I believe ‘spending money’ is a faster approach to richness than ‘saving money’, especially if your income is below RM 5,000 a month.
With that being said, let me clarify. The article’s title is about you becoming rich and not trying to look rich when you are not. It is not about enjoying the best in life when you could not really afford it. Rather, it is about elevating your current financial status by spending a proportion of your income as wisely as possible.
Here is a golden nugget.
The rich spend money very differently from the poor and the middle class. They know the difference between ‘good expenses’ and ‘bad expenses’. For instance, the good ones will make them financially richer while the bad ones would make them financially poorer. The appreciation of it is the distinction between having true wealth and one who is enjoying fake wealth.
Question: ‘Does it mean that I have to eliminate ‘bad expenses’ totally and only spend on ‘good expenses’ to become rich?’
To me, that is not reality. All of us, regardless of our current financial status, will spend money on both good and bad expenses. Personally, I think the difference between the rich, the middle class, and the poor in terms of spending money is as follows:
– The Poor has bad expenses and no or little good expenses.
– The Middle Class prioritizes bad expenses over good expenses.
– The Rich prioritizes good expenses over bad expenses.
Perhaps, you may ask:
– What about saving or investing money for the future? (Point 1 & 2)
– So, what are good expenses? (Point 3, 4, & 5)
Here, I’ll share my thoughts on saving, spending, and investing money based on one who is earning RM 5,000 a month. Along the way, I’ll share a few tips which you can use immediately to grow your income and secure your financial future.
Thought #1: It Takes More than Saving Money to become Rich.
In our last article on ‘Two Magic Numbers for Comfortable Retirement’, you are given ‘30%’ as the first magic number to work on. KC reckons us to save at least 30% of our monthly income if we wish to fund a comfortable retirement.
If you make RM 5,000 a month, it means, you should save RM 1,500 a month. It works out to be RM 18,000 after one year. By itself, I think, it is an amazing feat. But, would saving RM 18,000 a year be enough for you to retire rich in 10, 20 or even 30 years’ time?
The answer is ‘Nope’ and today, most people are aware of that. Hence, it led us to:
Thought #2: Is Investing the Answer to Retiring Young and Rich?
In general, there are three asset classes which you can get into to increase your wealth: Stocks, Real Estates, and Businesses. I’ll go through them briefly.
Let’s start with stocks. To me, it is a reliable way of earning passive income on a quarterly / semi-annually basis while waiting for their share prices to rise in the future. Personally, I’m relying heavily both on my accounting and investing skills to build a profitable stock portfolio. If you don’t have these skills stated above, I think it would be better for you to first acquire them before investing in stocks.
What about properties? Presently, I believe, the better real estate deals are not in the primary market but in the secondary (subsale) and the auction market. It requires us to have a bigger initial capital (at least RM 100,000) to participate in these markets. If you don’t have RM 100,000 in cash-in-hand, I think, it is better for you to temporarily refrain yourself from property investments.
What about cashback properties in primary markets, multiple loan submissions and mark-up deals? Personally, I know of their existence and did not use any of these creative techniques to buy my investment property. If you earn RM 5,000 a month, I believe it is better for you to refrain yourself from them because you are putting yourself at greater financial risk if your investment into a property is a mistake.
Finally, businesses. It is a good asset class to begin with because you can start a business with small amount of capital, with low risk and be creative with it. The question is: ‘Are you enterprising?’ There are entrepreneurs who began small & had built recurring streams of income from their businesses. I befriended some myself. But, entrepreneurship, I believe, can be challenging and not suitable for all. If you got an idea and are willing to pursue it with dog-liked determination, I think, entrepreneurship may be suitable for you.
All in all, if you earn RM 5,000 a month, I think investing may not necessarily be the answer to your financial problems as most investments in the above classes of assets are ‘a little out of reach’ to you at the moment. As such, I’ll share with you three things that you can aim for today to be financially readier to become richer. They are:
Thought #3: You May First Aim to be Financial Secure
Here’s a food for thought. You may save and invest money as reckoned by most financial professionals. My question is: ‘If you have lost your ability to generate income today due to illness, accident, …. etc, how will you pay for your medical bills and living expenses?’
Hence, the first good expenses that all of us should have is: ‘Insurance, both life and medical insurance.’ Do you have them and is your coverage sufficient? A lot has been said and written on this subject. I’m not going to write another 1000+ word article on the virtues of buying life insurance. Thus, I’ll leave you with:
‘Do not be Penny Wise and Pound Foolish. Get Sufficient Coverage.’
I believe, a basic standalone medical card (probably the cheapest medical card you can get in Malaysia) is around RM 50 – 70 per month, especially if you’re in your 20s. It is great for anyone who is financially tight. You may upgrade it over time once your finances are more stable.
Thought #4: Expenses that Could Double or Triple Your Income
If you earn RM 5,000 per month, I believe it would be helpful for you to aim for an increment in income to RM 10,000 per month.
Think about it.
In most cases, ‘Does it take twice the amount of workload, time, and energy to double one’s monthly income?’ In other words, if you work 8 – 9 hours a day to make RM 5,000 in income a month, does working 16 – 18 hours a day helpful to you to bring your income to RM 10,000 a month?
If it’s a ‘Yes’, then, what about people who make RM 20,000 a month?
As such, your level of income, to some extent, is not dependent on your labour, time and physical effort placed on your job or business. Instead, it can be ideas, insights, technical know-how, network and influence that could actually double, triple or even quadruple one’s income, be it in employment or business. Agree?
If that’s the case, how much you do spend in a month to acquire them?
For instance, if you are working as a salesman, how often do you attend a sales and marketing workshop, have lunch with the top salesperson in your company or read books and watch video tutorials on salesmanship? Are you spending on stuff that would bring you new business ideas and clients which would result in an increase in income?
These are good expenses and probably, better investments than stocks and real estate to you.
‘But, what if, I’m not into Sales?’
It depends on your field or industry. For instance, if you’re an accountant, then, you may study to obtain a professional certificate such as ACCA, CFA, CPA …etc. If you are into medicine, engineering, law, … etc, I am pretty sure that there are courses and certifications to enhance your knowledge and abilities in your field or expertise and thus, positioning yourself towards higher income.
I’m sure there are always ‘rooms for improvements’ in every field or career that one endeavours. You may consider identifying what they are and start learning.
Thought #5: Proper Financial Education
Once again, from the article – Two Magic Numbers for Comfortable Retirement’, the second magic number is 10%. It represents the Return On Investment (ROI) that we should aim for when investing, be it stocks, properties or businesses. It is a benchmark figure provided if you wish to retire young and rich.
Here, I’ll reveal a secret to boosting your ROI in investing in any asset class.
The secret is – education.
Many people want to get rich via investing. Normally, they would ask a series of questions relating to what investments they should be getting into and when. It is likened to one asking for a magic pill to build wealth without hard work. That, unfortunately, is not reality because investing is hard work.
Investing involves a lot of study, research, and homework. Investors who put in more preparation would have a better chance to attain better ROI figures from an investment as compared to investors who are not. It is applicable to all asset classes. If this deters you, it is best for you not to invest in anything and just put your money in fixed deposit.
But, if you wish to be a profitable investor, I suggest you to start by getting true financial education.
It includes a lot of self-learning such as books, seminars, workshops, webinars, online courses, hiring coaches, brainstorming and networking sessions, … etc.
All of these cost money. But, to me, they are good expenses as I do get a lot of new ideas to manage my money and investment portfolio.
So, How You Can Spend Money to Become Richer?
There are more to be discussed about this subject. For now, I’ll leave you with a couple of pointers:
- Recognise that there are ‘Good Expenses’ and ‘Bad Expenses’.
- The Rich spends more on good expenses and thus, become richer.
- Good expenses are expenses that make you financially richer.
- They are expenses either to protect your wealth or to build them.
- Example 1: Get Sufficient Life & Medical Insurance.
- Example 2: Spend to Learn Stuff that would Double your Income.
- Example 3: Spend on Financial & Investment Education.