5 money advice you should know by 20

“The more your money works for you, the less you have to work for money.”

When I started working part time when I was 10 years old, I was given about MYR0.50-MYR 1 by my uncle and grandfather. My grandfather was a coconut and cocoa bean planter. He owned a few pieces of land. I was always very excited to help him to harvest cocoa pods and opened them. The pulp and cocoa seeds were removed and the rind was discarded.

My grandfather and I typically spent 2-3 days to finish the whole process of harvesting but the reward was pathetic. He got about MYR 8-10 per harvest. I found it was totally insane he managed to save so much money to buy a few pieces of land. He was a typical frugal Chinese who fled China in 1920-an. When he embarked on his non return journey to Malaya, he told me he promised himself he would save what he earned to make his family live better.

He saved almost every penny he earned to buy assets rather than stuff. He was my first money mentor in childhood. Let me tell you 5 money advice I hope I knew when I was 20.

You don’t need reason to save

It is good if you have good reasons to save. You might want to save money for your first home, your next year wedding , your first big-ass dream car. But it will be better if you save even though you have no reason. Always prepare for rainy days in life. No one would have anticipated Covid-19 pandemic, and no one would have foreseen this pandemic lasted for such as a long period of time.

Save while you can, life is full of too many uncertainties. Financial emergency is one of them. It can destroy you overnight if you are unprepared for it.

You see so often people with personal finance success are not necessary those with high incomes but rather those who save consistently.

The worst thing you can do with your money is sole reliance on your monthly paycheque to fund your everyday expenditure, with no savings to shelter financial storms in life- a medical emergency, Covid-19 pandemic, leaking roof of your home etc.

Being rich and wealthy is totally different

Being rich and wealthy are two different things. You are rich if you make good income every month. Being rich is how much you earn, being wealthy is how much you save after spending. Buying a BMW makes you rich, whether you pay it in cash or by bank loan. Everyone can be deluded that you are rich by seeing the car you drive, but being wealthy is a different ball game.

To be wealthy, you ought to have the privilege of freedom of time. When you are wealthy, you do not work for money but instead, money works for you.

You can act rich and fool a few people for a while but you can’t fool yourself and most people a lifetime. Wealth is something you can’t see or buy but only can be experienced- peace of mind, freedom of time and flexibility of work!

Spending more money to buy stuff other than your basic need is just your ego

Everyone needs the basics. After these basic needs are covered, we always go after something higher believing that more is better. More money is equivalent to better life satisfaction. We spend more to buy stuff than our basic needs to show people we have the money.

Is more money/ income equivalent to more life satisfaction? You will be surprised the truth behind life satisfaction.

The economist Richard Easterlin measured the life satisfaction of Americans in 1940an against that of Americans in 1970. Although living standards nearly doubled during this period (by 1970 nearly almost every American had a better quality of life- everybody had a car, a fridge, a washing machine etc), unfortunately life satisfaction had remained fairly stable.

Easterlin found similar results in the eighteen other countries whose data he compared. In other words, people were no happier with their lives in 1970 than immediately after the war. Material progress was not reflected in increased life satisfaction. This revelation has been termed the Easterlin paradox: once basic needs have been met, incremental financial gain contributes nothing to happiness.

Have a plan but planning is more important

Always have a financial plan but the most important part of every plan is planning on your plan not going according to plan. I want to retire with a 4% withdrawal rate on my portfolio value. But I know, future is very unpredictable, no one has the ability to predict black swan events in stock market, therefore always have room of error. My portfolio value is kept well above the 4% safe withdrawal rate so that I have peace of mind when I retire no matter what direction the stock market goes.

You need to adjust your plan according to changes of your financial circumstances. As the American general—and later president—Dwight Eisenhower said, “Plans are nothing. Planning is everything.” It’s not about having a fixed plan, it’s about repeated re-planning—an ongoing process.

Besides keeping a safe withdrawal rate portfolio for my retirement, I also put in place a three bucket and a handle retirement strategy. I don’t like surprises in life.

You have to reach a certain amount to see the beauty of compounding

Albert Einstein once said: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

You will never experience the beauty of compound interest until you reach a breaking point. I put that figure at 1 million. You see your wealth grows slowly at the initial stage but once you hit the 1 million mark, everything changes.

Warren Buffett’s net worth is about USD84.5 billion at this moment. Do you know that out of this USD84.5 billion, 99.64% of his wealth was accumulated after his 50th birthday?

There are 2 take-home lessons here, you need to be patient and you only can appreciate the beauty of compounding once you hit a breaking point figure.

While investing in stock market, time is your friend, impulse is your enemy!

Conclusion

Money is everywhere, no matter how you look at money, it affects all of us. Everyone has their own ideas about money but we all can’t deny that it is one thing that affects almost everything in our daily life- confidence, risk, peace, freedom and flexibility.

Save while you can, spend less, experience more, invest monthly and wait patiently. Remember, you will see the beauty of compounding once you hit your figure!

“A genius is the man who can do the average thing when everyone else around him is losing his mind.”

Napoleon