The Sunday Times
Jonathan Kwok
5/1/2014
"What is the secret to getting rich?"
That is a question many young adults ask themselves - and I too was grappling with it about a year ago as I pondered my financial future.
There had to be a difference between the haves and have-nots in society, I thought, as I pored over books, essays and websites to look for the Holy Grail of personal finance.
I also started asking well-to-do newsmakers, colleagues and friends if they knew the secret to riches.
One of the benefits of being a financial journalist is that you get to speak to some of the richer people in society. And a few of them will open up more when their minders are not around.
"The first way is to be born to rich parents," said one wildly successful businessman, when I posed him the question. "The second way is to marry someone rich."
That is certainly true, especially in countries such as Singapore, which has very low taxes on the rich and zero estate duty. But unfortunately it does not apply to the vast majority of us.
"The third way is through starting your own business, the fourth way is through climbing the corporate ladder and the fifth way is through investments," the businessman continued.
"There are one or two more ways, but I'm still trying to find out what they are. Maybe you can tell me when you find out."
That was a decent start, but it didn't provide the clarity I needed to change my life.
Another answer hit closer to home, though in an unexpected way.
"There is no secret, lah," said this respondent, whom I judge to be very comfortable financially.
"First you need a job that pays you decently - better if it pays you more. Then you need to spend less than your salary," he said.
"Then you invest your savings. It's your investments that will make you rich."
That caught me off-guard as I was expecting something really secretive and majestic that would change my life forever. Instead, this guy was offering me a path... that I was already on.
But when I mused further over it, it seemed that this "boring" method was a workable one for many average folk.
It certainly has helped thousands of baby boomers accumulate comfortable amounts of wealth. Many of them are now looking ahead to a comfortable retirement.
They may never make it to the Forbes rich list or be able to buy companies in billion-dollar deals. But these people do not have to worry much about their finances - this makes them rich enough, in my book.
I get the point that the older generation benefited from Singapore's rapid economic growth, helping them in their wealth accumulation.
My peers will find it harder doing things the old-fashioned way as growth inevitably slows down. Bonuses will get lower, investments will not rise as rapidly.
But I see numerous examples - at my workplace and elsewhere - of those who have become rich through working and investing. This gives me hope that we can still do this, with some adjustments.
Maybe we will need to make more savvy and disciplined investments, or maybe we need to retire later.
Either way it will be a long slog over many decades to finally get rich, the same way it was for our seniors who worked tirelessly.
Perhaps that is the way it is meant to be. Perhaps there is no short cut to getting rich.
Some people will protest at this notion.
I have heard people make claims about their quick-fire methods to let them retire in a posh villa in the Maldives within five or 10 years.
These may involve trading, starting an online business, multi-level marketing or selling insurance.
The problem is, I have not really seen many examples of people who have made it big using these methods, so I remain sceptical.
I have now become comfortable with the tried-and-tested route of earn-save-invest, which will take years and years of hard work.
I will add to this the importance of some insurance - not too much - so our savings do not get wiped out by a catastrophe such as a major illness.
It was this driving force that led me to adopt the habit last year of recording every dollar I spend, and trying to keep my budget to below $35 a day. The idea is to save more by spending less.
"A penny saved is a penny earned," American founding father Benjamin Franklin once declared, and this still holds true about 300 years after those words were uttered.
Along the way I designed a road map for a fresh graduate to accumulate $100,000 in savings and investments by the time he hits 30.
It mainly involved carefully watching your expenditure and ensuring you get an average graduate's salary and wage rise.
People sometimes ask me if I am on track to hitting this target myself. I tell them I do not know as I do not actively keep track of my net worth - all I do is just try to spend as little as possible and invest where appropriate.
Besides, your net worth is dependent on your stock portfolio which is in turn subject to the whims of the share market.
It does not really matter what your current net worth is, or if your target is $50,000, $75,000 or $150,000. The more important thing is to devise methods to earn more, spend less and invest smart.
I use the spending-tracker method, while some of my friends and colleagues keep complex and up-to-date spreadsheets of their finances.
Once you get your habits in place and your wealth starts building, the growth will become exponential as money earns more money via investments.
In this new year, I hope that you sort out the basics and come up with methods and plans to build your finances from the foundations.
Earn-save-insure-invest. It is not a big secret, but many of our seniors have shown that it is a workable method to get rich.
jonkwok@sph.com.sg
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Background story
Start good habits
... devise methods to earn more, spend less and invest smart. I use the spending-tracker method, while some of my friends and colleagues keep complex and up-to-date spreadsheets of their finances. Once you get your habits in place and your wealth starts building, the growth will become exponential as money earns more money via investments.
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