“Wealth is more often the result of a lifestyle of hard work, perseverance, planning, and, most of all, self-discipline.” - Thomas J. Stanley, The Millionaire Next Door
Many of us grow up with numerous fallacies and myths on the concept of
wealth. Hopefully, this article will be able to debunk and re-align your
thoughts on the true meaning of wealth.
1. Having good grades doesn’t equal big bucks
many of us grow up being told to study hard to get good grades, so that
when we grow up we will earn big bucks? I’ll be the first to raise my
hands to that question.
Years of research led Thomas J. Stanley, The Millionaire Next Door
to the conclusion that how well one does in school makes no indication
of how much wealth and success one can amass as an adult, with the
exceptions of the legal and medical profession. Why then do our parents
still feed us with this misconception?
In essence, this is because most of these said parents are not
financially independent and have no clue as to what is needed for their
children to achieve wealth and success. Hence, they buy into the mass
delusion that good grades equals’ good money. Placing emphasis only on
analytical intelligence and not creative intelligence (the latter which
spurs new products, advancements and blind spots in previously untapped
industries), they recognize success as smart corporate executives in
suits and ties. They fail to see that your average millionaire drives a
Toyota (not a Ferrari), lives in an ordinary neighbourhood and dines at
you do a flashback to your school days and try to identify the
potential millionaire in your class, do you know what will most likely
be your telltale signs? The self-sufficient student who doubles his
pocket money by making shrewd investments (e.g. charging another student
for the completion of an assignment etc), who has a job, and obtains
decent grades (but not As).
2. Find a compatible spouse
Sounds perfectly reasonable, but how many of us really achieve this
goal? Take practical steps during your courtship to identify the money
habits that your partner has, and determine if this is in line with your
matter how prudent and effective you are with money, if your partner
ends up squandering all your results away, it is akin to placing money
into a pocket with a gaping hole. You will never be able to accumulate
your resources effectively much less multiply it.
Finding a compatible spouse means more than financial comfort. It also
means that you will be able to function at your optimum capacity because
you know that your partner will be able to hold the fort independently
and offers you the peace of mind to do so.
3. Growing your surplus funds
this day and age, where investment opportunities are ripe for the
picking, the buzzword on everyone’s lips is “investment”. Investment is
being perceived as the new transport mode on the block which can bring
you to millionaire riches. How can you hop on this vehicle if you do not
have the necessary resources to buy you a ticket?
surplus fund mandates that you will be able to hop on the bandwagon,
should the vehicle swing by your porch. Having excess funds brings you
greater returns on your investments. Take for example an investment
opportunity with 10% returns. If you only have $1,000 to invest, your
returns will be a miniscule $100, as opposed to an investor with $10,000
capital to invest, which means returns of $1,000.
Amassing surplus funds is a tiring process which takes time. Youth is
your best friend, and you can only be as young as you are right now,
i.e. start today!
Instil discipline into your financial expenses, and intentionally set
aside funds for investment. You may not have to start investing today,
but start saving today so that when you spot an opportunity, you will be
able to take action!
4. Profits = Margins x Revenue
Such a simple truth, but so often overlooked. The only way you can
improve your profits is either to increase revenue or decrease expenses.
Quick show of hands: Do you keep track of your monthly financial
spending? Do you know how much you’re spending on leisure activities,
food consumption, insurance bills etc? If you don’t, then it’s time you
start tracking your expenditure. How can you successfully achieve
financial independence if you do not know how much you’re spending /
People often tell me that they save whatever is left of their income at
the end of the month. That is a painfully wrong concept! Do you head
into a restaurant and order whatever you want, and then only check how
much money you have in your wallet when the bill arrives? Wrong
sequence, isn’t it?
- Figure out how much you want to save (a recommended percentage is about 20% of your disposable income), set it aside.
- Tally your monthly fixed expenses (electricity / mobile bills, allowance to parents etc), set it aside
- Set up multiple bank accounts and assign it as such: Leisure account, Travel account, Marriage account etc
- Assign a fixed percentage to each account
- The leftover is then accorded for the month’s expenses
this once you receive your pay, or even better, assign a standing
instruction which ensures that your pay “disappears” before you get the
opportunity to spend it.
Remember, the “pain” now will result in tremendous growth for future consumption.
5. Income doesn’t equate to wealth
Most of us fall into the trap of believing that the key to financial
independence is to get a high paying job. If that were the case, why do
celebrities / lottery winners often find themselves in financial debt?
higher income does mean that it takes a shorter amount of time to reach
your goals. The non-negotiable truth in reaching financial independence
is this: spend less than you make.
Often, people with high paying jobs assume that just because they have
more money coming in each month, they have the liberty to spend more
too. However, if you place this into the following example:
$1000 (income) – $500 (expenses) = $500 (savings)
$10,000 (income) – $9,000 (expenses) = $1,000 (savings)
Income doesn’t really make much of a difference, isn’t it? It is the
ability to be able to prudently manage the money that makes a whole lot
of difference. Do not fall into the trap of believing that a person if
wealthy just because he/she stays in a prime district property location,
drives a luxurious sports car, and dines at fancy restaurants.
average person staying in an average neighbourhood, who places his/her
money to better use is probably as wealthy as that “rich” individual.
So, what is the true definition of financial independence? I would go
ahead to say that for most of us, this means the ability to dictate how
your time is spent. When you reach that point in your life where you are
able to dictate how many hours of work you want to spend each day,
while still being able to upkeep your current lifestyle, and truly spend
time doing the things you love; that is financial independence.
I hope that this article provides you with some key insights and practical ideas on achieving financial independence.