This is the question everyone is asking. How to be a millionaire? In Singapore’s context, with our high living expenses, being a millionaire may not be enough too. A single HDB flat in a good location will set us back by more than a million dollars. What is left after that?
Instead of focusing on get rich schemes, I would say we learn from people who has made it. We learn their mindset, discipline and attitude towards money. In this article, I will share what I thought are the important attributes one must possess in order to grow their wealth.
1. Say NO to debt
There are 2 kinds of debts. One is debt that you took on to enjoy. Examples are loan on luxury cars, on holidays, credit cards spending etc. The other kind of debt is considered good debt. Things like education loan to better yourself, calculated loan to buy financial assets to accelerate your investment returns, housing loan for a property, etc. Even though the latter debts are good, I would still encourage all to seek professional advise before taking on any kind of debt.
For many, debts are like quick sands. Once you take it on (the bad debt), it is hard to get out of it. Most will sink further and further into debt. Debts accumulate interest quickly and faster than our income. The best way is not to take on debt. The next best way is to pay off quickly what you owe. Only when you have paid off what you owe (the bad debt), and set aside some cash for emergency, then you can think about investing.
2. Invest early
Do not under estimate the power of compounding. A dollar today is worth more than a dollar tomorrow. The great 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 be pleasantly surprised by people who invest young and how much they can amass. There are many articles written on this and I shall save you the agony of going through another one. In case you haven’t, you can refer to these 2 good articles on compounding interest. Read https://blog.seedly.sg/start-investing-early/ and https://www.lifehack.org/articles/money/wish-started-save-earlier-after-seeing-this-chart.html
Do not wait to invest but invest and wait. The latter is a better strategy.
3. Never put all your eggs in one basket
You must have heard stories from friends or during family gatherings that this distance friend of their made it big by putting all his wealth into crypto or Tesla and it has multiplied 1,000 times. Yes, these stories may be true. But unless we have the foresight and the luck, we are better off doing it the right way. This is an actual chapter in every finance textbook written by any professor in the world. Diversification is the only way to take away idiosyncratic risk. The right way is to allocate more to what you believe in but still remain diversified across asset classes and geographical locations.
4. Give it time
If anyone tells you that you can make 100 times overnight when you invest in something, it is not an investment. It is probably a scam. There are 3 elements in investing, Time-Risk-Return. You can at best, have 2 out of these 3 elements. If you want low risk and high return, you got to give it more time. If you do not have time, then, you will have to sacrifice return or take on more risk. There is no “best of 3 worlds”.
5. Mindset towards investing
I have invested money for clients for the last 16 years. On hindsight, I can only say that those who took on risks (with time on their hands) are the ones that made much more than everyone one else. I would like to add on that not all of them will make more but most will benefit when they take on risk. I have clients who put money into safe instruments and make enough to beat inflation. The amount of money invested, after adjusting for inflation, would only have the same purchasing power as it is today. However, those who took the plunge and invested into US shares and high income generating assets, they are the ones that are better off today.
The willingness to take calculated risks is a major key factor why some are richer than others. That is why Warren Buffett once said, Be fearful when others are greedy and greedy when others are fearful.
6. Get expert advice
Not all investment advisors are out to make money from you while leaving you penniless. Talk to these professionals and interview them. Ask them for their track record and what they can do for you. If one doesn’t suit you, move on to the next one.
It is hard to detach our emotions if we were to invest ourselves. It is the same reason why doctors, when sick beyond common cold and cough, they will seek professional advise from another doctor. If you do not make money from investing yourself, it may be a sign that you should seek out someone else to do this job for you.
Investing requires time and regular revisions. If you have a day job, and investing is not what you enjoying doing yourself, why not outsource it to someone who has the expertise to perform this role for you?
7. Contribute to CPF
If you don’t like to take on any risk at all, we Singaporeans are lucky. We can just dump whatever we have into CPF and let it grow by itself. This method is proven. A 67 year old retiree was found to have $1.2m in her CPF OA account. https://www.straitstimes.com/business/invest/how-retiree-saved-over-16m-in-her-cpf
Just take note that no matter how much extra cash you have, one can only contribute $37,740 into CPF accounts annually.
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