos here:

The DVDs don't cost much and you can practise the simple but effective steps (at inner balance, peace and relaxation) at home.

Anonymous said...

hmm richard kiyosaki?

i thought its robert kiyosaki...

palmist said...

people can't control impulses with logic. :(

Anonymous said...

Guys... if your ladies demand expensive gifts/ flowers from leeching florists on V-day or any other special occasion, tell her to buy a vowel: G_ F_CK Y__RS_LF.

It's one thing to be stingy. it's another thing to be foolish with you money and allow yourselves to be pussy whipped even before walking down the aisle. Even if there's no intention of marriage, no sport sex buddy is worth burning a hole in your pocket.

Anonymous said...

My daughter had a birthday last week, so daddy decided to let her feast on her favorite chilli crab at $35 a kg. Total bill, since her brother and mummy also tucked in, came to $125. Daddy does not eat seafood because of skin allergy. Just so you know children are for splurging on.

Christopher Ng Wai Chung said...

Mr. Wang,

No retirement plan is fool proof.

If you drawdown 2% of your invested portfolio annually and retire at 40, the longevity risk, or risk that you will will outlive your savings ( based on some monte carlo figures the academics have recently done up ) is still a pretty daunting figure of about 8-12%.

One way would be to place a small amount of your portfolio into annuities and make loads for commissions for the agents.

In my personal view, as I'm sure some folks would disagree, is that your children is the final hedge for that 8-12% figure.

I'm 32, as a single guy I live completely on my dividend income. It's white papers, marriage and academic reports which keeps me chained to my work so no retirement for me for a while.

Anyway, if you agree that children can hedge against longevity risk, then the Montessori classes you send your children to is a valid investment asset class. Some psychology papers I covered show that these classes will give your kids an edge till Primary 2. In a paper meritocracy like Singapore, it may actually be what makes the ultimate difference.


Henry Leong said...

I agreed with you, something can be very therapeutic and at same time enjoyable and inexpensive. like my kelong trip.

Anonymous said...

too bad..this theory only apply to average earner or higher income earner. For those earning around $1k++, no matter how much they save, they will not be "rich". Only rich "mentally".

Gilbert Koh aka Mr Wang said...

Oh, I definitely do not stinge on my children. I buy plenty of books, educational toys, educational VCDs, art materials etc for them. And I am very happy to pay for their enrichment classes, kindergarten etc.

If I thought it would do any good, I would also happily pay for 20 other extra classes, courses, lessons etc for them, but I want it to always keep things fun and enjoyable for them; and not make them feel tired, stressed etc.

However, I do not intend to use them as a longevity hedge. I do not intend to rely on them in my old age, at all.

By the way, those of you who think that my lifestyle is unusual should read this book entitled "The Millionaire Mind" which contains an extensive survey of the lifestyles and habits of a very large number of self-made millionaires in the US.

You'll discover that contrary to popular belief, most millionaires do not lead luxurious lifestyles (or at least their lifestyles are often quite deceptively simple - you would not guess, from the external trappings of their lives, that they are millionaires).

Eg the cars they drive tend to be significantly older than the national average (ie they do not like to buy new cars);

they tend to stay in the same house for MUCH longer than the national average (ie they do not like to upgrade their residence).

Food for thought: a quote from Wikipedia, about Warren Buffett, the 2nd richest man in the world:

"Despite his immense wealth, Buffett is famous for his unpretentious and frugal lifestyle .... He continues to live in the same house in the central Dundee neighborhood of Omaha, Nebraska that he bought in 1958 for $31,500[6] (although he also owned a more expensive home in Laguna Beach, California which he sold in 2004)."

There is another anecdote I read about Warren Buffett, related by a journalist. Warren walked into a lift with a group of journalists (they were going for a press conference). There was a penny lying on the floor, which some unknown person must have dropped earlier .

Warren bent down, picked up the coin and put it in his pocket. The journalist looked at him in surprise (mind you, imagine - this is the 2nd richest man in the world. Warren quipped, "Oh, that is the beginning of my next billion dollars."

Anonymous said...

Mr Wang< would you kindly quantify rich(how much) to have a meaningful discussion of this blog> It seems to me that the elites and elitism characteristics of the former dominate this blog discussions! I have all along believe you champion the underdogs but your fraternities here indicate otherwise> At the least they are graduates< professionals< specialists who can afford to migrate anytime> May I exhort you inspire the lower and struggling classes and to help us how to cope with the hardships and stresses of living day to day>

Chrisloup said...

you've got to be self motivated to do yoga on your own or dvd's.

you can always try it out first, then you can always join a gym with a lifetime policy (eg: cali infinity plan)..

or the Community centres..

or cheaper yet.. just move to india.. hahah...(I wish I could... but a 1/2 mil dollar mortgage keeps me working..)

Gilbert Koh aka Mr Wang said...

I actually did try it out some years ago. The part that I really liked was meditation. I stuck with the meditation and dropped the physical part of yoga, and have since gone on to try meditation in various different traditions (eg Buddhist). But I would like to get back to (physical) yoga some day.

Christopher Ng Wai Chung said...

Mr. Wang,

I'm sure all parents love their kids and the last thing they want is to be a burden to them at old age.

But the sad truth for many Singaporeans ( yes, even the elite ones ) are inadvertedly using their kids as longevity hedge instruments. One way of doing is to aim for for a car and condominium or gunning for an early retirement. A lot of future earnings can be lost as a result of such decisions in one's life.

Singaporeans should not look at living on other sources of income as guarantees of a comfortable old age, everything is expressed as a probability. Even the best laid plans when placed under statistical analysis yield a 5%-10% probability fo failure.

So, like it or not, your kids are going to be there to help you out, if not financially, emotionally.

Well if anything, I have no doubts that you're more well prepared to deal with any problems your family might face, I'm just contributing something to readers to give them some awareness of mortality risk and longevity risk.

They are very often ignored in financial literature and the academic papers have only been recently published in the Financial Analysts Journal.

My hobby is to capture these really arcane ideas in financial planning and share it with the population in time to come.

Christopher Ng Wai Chung said...

To scb and other readers,

I spent years thinking about a workable financial plan that is suitable for people who make less than $1200 a month. I've drawn blanks all this while and faced a lot of criticism because there was no way I could save the bottom 10% of the Singapore population.

I'm aware of why it's hard to carve out a plan for the lower income groups - 10% of Singaporeans spend $1200 on an income of about $750.

Unlike the government, I've not been recommending retraining which I think is abdicating from the underlying issue of poverty in this society and not recoginizing the limitations of the populace.

Whoever crafts a proposal to save this part of the population is going to be very rich in the next few years to come, I've already been reading up on some possiblities.

So far, many ideas are illegal and others seem to forget that we're only human and have 24 hours a day.

Don't expect Mr. Wang to have all the answers. The great thing about this blog is that it attracts more intellectuals than others so if you have any ideas, many people are willing to you for it.

Be grateful that Mr. Wang is elite. At least he's on the side of Singapore and not the foreigners.

Gilbert Koh aka Mr Wang said...

"Mr Wang< would you kindly quantify rich(how much) to have a meaningful discussion of this blog>"

Rich is when you can comfortably sustain the kind of lifestyle you want to live.

I am rich because relative to my income, my lifestyle is simple. In contrast, if I aspire to a private swimming pool; a bungalow; two BMWs; and an art collection, I would be poor even though I earn what I earn.

As for the lower and the struggling classes, well they may not really need any advice from me, because the truth is that most human beings already have more wisdom than they are applying. Application is the key, not more wisdom.

Eg scb, if I challenged you to sit down and think of 20 ways that you can personally save/earn more money, you probably could. So why aren't you applying those 20 ways yet?

Very simple example. Do you have a DBS/POSB savings account, and do you have excess cash idling there? (By excess cash, I mean more money than you need for your convenience, eg more money than what you need to make your GIRO payments, etc).

Many people do. Their excess cash in DBS/POSB savings account earns about 0.27% in interest.

But if they simply put it in DBS/POSB 6-month fixed deposit, they earn around 0.57% (slightly more than double the POSB interest).

If they open an online account with Finatiq, and do a few clicks on their web browser to place the fixed deposit there instead, they earn 0.75% (slightly less than triple the POSB interest).

If they click a few more times and open an account with Standard Chartered Esaver, they earn 1.5% (5 times the POSB interest).

You may say that 1.5%, although 5 times higher than the DBS/POSB savings interest, is still very low.

Point is, it does not take very much trouble to do these things; and it's effectively free money for you, and it all accumulates over time.

Eg if you have been letting the excess cash sit in your POSB for the past five years, you've wasted your chance to get free, extra money for the past 5 years.

I am not even saying that putting your money on fixed deposit or on an online savigs account is the best thing to do with your money.

What I am trying to show is that all around us, there are many obvious, simple, low-effort ways to make or save more money, but many people just don't bother to do the necessary.

Anyway, that was just one idea. Go and think of the other 19 ideas now. Exclude all complicated, tedious ideas - just think of very simple, straightforward ones.

Do some maths, and you would be suddenly surprised at how much richer you'd be each month, if you simply applied these ideas.

Euterpe said...

Those nearing retirement age when the 1997 crisis hit - they lost so much that they had nothing or close to nothing left to take advantage of the subsequent recovery. We are not just talking about losses in the stock market here, but business failures, resulting in liquidation of practically everything of value they own (including in some cases, their HDB flats). So guess who bears the burden? The kids. Did the parents want that? Of course not but there was no choice. How does anyone plan for something like that?

Gilbert Koh aka Mr Wang said...

You can try reading Nassim Taleb and his "black swan" theory, which is about low-probability, high-impact events.

Henry Leong said...

My answer who much is enough for living expenses is in:

Anonymous said...

"You can try reading Nassim Taleb and his "black swan" theory, which is about low-probability, high-impact events."

Anonymous said...

and don't buy investment-linked insurance. sucks your blood dry with the fees.

Anonymous said...

Mr Wang Says So said...

I'm planning to retire at 40. Definitely, by 45. If I'm still working by then, it will only be because the job I have then is something I'm really passionate about.

The other problem is that I expect to live to a very ripe old age. If you read studies on life expectancies, you'll see why. Many experts think that due to advances in medical technology etc, many people in developed countries will just eventually live past 100 years. Living past 100 will be pretty routine.

Careful now, Senor Wang. Life is unpredictable and u don't always get what u want.

Gilbert Koh aka Mr Wang said...

LOL .... Don't worry, I also buy plenty of term life insurance, to cover the possibility of sudden / early death.

And I should add this - in the context of financial planning for retirement, it is the optimistic person who expects to die young.

The pessimistic or prudent persons would plan for for the worst-case scenario of living long.

Anonymous said...

1. I think the government must take the responsibility of looking after the bottom 10%. In the context of Singapore, I don't see how these people can sustain their own retirement without help. Of course the other alternative is for these people to relocate to a cheaper place around the region as many older Singaporeans have done so. Stretching your $ is a good lifetime habit.
2. What are you going to do after retirement ? It is very important that one has some other interests outside work to be able to retire early.
3. Investing in currencies earning higher interest rates is another option to grow your savings. Of course there is the exchange risk but there is also the possibility of exchange gain. Smart investments in quality shares and properties usually turn out better in the long run. A 100,000 stg London property in 1976 is worth 4,100,000 stg today. So long as u don't over gear, u will not be flushed out by a recession. For the very rich, investment in unique and quality artwork is another winning option.

Gilbert Koh aka Mr Wang said...

Oh, not a problem for me. I have ... MANY ... interests outside work.

Anonymous said...

One tip I have to save money is this.

When I run errands I try to make use of the transfer rebate and/or the $1.90 limit on SBS Transit bus fares. It usually means (1) spending no more than 20-25 mins at my destination (2) taking a different bus on the return journey.

Anonymous said...

Being rich: It's not how much you make, it's how much you save

Mr Wang,I always thot u dumb but now find u dumber for falling for this very superficial line. How much u earn matters as much, if not more than what u save. What's the point of saving 100% (assuming u can) if u earn only $300 a month? Think u can out-save a guy who makes $100k a month and saves just 5%. In any case, if u save 100% of yr titchy salary, u wld be dead be4 long, so yr savings habit becomes academic..

Gilbert Koh aka Mr Wang said...

Heheh, a quibbler.

Interesting bit of trivia for you. Did you know that my monthly salary is higher than Warren Buffett's?

Yet he's the 2nd richest man in the world. I'm not.

Mister Jones said...

Did you adjust for the standard of living? Omaha's VERY affordable. ;)

Anonymous said...

dear mr wang, i didn't know you are interested in yoga. somehow, the lawyer image doesn't fit yoga. i imagine u to be stern, old, almost like my father minus the lawyer part. but anyway, good luck, i hope you like it cos i do.

Anonymous said...

Wai chung; scb says thank you for addressing me and others. I am fully aware that many cannot be helped as you had experienced and as Mr Wang puts it; "As for the lower and struggling classes, well they may not really need any advice from me, because the truth is that most human beings already have more wisdom than they applying. Application is the key, not more wisdom." unquote. I am grateful Mr Wang had the longest reply here for me and others. Honestly, I do not grasp the message Mr Wang tried to put across but he had comprehensively given me(and others) an idea(example). It is a joy to read Mr Wangs' Blogs, they are fascinating and at times revealing. Maybe I am the only unemployed, lower secondary educated poster around with thick enough skin to hang around. As such I do know my station and will not argue too much, it is much a way for me to learn a little each time from the Intellectuals who are at least on the side of Singapore and not foreigners, here lies a common chord.